Software vendors have been moving toward the subscription-type license over the past few years, and away from the perpetual license that had been the norm. Software firms note that companies generally upgrade regularly anyway, so subscription pricing spreads out the payment more easily. A win-win right? But companies don’t like the feeling of bing on the hook for payments forever when they once felt like their fee was capped at a certain amount. Read more at PCWorld
Perpetual vs Subscription Licensing
2004-10-19 In the News 25 Comments
>> Software firms note that companies generally upgrade regularly anyway, so subscription pricing spreads out the payment more easily. A win-win right?
No, not at all. You are regularly upgrading clothing, and tv sets, and haircuts, but you don’t wanna be on the hook forever for any of those things. What are the advantages of the subscription model? How does it make life easier for consumers? Businesses need freedom and flexibility to thrive, and consumers are right to resist lock-ins.
Companies are now dependant on information technology and that includes a lot of things that they don’t really need. The one size fits all type of software of the past, now tries to be more specialized, on the condition that it is scheduled around subscription payments and somehow tied to an evolving software stack.
At CherryOS we charge a one-time flat rate fee.
And you can run OS X on you PC.
Yes but do you obey the terms of the GPL.
I first heard about the concept of subscription based software licensing roughly a year ago, probably right here on OSNews. At first I didn’t like the idea. Now, through some new experiences, I think I might like it.
Massive online multiplayer games follow a subscription model. So far it’s working pretty well for them, and it’s becoming an increasing popularity. With a few games, the company behind it gives away the actual software for free as a download. So all you’re paying is the monthly fee to play. More common though is to buy the CDs (pay for the software + media) in stores. Today we can even buy full version games and download them as well, I’m just illustrating a few models.
High end 3D packages that cost upwards to $6,000 USD. They do offer a “1 year license” to students and people in education, at a very reduced price. I wish they’d do the same for commercial users. If you’re a freelancer working from home, you could basically rent the program for the duration of your project. Or the casual hobbyist could play around with the software, which is my angle
Also, anti-virus software have classicly been working on the subscription model as well, but you’re paying for service/support as well as the updates. This whole concept is pretty ironic to me as a programmer. If you take it to the extreme, a virus definition update is almost like a patch. So, we’re basically paying for a regular, almost daily, patch? It’s just amusing to me.
But it wouldn’t make sense for software people would use everyday, such as operating systems, email/web-browser clients.
I think subscriptions make sense for things like anti-virus software, where the company is providing you a service (AV updates) along with the software. Otherwise, it depends on the subscription model. If they’re charging you $50 a year for something that you regularly shell out $200 or more every few years, then I can see it working. But I do not and will not pay for something once a month/year if the company is not providing me with anything beyond the original software purchase. For example, if my app stops working unless I pay them regularly, then they can keep it. They’d have to be making a damn good app that I absolutely needed to convince me otherwise.
With a few games, the company behind it gives away the actual software for free as a download. So all you’re paying is the monthly fee to play.
If I was an online gamer, this is the only thing I would put up with. Don’t charge me $50 for a game and then charge me to play it – that’s called double dipping and is a rip-off.
Software development as we have it now, doesn’t encourage companies to write good quality software. Bugs are seen as a natural part of the process, and regular updates as a necessity. It’s a sad state of affairs.
When you buy software, you pay for a certain functionality. If that functionality is done right, there’s no need for upgrading other than to add more functionality, which you may not need or want.
IMHO subscription models are just a sneaky way to have the customer pay forever, and slip new functionality (that the customer may not want) in with bugfixes.
A solution would be to pay only for a specific functionality, and oblige companies to provide that at a fixed cost, agreed upfront. Find a bug? Company must fix it for free. Same as with other products you buy, if they break a month after you bought it, you send it back, and it gets replaced/repaired. That would give the company an incentive to make quality software. The sooner you have stable working code, the less cost to the providing company. Any extra functionality would not be rewarded (other than in seperate agreements).
Sounds good Alwin but no vendor would go for that, they want customers to keep buying.
The only deal that people can get right now, since Microsoft became such a force, IBM and a few other vendors moved to vertical markets and supported commodity software in areas like the OS platform, office suite, developer tools, web browser, database, etc. They helped to open up this area.
Now it’s up to customers to take advantage of some of this commodity software, however this FOSS software is not enough for large organizations, so IBM broke down each industry by looking at their businesses and their information needs, and they passed on information to ISV’s to supply specialized services, however, this specialized software interfaces with IBM’s middleware.
So what a customer can do is to have their IT needs, met more specifically, and they should take advantage of commodity software, whenever they can. Otherwise you lock in with the devil.
The only kind of subscription based system I would ever agree with is something modeled after Mandrake Club where essentially the subscription provides you with access to updated versions as soon as they come out for free and if you later cancel or do not renew the subscription you don’t have to stop using the copy or copies of the product that you have. Lindows has a similar system with their Click ‘n Run site but I think with Sun’s JDS as soon as you stop paying you’re also legally obligated to stop using the product.
In general I dislike subscription based software. I agree with the “pay for features, get bugfixes for free” comment. For (say) a copy of Windows or Microsoft Office for a home user, I think this definitely applies.
