IT and Business Insights for SMB Solution Providers

Is This Really the End of Perpetual Licensing?

Offering multiple pricing options enables channel pros to match the preferences and requirements of every customer. By Ahsan Siddiqui

With software-as-a-service solutions and cloud-based offerings growing increasingly popular, many vendors, including data backup and recovery vendors, are moving to a subscription-only model.

The subscription model is highly attractive for vendors because it provides them with a steady stream of recurring revenue, ensuring greater financial predictability. In turn, the vendors are more attractive to investors in the public and private markets.

But is a subscription-only model the best for managed service providers and their customers as well? Not always. The truth is that vendors offering only a subscription model are making some of their customers and channel partners quite unhappy, potentially doubling or tripling costs compared to a perpetual license.

Understandably, many customers on perpetual licensing agreements are uneasy about moving to subscription-based models. These customers fear higher costs, and many believe the subscription model mainly benefits data backup and recovery vendors.

Perpetual vs. Subscription

Perpetual licensing still has a place in the digital marketplace, and it is crucial for customers to have the ability to choose between staying on their perpetual license or moving to a subscription model.

A perpetual license is a traditional way of buying software. Partners or customers pay for the license up front, entitling them to use the software for however long they want into the future. A perpetual license agreement may also include the right to download updates to the software and get technical support, with a valid maintenance and support contract.

SaaS, for its part, is a subscription-based service in which users typically pay a monthly or quarterly fee to use the software. As part of the agreement, customers usually receive the latest updates and versions of the software. The key benefit of SaaS is that it makes software purchases more affordable at the beginning. This benefit is especially appealing to smaller businesses that may not be able to make significant upfront capital outlays or may not have enough working capital to cover the cost of buying a perpetual license.

That said, perpetual licenses do offer a better return on investment in the long run. Generally, the breakeven point is around three years in a head-to-head comparison between perpetual and subscription license prices. After that, perpetual licensing is the better option because it is less expensive with the passing of each year.

The Beauty of Multiple Options

Vendors offering only a subscription model could limit their addressable market, especially at the midsize to enterprise level, so should not restrict themselves to providing just one type of license.

And in fact, many vendors offer various pricing models, including monthly subscriptions, annual pre-paid, and perpetual licenses that allow partners and customers to use the software for a single year. The beauty of offering multiple options is that it enables a vendor and their partners to match the preferences and requirements of every customer.

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