What is a perpetual licence?

A perpetual licence offers certain advantages, both to customers and to 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.

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.

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 Lack of ongoing support may also result in outdated software remaining in use among customers, potentially creating problems and harming the vendor’s reputation.

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.