Perpetual vs. Subscription Software Licensing: What You Need to Know

Since Broadcom acquired VMware, they have decided to replace their old perpetual license model with a subscription model. But why make such a shift in direction and structure? To understand Broadcom’s decision, as well as that of other companies who’ve made the switch to subscription software licensing, you need to understand the two licensing models. Specifically, you need to understand the differences between the two and the potential impact, both positive and negative, switching to the subscription model can have on businesses.

What is perpetual software licensing?

In the traditional perpetual licensing approach, customers acquire a specific software version with indefinite usage rights. As a result, buyers feel a greater degree of ownership and control over the software. However, perpetual licenses typically only have limited access to ongoing updates, additional features, and enhanced support services, all of which often require additional purchases. While the initial cost may appear lower, the expenditure associated with maintaining outdated software can accumulate over time.

What is subscription software licensing?

Subscription licensing is the approach whereby subscribers gain access to a continually evolving software suite, receiving regular updates, feature enhancements, and ongoing support as part of their subscription fee. This ensures users always have access to the latest features and security patches, promoting a more dynamic and future-proof software experience. In addition, this pay-as-you-go approach offers predictability and eliminates the upfront costs associated with perpetual licenses. However, subscriptions require continuous payments to maintain access to the software.

Perpetual vs. subscription licensing

Choosing between perpetual and subscription licensing is not a matter of mere preference, but a strategic choice that demands careful consideration. Perpetual licenses cater to businesses that prioritize ownership, control, and long-term cost efficiency. They are ideal for organizations content with a stable software version and willing to make occasional capital expenditures for upgrades. On the other hand, subscription models foster a collaborative partnership with the software provider. In exchange for a recurring fee, businesses gain access to a continuously evolving solution with integrated support services. This model aligns well with companies seeking simplicity, scalability, and access to the latest advancements.

The benefits of switching to a subscription model

When companies do make the transition from the perpetual to the subscription software licensing model, they often experience the following benefits:

Pricing flexibility

Subscription plans offer flexible pricing tiers, allowing subscribers to scale their software usage up or down as business needs evolve. This removes the need to purchase entirely new software suites if needs change, making it cost-effective for growing businesses by ensuring they only pay for the software they’re actively using.

Reduced expenses

Subscriptions eliminate the hefty upfront costs associated with perpetual licenses. Instead, subscribers pay a predictable monthly or annual fee, making budgeting easier and reducing the financial burden of acquiring new software. Additionally, subscribers avoid the ongoing expenses of maintaining on-premises software infrastructure because subscription fees often factor in server costs, maintenance, and support. This dramatically reduces the large upfront capital expenses associated with buying software outright. Companies can then direct those savings into other investments such as improvements to their products, customer service, or better facilities and administrative tools.

Ongoing customer support

Subscription models frequently include access to customer support. When subscribers encounter difficulties, a professional team is readily available to assist with troubleshooting issues or navigating new features. This optimizes a business’s software investment by maintaining productivity. Subscription providers understand that ongoing customer satisfaction is key to their success. They invest heavily in building robust support infrastructures, offering various channels for assistance, such as phone support, online chat, and comprehensive knowledge bases. As a result, businesses enjoy prompt and professional help whenever they need it.

Convenient software updates

Subscription models ensure businesses use the latest software version. Automatic updates deliver new features, bug fixes, and security patches directly to subscribers, preventing outdated software that leaves businesses vulnerable. Furthermore, subscription services operate on a “living software” model whereby they constantly improve their software to address user needs and industry trends. This ensures subscribers always have access to the most advanced features and functionalities, allowing them to stay competitive and adapt to market changes.

Easy-to-manage security

Subscription providers also take care of security software maintenance, often making security patches automatic. This significantly reduces the risk of security breaches. Furthermore, subscription providers have a vested interest in ensuring their software’s security and functionality. Because of this, they dedicate significant resources to ongoing maintenance, security audits, and threat detection. The result is a level of protection that’s often difficult and expensive to achieve in house.

Disadvantages of subscription licensing

However, switching to the subscription model is not without its drawbacks, such as:

• Long-term costs and cost-shifts: Unlike perpetual licenses, subscriptions require ongoing financial commitment. This can be a burden for businesses with tight budgets or those who don’t anticipate needing the software long term. What’s more, in cases where a provider shifts from a perpetual to a subscription model, this can have a negative effect on customers, given that they are asked to suddenly pay more than they are used to.
• Vendor lock-in: Overuse of subscription models can lead to vendor lock-in, where customers become reliant on a single provider. Should a provider’s services shift in a way that doesn’t align with the subscriber’s goals (such as discontinuation of a specific service), it can force the subscriber to look for a new provider, costing them time and money.
• Reliance on internet connectivity: Cloud-based subscriptions require a reliable internet connection to maintain software access. If the internet goes down, so goes the software, which can potentially disrupt a subscriber’s workflow.