- New to developing software?
- Not sure how you'll monetize your application?
- Unclear as to the pros and cons of the most common licensing methods?
After developing your software, you will need a licensing strategy to help you monetize it. While there are many ways to license your software, the most common license types are perpetual and subscription. It’s important to consider the advantages of each to help you determine the best licensing model for your software.
What Is a Perpetual License?
A perpetual license is the older, more traditional model for software licensing. The customer only makes a single license purchase to gain access to that version of the software forever. There is no date when the license expires, hence a "perpetual" license.
Do you remember going to a store like Best Buy and purchasing a software package that included installation media? In that case, you were likely buying a perpetual license.
What Are the Advantages of Perpetual Licenses?
For the end-user, a perpetual license is enticing because it doesn't include recurring payments. This can make software budgeting easier for customers, driving them to purchase a perpetual option over a comparable subscription. This is most appropriate for cases where the software doesn't need frequent updates or additional features.
If you do release a major new version of your software, you have the option of charging for a new license, or offering a discount to users who had purchased a license for a previous version.
Software designed to function primarily without internet access is usually better suited for perpetual licensing. Subscription licenses need communication with a central server to confirm that the subscription is still valid. This online validation could be inconvenient or impossible for certain offline cases, while a perpetual license can make it easier for a customer to use your software in an offline environment.
What Is a Subscription License?
On the surface, a subscription license is pretty simple. Customers purchase a subscription, and they are able to install and use the software on their computer as long as they continue to pay for that subscription.
It's important to note that software as a subscription is not the same as Software as a Service (commonly referred to as SaaS). Google Docs is an example of a SaaS application. You don't have to download anything to use it. Instead, you login into your Google account online and access its functionality using an internet browser. The service is hosted by Google on their own servers.
In contrast, software that uses a subscription license is deployed on a subscriber's device. Some successful examples of this are Microsoft Office 365 and Adobe Creative Cloud Suite. For an annual fee, users can download and use the suite of tools to their device. The license can allow for temporary offline usage, but it will need to periodically validate with a license server to confirm that the subscription hasn’t expired.
Advantages of Subscription Licenses
Subscription licenses offer advantages for software companies and their end-users.
The subscription model generally stabilizes revenues, making it easier for developers to budget for things like updates and support. For end-users, subscriptions can lower the financial barrier to entry. Software that might cost hundreds or thousands of dollars for a perpetual license can have more manageable monthly fees as a subscription. Add in access to updated versions of the software during the length of the subscription, and it’s a win/win.
Ultimately, subscriptions provide a more stable experience for end-users. That leads to better customer satisfaction and longer commitments to the software. The software companies that offer this type of license receive higher total revenue, which allows for superior software development and maintenance.
How Do I Know Which License Model is Right for My Business?
Determining whether a perpetual or subscription license is suitable can be dependent on market expectations. If end-users prefer a one-time fee, it is often best to cater to their expectations and offer a perpetual license. If you know that the software will require frequent updates, upgrades, and attention, a subscription model will likely be the better licensing strategy.
If you provide on-going support or other services, you could offer a subscription for those services while still selling a perpetual license for the software itself.
Although there are good reasons that software licensing is trending away from perpetual licenses towards subscription licenses, there are still cases where a perpetual license may be the better choice.
We recommend that you engage with software licensing professionals SoftwareKey.com to help you make informed decisions about your licensing strategy. We’ll work with you and help you explore and execute the best approach for your specific needs. So talk to the experts at SoftwareKey today or sign up for a free trial.