A perpetual license is a permit allowing a user access to an application indefinitely, provided they remain in compliance with established terms.
perpetual software license model is one that has remained popular for
decades, originating at a time when software purchases were more like
traditional purchases. The buyer would pay for the software on a
one-time basis, essentially gaining full access for as long as they
might need it.
many software vendors have made the switch to other pricing models,
charging their customers recurring fees to continue to use their
software products. That said, many vendors continue to offer
The move towards off-site, cloud-based computing has inspired a shift away from perpetual licensing models. In its place, software-as-a-service (SaaS) licensing options have risen to fill the void.
SaaS licensing takes a different view of software purchases. Rather than selling applications as products, vendors retain complete ownership of the software and instead sell their customers permission to access and use the applications as an ongoing service. In these models, regular maintenance, support, repairs, and updates are generally included in the subscription price, but the vendor retains the right to make changes to the software and user access at any time, as outlined in the end user license agreement (EULA).
SaaS software models generally fall into one of two categories: subscription licenses and annual licenses.
Subscription licenses are what most people think about when they consider the SaaS licensing model. In most cases, the customer will pay a recurring, monthly fee, and enjoy software access and related support for as long as they continue to do so. This is different from perpetual licenses, which allow customers to continue to use the software forever—as dictated by the original licensing agreement— without any additional charges (other than possible repair or support costs).
Annual licenses are basically an extension of the subscription license model, where the customer pays a yearly fee to access software services. The advantages and disadvantages of this licensing model are very similar to the advantages and disadvantages of the subscription model. One difference, however, is the regularity of payments. Customers that don’t want to have to worry about monthly charges may prefer annual licenses, allowing them to pay a larger amount upfront in a way that is similar to a perpetual license. This is still very much a SaaS model—the vendor retains full ownership over the software, along with the rights and control that go along with it.
A perpetual license offers certain advantages, both to customers, and to vendors.
Because perpetual access is a one-time charge, vendors that offer perpetual licenses can bring in more revenue up-front, as opposed to making smaller, recurrent charges. While ongoing pricing models may allow for continued revenue over a longer period, it often takes up to three years or more of continued service before the vendor will ‘break even’ on their investment (including costs associated with ongoing support and maintenance). At the same time, this approach is heavily dependent on reducing customer churn, which can be a difficult prospect in the highly-competitive SaaS market.
Additionally, maintenance and support costs are often excluded in the perpetual licensing model. The software is, in essence, owned and maintained by the purchaser; any additional, ongoing support packages must be purchased separately, bringing in additional revenue that would not be available in pricing models that include continued maintenance at no extra charge.
Customers may benefit from perpetual licenses in that they will have a clear idea of the cost of their investment upfront, along with the functionality and capabilities of the software they are purchasing. The vendor cannot increase fees later or change or discontinue service. Because the purchased software is generally maintained in the customer’s servers, they may continue to use the software for as long as it remains viable.
Although there are several advantages to perpetual licensing, this payment model is not without its challenges.
One major problem for software vendors that offer perpetual licensing is that, once the purchase has been finalized, the vendor effectively loses contact with the customer. This makes it difficult to continue to sell to the customer. Perhaps even more problematic is that the vendor has a much more difficult time gathering usage data. This can limit their ability to analyze and improve their product offering.
Additionally, one-time purchases are difficult to accurately forecast, making revenue predictions much-less precise. Lack of ongoing support may also result in outdated software remaining in use among customers, potentially creating problems and harming the vendor’s reputation.
A key customer disadvantage of the perpetual licensing model is that, once purchased, the software remains stagnant. Unless the customer has the opportunity (and the resources) to purchase yearly maintenance and support packages at additional cost, they won’t have access to updates or patches—including essential security patches for emergent threats.
When choosing a licensing option, perhaps the most-important factor
to consider is what is available. As the subscription economy, cloud
computing, and SaaS continue to grow, perpetual licensing options are
becoming less readily available. As such, subscription licensing may be
the only option for certain software types.
When perpetual licensing options are available, and there is a choice to be made between a subscription option and purchasing the software via a perpetual pay model, the decision should be based upon needs and resources.
Organizations that need continued support and ongoing maintenance at no additional charge may wish to choose a subscription model. Likewise, those that aren’t likely to continue to need to use the software for longer than a few years may prefer the lower monthly or annual payments rather than having to make a larger purchase upfront.
On the other hand, businesses that can afford the initial cost, and that plan on using the software for an extended amount of time may find that a perpetual license is a better investment. These businesses will need to be capable of handling their own software maintenance and repairs.
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