Twenty-so years ago, the perpetual license model was the only way you could purchase software licenses for your business. But, in recent years, the software industry has made a major shift.
Software subscription models have become the new norm—in fact, according to Gartner, they will account for over 80% of all license offerings by 2020. Should your business be the next to make the switch? We’re here to help you answer this question with confidence!
What is a Software Subscription Model? (SaaS)
Are you confused by software licensing? Have you found yourself asking: What is subscription based software? Subscription software is a monthly or annual licensing model that allows organizations or individuals to pay a per user fee. Payment for a software subscription will typically include software licenses, constant access to support services, and immediate access to new versions and features of the software as soon as they are released.
What is the Difference Between Software Subscription Models and Traditional Software Licensing Models?
The “traditional” model that has been predominantly used to purchase software in the past is referred to as a “perpetual license.” With this software model, you pay for your license up-front and have the right to use it indefinitely.
While this may appear to be more cost-effective, you will have the option to pay for one-off implementation services and a support contract (that must be renewed annually on top of the one-time license fee). Plus, if you want access to the latest and greatest features of the software, you’d have to pay for the latest year’s version and reinstall it on all your devices.
This means that over time, the monthly or annual cost of a software subscription payment may actually end up costing you less. Besides just cost-effectiveness, there are many reasons why companies are switching to software subscription models. Explore a few more below!
Why Are Companies Switching to Software Subscriptions?
More and more companies are making the shift to software subscriptions—and it’s a good thing.
Gartner predicted that by 2020, “more than 80% of software vendors will change their business model from traditional license and maintenance to subscription.”
But why? One major reason for the shift from traditional software licensing models to software subscription models is the increased adoption of cloud computing and Software as a Service (SaaS) solutions.
Laurie Wurster, research director at Gartner, says: “What began as a trickle a few years ago has become a stampede of vendors wanting to make a move to a subscription business model.”
So, many business owners and IT departments have now successfully transitioned their organizations to a software subscription model—whether the software they rely on to do business is hosted on-premise or in the cloud.
Here are three other key reasons that many companies have decided to switch to a software subscription model:
Cyber attacks are more common than ever before, and your business certainly doesn’t want to be the next to have its name splashed across the news because of a data breach. Luckily, keeping all your devices’ software updated at all times (with no exceptions!) is one simple way to help prevent these attacks—and subscription software makes this possible.
With a software subscription model, you will always be running the most updated version of the software possible. For example, with Microsoft’s software subscription to Office 365 for Business, the newest security measures are features are automatically updated as soon as they’re rolled out. This means you don’t even need to be aware that a new version exists, download it, and take the time to manually install it across all your many devices. Seeing as vulnerabilities in old software are one of the most common ways for criminals to breach your company’s security, eliminating these vulnerabilities can go a long way in ensuring the confidential data of your business and its customers stays secure!
Automatic Access to New Features
Subscription software rolls out features as they are ready, not just when a new version comes out each year. For example, a new version of the license model of Microsoft Word comes out annually, so you’d have to wait between software releases to get new features. This means that the 2019 version of Microsoft Word would have more features and capabilities than the 2018 version, and you’d have to wait until the 2019 version is actually available on shelves to access them.
This isn’t the case with the subscription model of Office 365—when a new feature is released, your software subscription will automatically update, meaning you’ll get it immediately without any further effort or investment. This can help keep your business on the cutting-edge of technology, enabling you to develop a competitive advantage against others in your industry who are using outdated software versions that aren’t as efficient and secure.
With a subscription software model, your business only needs to pay for the software it actually uses. This can help your business scale with ease and save on wasteful software spending. How? Oftentimes, your employee count can fluctuate during certain seasons or times of booming growth. For example, a company operating in the retail industry may need extra employees or customer service reps to handle the increased volume of the holiday season. When your employee count fluctuates, so do your costs and software needs.
A subscription software model gives you the ability to pay for the exact number of software users you have. If an employee leaves their position, you can simply cancel their account rather than having to continue paying for one that is no longer being used. When you hire a new employee, the immediate onboarding costs are reduced because you don’t need to pay for a new software license software all up front. Instead, you can pay for it monthly to spread out the costs of a new hire, opening up budget allocation for other ventures that can benefit your business!
Who Does a Software Subscription Model Benefit?
Now that you know some of the general benefits of subscription software, who can actually take advantage of them?
