Software: to rent or buy, that is the question

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Software: to rent or buy, that is the question

Is it better to pay upfront for a perpetual licence to the software you need, or does the subscription (pay-as-you-go) model make more sense? We investigate!

You might as well ask "how long is a piece of string?" because each licensing scheme has its advantages and disadvantages.

If you base your decision on a simple total cost of ownership calculation (eg, $500 upfront vs three annual payments of $150), there's a real risk of making the wrong choice because the situation isn't really that simple.


Traditional perpetual licences provide at least an illusion of certainty in that you pay upfront and then use the software for as long as you like. The 'illusion' comes in because vendors don't maintain old versions for ever. At some stage you'll buy a new computer that only works with a newer version of the operating system but your program won't. By that time the program has probably evolved so much that you face a paid upgrade. But for as long as you can maintain a static IT environment, your software costs should be zero after the first year.

Perhaps the program incorporates time-dependent information that needs regular updates. A prime example is an accounting program with built-in tax tables that the vendor doesn't update separately to the actual software, effectively turning a perpetual licence into an annual subscription (notionally for 'upgrades' or 'maintenance') with a bigger payment in the first year. A variation is that the vendor doesn't provide any updates - even security patches - after the first year unless you pay an annual maintenance fee.

Some perpetual licences are not limited to the original purchaser, so if you find yourself with excess copies you are able to sell them and recover some of the upfront cost. But that's not always the case, so if that's an important consideration read the licence carefully before buying.

In some situations, perpetual licences are treated less favourably for tax and accounting purposes as they involve a capital investment as opposed to a stream of expenses for the subscription payments. But most of the software small businesses are likely to buy fits below the threshold for immediate write-off (currently $20,000, but reverting to $1,00 from 1 July 2017 unless the government makes another change), so it's rarely a consideration. Seek professional advice if you're unsure of the ramifications.


Subscription licences are more flexible. As with SaaS (cloud) software, you only have to pay for the number of users (or perhaps computers/devices) you actually need. And the annual fee is normally a fraction of an equivalent permanent licence. This is particularly attractive for startups, as it reduces their initial investment. But the arrangement is not as flexible as it sounds, as the term is likely to be fixed at one year even if the cost is quoted as $X per month, so you can't shed licences (and the accompanying expense) as quickly as you can add them.

This flexibility is also seen in the availability of updates and upgrades. The normal situation is that you are entitled to all updates (typically bug fixes and minor improvements) and upgrades (new versions of the program, hopefully with substantial improvements) for as long as you subscribe. So you benefit from improvements to reliability and security for the version you're using, and from being able to switch versions when it suits you. (Cloud software providers usually force all their users onto the then-current version - that may not be desirable, especially if an older version suits your business and you don't want to suffer any loss of productivity while your staff come to terms with changes that don't deliver any benefits.)

What happens when you stop paying the subscription? Most likely, the software will either stop working altogether or continue to work in a very limited fashion, eg, you may be able to view or print your old documents, but not edit them.

And if down the track you decide you do need to work on one of those documents and resubscribe, there's no guarantee that the then-current version of the program will still open that particular file format. It might work, but there have been cases where the only way to get (say) version 8 of the program to open a version 3 file is to open it in version 5 and re-save it in the new format.

That can happen when you upgrade perpetually-licensed software too, but the important difference is that before you stop using the program you can create a virtual machine with the operating system and application you've been using, along with the files. That way, there's a much better chance that you'll be able to extract the data you need in several years' time.

Hobson's choice?

Regardless of whether you'd be better off with a perpetual or subscription licence, you often don't get a choice. Some vendors, especially smaller players, prefer to stick with the tried-and-trusted perpetual licences, typically with discounts for customers who want to upgrade to new versions. However, that model is under partial threat from the growing role of app stores (not only Apple's) that mandate free upgrades, as the only way developers can charge for new versions is by treating them as a new product and selling at the same price to old and new customers alike. Looking at it more positively, app stores have helped drive down the cost of software - upgrade pricing made a huge difference in the days when everyday programs such as spreadsheets or word processors cost hundreds of dollars, but now not so much when the equivalent app may only cost $30.99. 

At the other extreme, companies such as Autodesk have stopped selling perpetual licences for its 'LT' products such as AutoCAD and Revit, so new customers - or those requiring additional licences (and Autodesk is one of the most aggressive vendors when it comes to chasing companies using unlicensed software) - have to go for subscriptions. 

In the middle are companies such as Adobe - which is steadily tying its cloud services to subscription licences - and Microsoft, which provides free mobile apps that are only fully-functional when used in conjunction with Office 365 subscriptions, not perpetual Office licences. 

So while you can sometimes choose between perpetual or subscription licences, that choice is increasingly illusory as the differences widen between the two offers.

Copyright © BIT (Business IT). All rights reserved.

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