Back in the day you could only buy your software and many companies kept the same software for 10+ years. Today, the software landscape has changed dramatically. Subscription licensing is on the rise and according to Gartner
“By 2020, more than 80 percent of software vendors will change their business model from traditional license and maintenance to subscription.”
That’s a big change in the way companies do business.
Before we start analyzing the pros and cons of subscription vs perpetual software licensing, it’s important to understand what each type of licensing is.
What is a perpetual software license?
A perpetual license is software that is purchased outright from a software vendor. You pay for your software license(s) up-front and have the right to use the software indefinitely.
You may have to pay an additional fee for new versions of the software but the choice is yours whether to upgrade or not.
The user licenses are based on the number of concurrent users accessing the system at any given time.
What is subscription licensing?
Subscription licensing is where you pay a per user fee on a monthly or annual basis in perpetuity. You have the right to use the software as long as you continue to pay for it.
You do not own the software. It’s like the difference between owning and leasing a vehicle. When you buy, you own the vehicle outright. When you lease, you have the right to use the vehicle for the lease term and you return the vehicle at the end of the term.
In subscription licensing, you lease the software for a fixed term. You pay a per user fee on a monthly or annual basis and this subscription allows you to use the software during the subscription term. If you choose to not renew, you lose access to the software.
One of the key advantages of the subscription model is that new versions of the software are included in your subscription payment as they are released.
Another key difference is that users are “named” in the subscription model. This means that each user must have a license whereas in the perpetual model, the licensing is based on the number of concurrent users accessing the system.
Subscription licensing does require any up front capital for the software licensing although there are implementation, support and hosting costs to consider. With subscription licensing you always have the most recent, up to date version of the software. The low monthly or annual subscription costs make it more affordable and easy to add to your operating expense budget.
Perpetual licensing has a higher up front cost but when the software expense is capitalized over the long term, it is typically less expensive than the subscription model of licensing. Capital expenses are typically more difficult to get approved and more work for your accounting team to manage. Ultimately you need to decide which expense method works for you: OPEX or CAPEX.
When you purchase your licenses, you buy the right to use the software forever. Although perpetual licenses may be used forever, the software landscape is quickly evolving and within a few years your purchased software may be out dated and unable to communicate with or connect with newer business applications. You may want to consider upgrading your software periodically to ensure compatibility with newer business applications.
Outdated software can cost your company big bucks. Your IT department will struggle with updates and fixes; your team will struggle with compatibility issues and you could be exposed to hackers, harmful viruses, spyware and other security risks.
The subscription licensing includes upgrades and any new features are released as they come available. There’s no extra charge and no compatibility issues.
When you purchase perpetual licenses, you own them forever. There’s no returning them if you reduce your staffing. If you increase staffing you will need to purchase additional perpetual licenses and you will need to be sure you will need them in the long term. You don’t want to be stuck with licenses you cannot use.
When you purchase licenses by subscription you get more flexibility to add and remove users as your business needs change allowing you to be more agile and responsive.
The Changing Landscape
There has been a dramatic shift towards all things cloud in recent years. Everyone wants the cloud and SAAS (Software As A Service). Subscription licensing means there are lower capital expenditures and a more stable outlay of cash makes budgeting easier.
According to Microsoft,
“the benefits of the subscription model are huge. Subscribers are always up-to-date. They get the latest and most complete applications and can use subscriptions across the multitude of devices”
This trend is increasing as users expect more and more flexibility and functionality from their software applications.
How to choose?
If you are considering the features and benefits of subscription vs perpetual licensing and cannot decide; you are not alone. There is no “right” decision, only the best decision to suit your current business needs.
Questions to Ask
- How important is it for our company to own our software?
- Do we have sufficient capital to pay for the software purchase and implementation?
- How important is it for our company to use only the newest software version?
Microsoft Dynamics NAV is a robust accounting software for the SMB market. There’s plenty of options for licensing including subscription, purchase and software financing. If you’re looking at the options available to upgrade your business account software, find more information here.