Subscription Models Deliver Value for Business Software Licenses
Transitions in software licensing have changed the ground rules for companies that obtain support or other services through commercial software. Perpetual licenses no longer rely on the boxed products, disc-based installation and registration cards of a decade ago, but they do force company administrators to juggle a potentially large set of complex license keys and registration numbers. Perpetual-license upgrades come with separate costs, and newly introduced software versions require either paid renewals or entirely new licenses. Instead of these headaches, companies can simplify their software usage with subscription licensing.
In manufacturing, many software products represent the operating environments for specific machine tools, but beyond these basics, additional applications add enormous value to shops’ ability to control, coordinate, network and digitalize their equipment assets. These additional software products may need more-frequent updates to accommodate new machines or cutting tools. With a subscription model in place, these products can provide the benefits of automatic updates, open-sourced code and reduced costs, keeping shops up to date with the latest developments and improvements.
Faced with years of complicated contracts for perpetual licenses, companies can walk away from all these problems and establish a subscription contract that offers real value at a cost that aligns with features and capabilities. Flexibility tops the list of benefits gained in the transition to a subscription model. In a survey of B2B decision makers responsible for software purchases, 60% identified the flexibility to adjust capacity as the reason they preferred subscriptions over perpetual licenses (Chao, Kiermaier, Roche, & Sane, 2017). As companies hire new employees, they can increase the number of licensed seats associated with their software subscription, and if circumstances require a reduction in force, subscription software flexes with these needs as well. Conversely, under a perpetual license, a new seat carries the full purchase cost of the product.
With a smaller up-front investment and the potential to reduce lifetime costs – as well as the ability to start or stop subscriptions to match changing needs – subscriptions also make it possible for companies to move software licensing from capital to operating expense. For many companies, the ability to treat the costs of software products as operating expenses instead of depreciating them as capital expenses gives them a favorable status from the standpoint of tax deductions. The smaller incremental cost of subscription licensing also eases the buy-in and maintenance prices.
Subscriptions carry the additional advantage of frequent automatic updates as part of an ongoing program, rather than cost-based upgrades issued on an annual or even less-frequent basis. As the producer of the software improves its product and adds new functionality to it, the customer receives these enhancements without paying separately for them. In some cases, these updates install with no need to authorize or instigate them, paced by a behind-the-scenes maintenance feature.
Additionally, subscription software helps protect a company’s licensed assets against potential misuse by an unscrupulous or disgruntled employee. Installer files and registration numbers can be difficult to protect and easy to copy, which can enable the misappropriation of a valuable asset with limited ability to disable misuse.
As the business-to-business software world increasingly moves to the kinds of subscription models that have dominated the business-to-consumer marketplace in recent years, companies can discover the benefits of flexibility, favorable tax status and predictable, reduced costs. The value proposition of software licensing favors manufacturers’ need to adjust to changing market demands and survive economic uncertainties.
Curious about the future of subscription services in manufacturing? Contact the Manufacturing Transformation team for answers to your questions.
THE ADVANTAGES OF SOFTWARE SUBSCRIPTIONS
- No need to manage a complex set of licenses, registration numbers and license keys.
- Automatic updates fall under the overall cost of the subscription.
- Add or remove seats as needed to flex software capacity for large short-term products or overall changes in capacity.
- Pay less up front and over the life of the subscription.
- Move software costs from capital expense to operating expense.
THE DISADVANTAGES OF PERPETUAL SOFTWARE LICENSES
- Greater purchase cost.
- Once you acquire a perpetual license, you either must maintain it through paid upgrades or let it lapse.
- Installation requires complicated registration numbers and license keys.
- An unscrupulous employee can record registration codes and keys, and misappropriate a license for use outside the shop.
- Adding a new license involves the purchase of a full seat.
- It’s costly to buy licenses simply to expand capacity for a short-term project, and those licenses can’t simply be deactivated after the need for them ends.