For businesses the same normally applies. However, subscription can sometimes work well. If you *do* want to always get the latest and greatest features then it can be better to pay a certain amount per year than fork out lots each new release. Of course that depends on a sane pricing model. Another advantage, and this is a real example from my work, is that for very expensive software you can “trial” it out. It may be that you only need the software for a few years and it would still work out cheaper on a subscription. Naturally, it’s always best to have a choice, and that’s what really sucks – when you don’t have one.
A side issue is one of support. What levels of access to knowledge bases, patches, etc should one expect? Consultancy for improving performance etc. For FOSS you are often provided with security fixes that in theory you could do yourself – it’s simply an added service and so it seems fair enough to pay for it. It gets interesting when these things are part of a subscription deal.
The payment model depends on the needs of the customer, not the technology used.
You can buy a car. You can lease a car. You can rent a car. You can hire a taxi. Each is appropriate to some circumstance.
That doesn’t mean that a company must provide all of these models themselves. Ford may have built the Crown Victoria used in all of the examples above. But you buy from a dealer, rent from an agency, and hire from a taxi company. Ford does lease directly, but you can lease from banks, as well.
Software companies tend to have license terms that prohibit one or more of these useful business models. Rather than persue those who won’t pay, they need to stop refusing to take money from those who WANT to pay.
The real truth here is –
For the most part there is no need to upgrade.
Computers have become a commodity.
I think what’s happening is the difference between the laggards and the innovators
Where are these innovations?
What are 10,000 secretaries going to be able to do on their computers two years from now that they couldn’t have done two years ago?
The software industry is trying to trick everyone into start paying a tax.
Software buyers do prefer newer enforcement methods such as product activation and network licensing over traditional methods such as serial numbers and dongle/USB keys, according to the study.
Show me one person that likes product activation
There’s more BS in this article than in a barnyard.
The parties over baby! You’re going to have to offer some real innovations are people will stop buying your software. You’re customers [laggards] are not as dumb as you think.
How do you think big business is going to react to being locked-out of their data when some bean counter forgets to buy the next year’s subscription?
Another thing, with the subscription model, you are perpetually tied with that one vendor because your data is in their format. If you find a cheaper alternative, you may not be able to convert your existing data. Now what do you do?
The only way to make the subscription model work is if all vendors support truly open data formats. This will allow for competition in the market place, and make it possible for you to switch products and retain access to your data.
You can bet the ranch that if software vendors thought users were going to pay LESS under the subscription plan, they’d be hustling the perpetual plan.
The fastest way to kill subscription is not to buy into it.
The thing is that subscriptions would be great if they didn’t cost the same or more. If you upgrade every time a new version comes out and a new version comes out ever 2 years, companies are charging you half the price that it cost to buy it per year. In two years time, you will have spent an equal amount to the price of the perpetual license. Then, if they don’t come out with a new version (let’s say it’s delayed by a year) you end up spending 50% more.
They just aren’t giving you a discount even if you upgrade to every new version (which most businesses don’t despite what the post says).
“Software firms note that companies generally upgrade regularly anyway,”
WRONG! Most companies only upgrade when they HAVE to. Which is not every version. MS is pissing and moaning about how many people still use Windows 98 and Office ’97. These companies have gone out and bought 3rd party software to manuall or automatically convert the newest versions of Word to what the software they are using can read. This is despite MS purposely changing the file format for Word, etc., to try to force companies to “upgrade.”
And actually. It’s surprising how many companies are still using DOS. You just don’t hear about them.
The more any company tries to do a subscription method the more they will lose customers unless they have a VERY good product.
the subscription model is more useful for business type software where you are expecting to get support/patches when you need them in a hurry. Much mainframe/server software is sold for cost + 18%/year maintanence fees. with critical business software like barcoding, accounting, or EDI packages things are constantly changing… the “successful” companies in those fields have given up trying to sell “perpetual” licenses. It also helps on the software makers end to only support the latest version…because maintenance customers can upgrade for “free”. They also have customers that recognize this and are willing to pay for somebody on the phone.
For commercial “boxed” software the subscription model just doesn’t work though… people expect to buy software as a “shiny disc” and use it as it’s advertized. A better model for “boxed” software would be to go to a “magazine” subscription type model….of selling less, more often. Look at the difference it plays out for Apple vs. MS… OSX comes out in $100 increments for upgraders versus $200 for windows… If I don’t got the $200 I can never get the upgrade… apply that model to gaming and you have people that can afford a $10-$20 “upgrade” versus a $50-$60 whole game. Think of Id or Epic packaging “mods” that required their engine from small time makers in a “monthly” package. It might not be stuff you’d pay full price for, but 5-6 new, interesting mods on a CD would be something worth while. Also, many people just don’t like monthly bills… after a while they add up to real money!!! If I’m having a hectic month and know I won’t play the game I can’t just NOT pay that month…I’d lose my online stuff… therefore, I’d never buy into that model…
personally, I thought it’d be a good model for OSS applications. Think of the benifits if somebody had a montly Linux distro packaged with a magazine at B&N. Want the latest Kernel stuff, pay get this month’s issue for another $15. The advantage to OSS is that while the software is free, learning, explaning, packaging, documenting it’s not… Image almost had the model with Maximum Linux…but they didn’t take it far enough fast enough. I could see this as great model for something like Ubututa? that takes it’s stuff straight from Debian… because explaining it to users is 75% of the battle… if you devoted an issue each month to different things… and rotated on a predictable basis…like photo editing in january & june, gaming in march and september… you’d have something.
