New Shifts in Software Licensing and Pricing
Software Licensing and Pricing
Software is a mature industry with considerable cost pressures. It costs an incredible amount of money to develop, deliver, market, sell and support a software product.
Software vendors are struggling with dwindling margins, increased competition, and bad economy that keep pushing them to sell at lower prices. For many, the only way to overcome that is to make big shifts in licensing and pricing schemes.
Traditionally, most software vendors use a perpetual licensing model, with a license fee for each module or component of the software, or a license fee for each user of the software.
When a customer acquires a perpetual license he assumes responsibility for managing the software. There is a high upfront cost associated with the purchase of the license, as well as the burden of implementation and ongoing maintenance. ROI is often delayed considerably, and, due to the rapid pace of technological change, expensive software solutions can quickly become obsolete. This made acquiring software products a costly investment that many companies cannot afford anymore.
Under all this pressure, the industry started moving away from the rigid and expensive perpetual licensing model toward a new flexible model that allows selling software as a utility. It is also called Software as a Service (SaaS) or Subscription Based Software.
SaaS means that the software is paid for as it is used. The consumer has no software, hardware, or infrastructure to purchase, install, or maintain. Apart from a personal computer and an Internet connection, all parts of the solution are provided by the software vendor. They are hosted on a remote server in a data center managed an owned by the vendor.
In this paper we will compare the perpetual model with the SaaS model and we will discover the benefits and challenges of the new licensing model. And most important, we will discuss how to price a subscription based software.
Perpetual Licensing
Software is a mature industry with considerable cost pressures. It costs an incredible amount of money to develop, deliver, market, sell and support a software product.
Software vendors are struggling with dwindling margins, increased competition, and bad economy that keep pushing them to sell at lower prices. For many, the only way to overcome that is to make big shifts in licensing and pricing schemes.
Traditionally, most software vendors use a perpetual licensing model, with a license fee for each module or component of the software, or a license fee for each user of the software.
When a customer acquires a perpetual license he assumes responsibility for managing the software. There is a high upfront cost associated with the purchase of the license, as well as the burden of implementation and ongoing maintenance. ROI is often delayed considerably, and, due to the rapid pace of technological change, expensive software solutions can quickly become obsolete. This made acquiring software products a costly investment that many companies cannot afford anymore.
Under all this pressure, the industry started moving away from the rigid and expensive perpetual licensing model toward a new flexible model that allows selling software as a utility. It is also called Software as a Service (SaaS) or Subscription Based Software.
SaaS means that the software is paid for as it is used. The consumer has no software, hardware, or infrastructure to purchase, install, or maintain. Apart from a personal computer and an Internet connection, all parts of the solution are provided by the software vendor. They are hosted on a remote server in a data center managed an owned by the vendor.
In this paper we will compare the perpetual model with the SaaS model and we will discover the benefits and challenges of the new licensing model. And most important, we will discuss how to price a subscription based software.
Perpetual Licensing