The perpetual software license model won’t seem to go away, as much as the press and various surveys seem to indicate.
The perpetual license model has been the predominant method for selling the software license for most software for the past 30 years. With this approach, software is purchased with the right to use software into perpetuity. Of course, most software only has a useful lifetime of anywhere from 3 – 10 years. The software will eventually become obsolete due to a number of factors including the obsolescence of the underlying hardware, the changing nature of the problem that is being solved, or the availability of better software. To remedy this situation, a maintenance plan is offered whereby a combination of phone support and software updates or “refreshes” are provided. For better or worse, companies know how to sell this software and manage all of the associated business and accounting practices, and, end-customers know how to deploy this license model.
The alternative, broadly speaking, is the subscription or time-based license model. With this license model the right to use the software expires after some amount of time, and the license must be purchased again if it is to continue being used. In some cases (the subscription model), the right to install software updates is included. As described in previous blogs, there are different financial reasons why some markets, or some specific customers prefer one license model over another.
For the past several years, Flexera and IDC have been conducting an annual survey asking a variety of software producers in various markets which license model generates the most revenue, and, how they expect that mix to change. While there is some variance among different markets and in the actual numbers, the general answer seems to remain the same every year – almost like the recurring day in the movie “Groundhog Day” – About 66% of the revenue comes from perpetual licenses, 34% of the revenue come from subscription licenses or some other variant. Furthermore, respondents say that they expect the mix to change about 10% toward offering more subscription licenses and away from the perpetual license. However, the results of this perceived migration toward more revenue being generated by time-based licenses hasn’t occurred.
Perhaps we’ve reached an aggregated plateau where the license models have stabilized based upon the various forces and value propositions in different markets. My guess is that this situation won’t change, ever………..with one caveat – this will be the case for on-premises software – that is, the case where software runs on machines at the customer environment. In these situations, the hardware and software form a system unit that is more physical than virtual, so a license model that matches to a machine lifecycle makes sense.
However, as we enable our customers to take advantage of mobile computing and elastic compute models built upon virtualization and the cloud, then perpetual licenses will be non-existent and pay-per-use or time-based models will be the norm.
So is the perpetual software license model going away? Well, that depends upon who you ask.