Basically, the markets have an easy way of determining which model consumers are willing to pay for: It’s called competition.
If a company offers a product that has superior value to the alternatives with a perpetual license, it will gain share and beat the competition. Likewise, if a company has an offering with superior value with a subscription pricing model, it will beat the competition.
The actual price levels under each model make a big difference. For example, would you rather pay $10 a month or $400 up front for a piece of high end digital editing software? Probably depends on your projected “useful life” for that piece of software. Would your answer change if the figures were $10 a month versus $150 for a perpetual license?
Some customers will never pay a company on a subscription model — for whatever reasons. Others look at it the same way as you you’d lease or rent any other piece of office equipment. It’s the relative prices of the buy vs. lease that guide the decision.
1) Subscription models will be increasingly pushed over time, and not necessarily because of greed; creating “commercial quality” software is becoming increasingly complex, and thus taking longer, costing more, and requiring increased efforts to create. Depending on the market, some vendors will be faced with going to subscription models, consolidating with competitors, or exiting the market; in that light, subscription models start to look really appealing.
2) Vendors going the subscription route tout the lower “upfront” price and getting feature updates as well as maintenance ones. This isn’t necessarily an advantage, putting aside fee accrual. ‘Upgrading’ tools always carries risks, and you want the option of staying with a particular version of a tool, or particular configuration of a tool, for an indefinite period of time. If a subscription model doesn’t give you support for anything but the latest version, is that an advantage? If compatibility issues emerge with the latest version and you can’t backout to the previous ‘working’ version, is that an advantage? If your subscription requires you to implement upgrades within a given period of time, and that’s before you’re ready, is that an advantage? And if the compliance aspects of the software hold you to these things, is that an advantage? The value really is in the fine print, rather than in the “Costs less! Upgrades included!” shiny text on the cover.
3) As was mentioned before, it’s very unlikely that “software as a service” will fly as far as “upgrades as a service”, the difference being that with the latter you can end your subscription and keep the versions of the software you have already obtained through it. Stardock and Runtime Revolution are both organisations that use this model, and quite successfully.
These factors combined to make Licensing 6.0 a less-than-stellar success for Microsoft. The larger organisations that it was targeted at saw these factors and remembered that vendors work for their customers, not the other way around.
Anyway, just some food for thought.
I am working for a company which does strength analysis on engines and engine parts. We use finite element programs, most of which are subscription based only. What I can see is, that most programs get enough development to justify a new release every 6 months, but the “new” version is not offering substantial advantages over the older ones. If we had not subscription based licenses we would not have upgraded for the last 4 years, simply because there was no reason to. Subscription based is an open invitation for the programming company to become lazy.
You can see this behaviour of customers has become a problem for MS. Nobody shills out lots of $$ to get something he does not need enyway.
A virus scanner is a different matter, you pay for an actual service.
Look, it is very simple.
Most mature software, such as the popular Microsoft Office stuff, cannot be improved much (be definition, because it is mature). There is very little advancements, very little progress in fields like AI, pattern matching, etc. and most of the so called development is recycling of old ideas into new packaging.
Therefore, there is increasingly less need for upgrades and end users can easily skip one or more upgrade cycles. This is what is troubling the software industry. This is a means for software industry to maintain their revenue regardless of end users’ needs or lack thereof.
These models are clearly pushed by software companies under the thin veil of users’ benefit. Instead it is a simple scheme to extract additional revenue that they wouldn’t be getting otherwise.
Note that some of the offerings do make sense and are a different cases altogether. For instance, Sun offering $1/CPU-hour processing is perfect for movie studios that needs to do a lot of rendering at a certain point in time. They really don’t want to bother with rendering farm setup and maintenance, as they often needs it for a short term.
So some packages designed for a specific situation can and do work well for end users. However, when talking about the software that end users need for long term (years) then it often doesn’t make sense to subscribe.
“What are the advantages of the subscription model?”
For a software company such as Microsoft, it ensures a revnue stream without having to try to persuade customers to upgrade to the (supposedly) “latest & greatest” version. There would be less incentive to actually improve the software, because they’d be selling a subscription, not an upgrade. This would be especially lucrative for Microsoft if they could apply it to the OS as well as the Office suite.
Yes, Microsoft has a variety of license schemes which include regular upgrades, but no customer is required to buy any of them; they can buy as many retail box copies as they need and upgrade on their own schedule, which might be less frequent than Microsoft’s.
CherryOS is also a violation of the GPL. It’s blatently obvious you repackaged PearPC.
The computer industry once had a rental model for entire systems and still does for high end mainframes. But the microcomputer revolution pretty much destroyed that model.
Now they want to try it with just the software. This will work if you value add (Virus Scanners etc) but it will not work for other software if there is any competition.