What is a perpetual licence? 

A perpetual licence is a permit allowing a user access to an application indefinitely, provided that they remain in compliance with established terms.


The perpetual software licence 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. 


Today, 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 perpetual-licensing options.

 

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 licence agreement (EULA).

SaaS software models generally fall into one of two categories: subscription licences and annual licences.

What is a perpetual licence vs. a subscription licence?

Subscription licences 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 licences, 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).

What is a perpetual licence vs. an annual licence?

Annual licences are basically an extension of the subscription licence 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 licences, allowing them to pay a larger amount upfront in a way that is similar to a perpetual licence. 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 licence offers certain advantages, both to customers and to vendors.

Benefits for vendors

Because perpetual access incurs a once-off fee, vendors that offer perpetual licences 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.

Benefits for customers

Customers may benefit from perpetual licences in that they will have a clear idea of the cost of their investment up front, along with the functionality and capabilities of the software they are purchasing. The vendor cannot increase fees later or change or discontinue the 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.

Disadvantages for vendors

One major problem for software vendors that offer perpetual licensing is that, once the purchase has been finalised, 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 analyse and improve their product offering.

Additionally, once-off 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.

Disadvantages for customers

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.

Organisations 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 plan on using the software for an extended amount of time may find that a perpetual licence is a better investment. These businesses will need to be capable of handling their own software maintenance and repairs.

ServiceNow, the leader in IT management and workflow automation, is your partner in achieving and maintaining full regulatory compliance. Part of ServiceNow Software Asset Management (SAM), ServiceNow provides out-of-the-box licensing integrations for top publishers, in the form of vital Publisher Packs.

Publisher Packs bring together publisher-specific metrics and licensing models for top software publishers, including IBM, Oracle, VMware and more. ServiceNow Publisher Packs provide essential reports, visibility and calculations to determine which licence models are the best fit for a company’s unique needs. This allows organisations to get the complete picture of their software licence estates with each vendor, and to take direct action to ensure that standards are being met—today, and into the future.

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