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The Pros and Cons of Subscription Licensing

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User-based subscription licensing increases the difficulty for piracy

Over the last few years software licensing has shifted from predominately perpetual device-based licensing to user-based subscription licensing. Subscription licensing has also introduced us to the world of ‘token’- or ‘credit’ based licensing, a model that was previously used for networked software rather than standalone software.

Token or Credit based licensing

The ‘token’ or ‘credit’ based licensing model works in a unique way whereby you have an agreement that allows you to use any piece of software from the manufacturer you want for the duration of the agreement. This sounds great, but it’s not as easy as it sounds. The vendor will define how many ‘tokens’ or ‘credit’s each application is worth. So, for example;

  • Software A (Basic application) = 4Cr
  • Software B (Basic application) = 1Cr
  • Software C (Mid-range specialist application = 18Cr
  • Software D (High level specialist application) = 25Cr

As part of your agreement you may have 100 credits per day for 30 users (it’s a small company!). A user can ‘check out’ or use any application they want, but it’ll cost a certain amount of credits. All the user has to do is open the application, and this gives them the rights for 24 hours (or a customised time set by the SAM/IT Manager). Even if the user closes the application the user has still taken the credits required to use the application. The credits don’t go back into the ‘pool’ until the cycle period is over.

A license server usually manages this, however with the new subscription based models it is also managed via Cloud solutions.  It provides an organisation the opportunity to use as many different applications as they want without specifying what they will use at the start of the agreement.

You have to consider subscription based licensing from both the vendor and end user point of view. There are a number of pros and cons for both (mainly pro’s for the vendors!) that make you question where vendors see software licensing progressing to in the future.

Vendor Perspective

Pros:

  • Increase in income from end users
  • Tighter and better control over use of software
  • Increase difficulty for piracy

Cons:

  • Reputation damage due to unhappiness of customers
  • Customers refusing to move to a subscription model and finding alternatives
  • Whilst they may have started to combat piracy now, it is only a matter of time before someone figures out how to pirate their software

End User Perspective (business user)

Pros:

  • Easier to manage compliancy
  • Can purchase software for length of a project (if they don’t have some sort of enterprise agreement and purchase ad-hoc)
  • Initial ‘up-front’ cost can be cheap

Cons:

  • No asset at the end of the agreement period
  • Hard to manage from a user accounts and deployment perspective
  • Expensive in the long run
  • Will have to put more emphasis on the starters, movers and leavers process for account creation and closure, especially as some subscription models allow for home use
  • Anniversary dates can be difficult. Account management and using a SAM tool or AD will be required to manage the new accounts
  • Packaging / Deployment is slightly harder. Some vendors release updates on a 6/8 weekly cycle with major releases in there. Without a calendar from the vendor how would you judge when to package and deploy said updates? 

End User Perspective (personal use)

Pros:

  • Can purchase expensive software for less money for the period of use required
  • Opens the door to software users may have considered ‘too expensive’

Cons:

  • Nothing is owned at the end of the subscription period
  • Instead of just restarting the application after months of non usage, a new subscription is required

Conclusion 

Subscription based licensing looks like it is here to stay for the time being. The subscription model works great for personal and home use. An end user can purchase a really expensive bit of software for just a month or so at a fraction of the cost it would have cost them previously to buy a perpetual license.

For business use however it’s a bit more complicated. A number of processes need to incorporate the new management method required for subscription licenses, with account creations, different deployment and update options (especially for those cloud-based services). The subscription and cloud-based models are certainly providing a big push towards SaaS (Software as a Service) rather than the on-premise perpetual software we are used to.

It makes obvious sense from the vendor’s perspective. They will be able to generate more money, combat piracy (slightly!) and generally have greater control over their customers. A number of large vendors have been almost forcing customers to move to their subscription-based model, offering them ‘take it or leave it’ deals. A number of organisations have decided against moving to a subscription model and have actually moved to alternative vendors who provide perpetual licensing.

Subscription based licensing appears to be the future of software licensing. In fact it could only be a matter of time before all software is subscription based, thus slightly changing the license management environment. What will this do for SAM and Licensing professionals? Well it certainly won’t put us out of jobs like some analysts are saying; it will just highlight our importance as we will now have to manage the complexities of subscription licenses.

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About David Foxen

David Foxen is a Software Asset Management expert and enthusiast. He had a vast experience of successfully implementing SAM, SAM tools and also made huge cost savings. A member of the ISO Standards WG21, David is a massive ITAM geek, so uses any opportunity to talk about the subject to who-ever will listen. He believes that the industry needs to share its knowledge and success stories to help the SAM industry mature and become more effective. Always willing to help, his primary goal is to make a difference to organisations and the SAM industry so everyone will know how epic SAM is!

3 Comments

  1. Robert says:

    Hi i am looking make my career in ITAM. The review and information provided are really great.

  2. Another customer benefit is that it keeps software vendors accountable to their existing customers. Businesses focus on revenue, and one of the biggest issues with traditional B2B enterprise software is the strong financial incentive to add “gee wiz” features that prospects request, but never use.

    A prime example is what happened to Microsoft Word after decades of listing to there largest and most profitable customers.

    SaaS / subscription levels the playing field and gives a strong voice to the existing customers.

  3. As customers are inevitably forced to move from perpetual to subscription by the software vendors, customers can benefit by selling the existing perpetual licences on the second-hand market.

    The possibility to trade in second-hand licences since the UsedSoft ruling is undoubtedly a factor encouraging software vendors to move to subscription models.

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