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Application Software - Perpetual Licensing vs Subscription Which is better?

Until the late 80’s, high-end software was sold on a term or perpetual license basis. While a term license was granted for a specific period of 3-5 years as stipulated in the end-user license agreement, perpetual license was offered for a one-time lump-sum price. For this fixed price, businesses had an unlimited use of the software even as they grew in staff numbers or across geographies. The software came with updates, new features, support and annual maintenance as a % of the price. It had to be installed on premise based on the specifications suggested by the software manufacturer, which came at an additional cost. With this model, software companies soon realised that it took more effort to look for new customers as the current revenue streams were limited. That’s when introducing a software as a subscription began.

In the early days of the subscription model, software was delivered using the vendor’s own existing infrastructure connected by a VPN (Virtual Private Network). Having access to the software without the capital expense was definitely a win-win situation.

In today’s world, a perpetual license is almost non-existent. All software vendors use cloud computing power from Google, AWS, Azure or any of the other options. Updates, maintenance, new features, bug-fixes, software upgrades etc., are all delivered to the customer seamlessly, at no extra cost. So, with the existing benefit of reduced capital expense, organisations now have the added benefit of having their software as an operational expense, with greater monetisation.

Is one better than the other?

Well, this largely depends on what term/duration you are looking for, the current phase of growth in your company and your cash flow projections. A business enterprise purchasing a software on a perpetual license basis, is essentially front-loading costs. This might be suitable for growing businesses have cash to negotiate and want a good deal from the software vendor for their software and annual maintenance. The fact that the price paid can be spread over 5-10 years, possibly with incremental users is a key consideration for many businesses.

On the other hand, for a business that has stabilised its operations and is keen to exercise control over its cash flows, purchasing cloud-based subscription software on a per user per month basis, might find it more suitable. Apart from having the predictability of costs, this model offers flexibility to expand or contract the usage and even easy exit options.

In both cases, creating a cost-model over a 5-year horizon with the current staff and future staff would give a clear indicator of which one is more cost-efficient. If any software is still available on a perpetual license basis, with simple math, you’d find it saves you money over the long term. Subscription software tends to be at least 30-40% more expensive for the same duration.

What is the way of the future?

At Atula™, we offer you the flexibility of choosing the option that is right for you. Not just by providing the right digital solution to address your unique needs, but also by making it an economically viable to your business context. Because we believe in delivering exceptional value to every customer. Speak to us for a no obligation 30-minute free consultation.