Subscription-based Software Licensing Pros and Cons

I thought I better get up to speed on subscription-based software after hearing about a vendor moving to a subscription-only licensing model.

Most of my experience has been with perpetual licensing and in the document management space.

I still have customers that are using software I sold them years ago. They chose not to pay the 20% annual support and maintenance after a certain point. Yes, there will come a time when the software will no longer work because of new operating systems and hardware. But, until then, I am glad that they are getting good value from what I provided. I think this should always be an option for customers.

Based on my research, these were the typical pros and cons.

Pros:

Lower Upfront Costs

For businesses, subscription-based software licensing makes it simpler to understand and allocate costs for separate business units or departments.?Smaller companies have access to software they might otherwise have been unable to afford.

Lower IT resource needs and staying current

Customers no longer have to pay for upgrades for the cloud-based solutions and do the patches and updates. Everyone is working to the latest version.

The subscription cost includes support and upgrades.

Customers no longer have to pay 20% or more annually based on the software they are using.?

Module-based complexity is simplified.

Instead of going through how many licenses you need for each feature, many vendors create packages based on user needs.

Cons:

Usability and Access

With the perpetual licensing, you might lose support or access to a portal if you don't pay your annual maintenance/support on time. However, in the subscription model, you can lose access to your documents and the use of the software the day after your subscription expires.

Higher Total Cost of Ownership:?

If the software implementation is successful and becomes a long-term solution, subscription license cost will exceed perpetual license cost in the long run – generally, after three to five years, depending on the vendor and contract terms.

Integrations:

Hosting offsite can decrease the impact on internal systems, but it can also limit the ability to integrate with other systems.

Summary

In my opinion, both perpetual and subscription options should be available.?

Most medium-and-larger companies, and government agencies, who cannot be sure their purchasing department will renew the subscription every year or by the end date, tend to go with Perpetual Licenses. Startups and smaller companies lean towards subscription-based licensing.

The other comments I saw and have heard about were about customer satisfaction. I am not sure I am convinced that subscription-based licensing equivocates to excellent customer experience and satisfaction.

Sure, vendors have a high incentive to ensure customer satisfaction, as their revenue depends on renewals. But what guarantees they will take good care of you over the entire term or only when it is time to renew.

As an example, I had a 25 user GoToMeeting subscription for years. One year I decided to see what other options there were. I found that I could have had a 150 user license for less than what I had been paying. When I called in and asked the customer support person why no one had told me and let me renew year after year for a subscription they didn't even sell anymore, he said it was up to the customer to find other options.??

I can see this happening with enterprise software. A good vendor will be keeping you notified of changes to their solutions and be proactive in offering you a better subscription come renewal time. A poor vendor will just let you renew, even if you could have received a better price, with additional product features.

With so many solutions offering close to the same thing, I am hopeful the good vendors will win.