Software Licenses - Should You Choose Perpetual Or Subscription?

Software Licenses - Should You Choose Perpetual Or Subscription?

Microsoft’s recent release of Office 2021 has reignited the debate between perpetual software licenses versus subscription licenses. As a perpetual license, those who choose to purchase Office 2021 can use the license, in theory, forever. But for many, this may not be the best strategy. This article explores the differences between perpetual licenses and subscription licenses to help you make the best decision for yourself and your team.

Question Mark

Defining Your Options

First, let us understand the fundamentals of each option. For many, perpetual licenses might be the easiest to understand because they have been with us for the longest time. When you purchase a perpetual license, you acquire a right to use the software – in theory, at least – forever. Thus, if you buy a copy of Office 2021 or any other perpetual license, you can continue to use the application as long as it continues to run. But, if future updates to operating systems or other technologies cause the software to stop performing, you would need to purchase a newer license of the application.

On the other hand, a subscription license provides you with the right to use software for a specific duration, generally a month or a year. Using QuickBooks Online as an example, should you subscribe to the service, you would pay a monthly subscription fee for the right to use the software for one month. Each month, you would presumably pay your subscription, and therefore, you could continue to use the software. If you do not pay your subscription fee, the software publisher terminates your right to use their service.

Comparing The Alternatives

Perpetual Licenses

For many, the most apparent advantage of perpetual licenses is simplicity. The concept of “buy it and use it forever” is easy for almost all to understand. Another potential benefit of a perpetual license is, in some cases, reduced software expenses over the long term. For example, assume a single payment of $400 is required to buy a perpetual license, but a subscription license of the same application costs $20 per month. In this case, the payback period would be 20 months, excluding the time value of money. Therefore, if you used the perpetual license for 60 months, you would save $800 in licensing fees (40 months * $20 per month) compared to a subscription license. However, as noted below, this simple analysis can provide misleading results.

Additionally, those who use perpetual licenses of an application for an extended period may find that they do not have technical support available to them.  Another potential benefit of perpetual licenses is the advantage of a stable application. In this environment, software publishers generally do not provide significant changes or upgrades to the application, other than bug fixes or security patches.  

Subscription Licenses

On the other hand, subscription licenses offer flexibility not available with perpetual licenses. For example, a company choosing the subscription model can scale up and down the number of licenses in use rather quickly as the size of their workforce changes. Further, subscription licenses provide predictable expenditure patterns – gone are the days of large cash expenditures every few years for major upgrades to perpetual licenses. Also, publishers often add new features to subscription licenses that may not appear in perpetual licenses for years. This attribute means that team members can elevate their productivity, often to a point where the efficiencies more than offset any additional licensing costs. In many cases, this factor negates the potential payback period advantage of perpetual licenses referred to in the preceding paragraph.

Which Option Should You Choose?

Like most business situations, there is no “one size fits all solution” to this issue. Indeed, both models have strengths and potential drawbacks. However, notwithstanding Office 2021’s release, the momentum favors subscription software licenses today. Software publishers such as Microsoft and Adobe seem to promote their subscription offerings more than their perpetual license offerings. Moreover, Intuit recently announced that it will sell QuickBooks Desktop 2022 only as a subscription offering.  

When considering the question “which option should you choose,” at a minimum, consider each of the following factors.

  1. If you choose a perpetual license, how long do you anticipate using it, and will technical support be available for the duration?
  2. Is the rapid availability of new features important to you?
  3. Do you expect the size of your workforce to expand or contract significantly in the near-to-medium term?
  4. Would the subscription licenses give you more flexibility regarding which computers on which you might install them?
  5. Are there ongoing software maintenance costs in the perpetual license environment that you could avoid by choosing subscription licenses?
  6. Are there any differences in the technical support options available when comparing the two licensing options?

Summary

The debate between perpetual versus subscription licenses continues, and it will likely continue for the foreseeable future. In the long-term, you should expect that subscription licenses will prevail. However, you have a significant business decision to make in the interim regarding almost all software titles you use. Therefore, carefully consider your options, particularly in light of the six factors outlined above, to help ensure you make the best decision possible. 

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