Are SaaS & recession killing perpetual software licenses?

Many customers prefer licenses over subscriptions

Danube Technologies is a small maker of software tools for Scrum and agile programmers. While Danube's technology and audience is cutting-edge, its licensing model is old school.

Several weeks ago, the vendor switched from selling subscriptions to its software back to selling perpetual licenses.

"We're not doing this on a whim," said Danube co-founder and CTO Victor Szalvay. "But based on the feedback we got, our customers aren't keen on the subscription approach."

That may seem surprising. Subscribing to software requires much less upfront investment than buying license for it, just like renting costs less upfront than buying.

The subscription model has also been boosted by the increasing popularity of software-as-a-service and open-source software, both of which typically use subscription licenses rather than perpetual licenses. For enterprise software, a perpetual license typically involves an upfront fee plus an annual maintenance fee of 20 to 25 percent for patches and upgrades.

Even Microsoft, the most visible champion of perpetual licensing, is starting to embrace subscription models as it adds more Web-based services.

But experts say there are plenty of reasons why perpetual licenses, while unfashionable, are nowhere close to being on the way out in the enterprise.

One reason is that perpetual licenses are safe. They grant users the right to use the software indefinitely.

"Owning the license outright is important," said Al Hilwa, an analyst with IDC. A company could go out of business, sell its intellectual property, or simply kill that product line in favor of a newer one. But by owning the perpetual license, the companies can continue to use the software.

Enterprises also view buying a perpetual license as an investment in that vendor. They don't mind paying a little more upfront if it will help keep that vendor in business, providing bug fixes and new features, Hilwa said.

"Enterprises put a heavy premium on longevity, quality of service, and their vendors being around for the long run," he said.

Owning a perpetual license also makes customers immune to potential price increases that subscriptions are subject to, just like rent increases by a landlord. They are also not as complex to keep track of, Hilwa said.

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