- You. With a software subscription model, you can cut down on long-term software costs while gaining access to updated security patches and features that will boost employee productivity. The result? Increased efficiency that can drive more revenue for your business, meaning you can meet your goals sooner!
- Your Employees. When your employees have access to the latest and greatest software features, they can do their jobs faster and smarter. This frees up their time and reduces the frustrations of having to use slow, outdated software for their day-to-day job tasks.
- Your Customers. By using a software subscription model that automatically updates security features, your customers can rest easy knowing their data is secure in your hands.
How Should I Choose a Licensing Model?
While it has many benefits, a subscription software isn’t for everyone. So, if you are going to stick with the perpetual software licensing model, here are a few considerations you should make:
When deciding to purchase new software, cost is often a major consideration. With traditional software licenses, you must pay for each license up-front and renew support contracts annually. For large companies with many users, this cost can be significant—which means capital expenditure (CapEx) is often required. So, if you’re going to go with this option, it’s important to do your research to make sure the solution you choose will fit into your budget both now and in the future (since you’ll likely have to purchase new versions and renew support contracts over time).
In comparison, a subscription software model reduces your up-front software expenses, giving you more flexibility for budget allocation now. Plus, with a predictable payment schedule, you can accurately budget your software expenses for the future, too.
After purchasing a traditional software license, you’ll have access to that software forever. But, it doesn’t mean that it will stay highly (or even partially) functional forever. Licensed software versions have a short life cycle because at the pace technology moves, they often become obsolete in just a few years due to factors such as supported hardware and companion software.
This means you will likely need to upgrade to new versions every couple of years to ensure compatibility with the devices and other business applications you’re using. If you don’t make upgrades and continue to use a software version that has reached end of life updates, security patches and hotfixes are no longer provided. This could expose your business to risks such as viruses, spyware, and other malicious software.
However, with a software subscription model, the security patches, upgrades, and features are released in real-time and included in your monthly or annual payment. This ensures no compatibility or obsolescence issues—all without higher software expenses and the need to work purchasing new software license versions into your budget every couple of years.
Future Workforce Growth
If your business leverages perpetual software licenses, each time you add a new member to your staff, you’ll need to buy them a new license outright. When staff members leave, you’ll be stuck with licenses that are no longer being used. This can make software scalability a challenge and result in you spending more than you need to on software.
So, if your business is in high growth-mode, or you know you will be expanding soon and will therefore need to hire more employees, the software subscription model can make license management simpler. It provides more flexibility because you only pay for the software you actually use with the ability to easily add and scale back your amount of licenses based on demand.
Which is Right for You: Software Subscription or Perpetual License?
Is your business debating moving to a software subscription model or sticking with a perpetual software license? There’s no one-size-fits-all solution or right or wrong answer—only what is right for your specific business and its needs. A few key considerations to make include:
- Software ownership. Is it important to you that you actually own your software licenses? If so, a perpetual license may be right for you.
- Cash flow. Do you have enough cash available to purchase all the software you need up-front? If not, or if you’d rather spread out your software expenses to open up budget allocation for other things, a software subscription model is probably best for you.
- New releases. Is it important that you always have immediate access to the latest technology? If you work in a highly competitive or digitally-driven industry, then a software subscription model would be ideal.
- Business goals. Is your business experiencing rapid growth or expanding into new markets? If so, you’ll need additional software—which means high up-front costs for additional software licenses if you’re going with the traditional model. So, a subscription software model would be more cost-effective for businesses in growth mode.
- Security. Is your business operating in an industry that deals with sensitive consumer data, such as banking or retail? If so, a subscription software model would be the best option for you because it provides constant access to the latest security patches.
Ready to Make the Switch to a Software Subscription Model?
If you’ve decided that a software subscription model is the best fit for your business, Protected Trust can help you make the switch with ease!
Our goal is to help your business get the most out of Microsoft’s software subscription program, Microsoft Surface devices, and Microsoft Teams so you can experience a truly modern workplace and achieve your greatest potential from anywhere on the planet!
If you are looking for someone who lives on the leading edge of technology innovation, Ingram Leedy has a unique ability to predict the future digital trends.
As CEO of Protected Trust, he is helping business leaders see the world in new ways by connecting people and technology to achieve more.
Before people knew what it meant to be online, he connected people to the Internet with Florida's first internet provider, iThink.
And at the age of 8, he was writing software for a new medium of communication called computer bulletin board services. The idea was to help exchange messages before email.
His parents never really knew what he was doing – it was something with computers.Let's Connect on LinkedIn