Software Licensing: Shift to Subscriptions Means More Choice for CIOs

Software vendors offer two kinds of licenses: perpetual (you pay for the product up front, you own the product in perpetuity) and subscription (you pay to rent the product until the term runs out). Today, most vendors derive a majority of their revenue from perpetual licenses. However, because perpetual licenses are more susceptible to market changes, resulting in revenue peaks and valleys, vendors are starting to show an inclination toward subscription licensing, according to a recent report by IDC. Subscription licenses offer steadier revenue patterns because they can be renewed every year.

What does the trend mean? Well, it should be good news for CIOs, according to IDC, because software customers on the lookout for the best deal will find choices in software pricing. “Customers won’t be forced down the road for either type of software license,” says Amy Mizoras Konary, IDC program manager for software pricing, licensing and delivery. “This will enable customers to have more choice and save them more money.”

Best Practices

1. Centralize your license management. Software customers are managing hundreds of distinct software contracts across multiple locations. By centralizing management of these licenses (with software from companies like Macrovision), customers can make sure that they don’t buy too much, or too little, software across the organization.

2. Define what value means to you (and make sure your vendors understand). Software vendors know that they need to do a better job of communicating the business value of their products. In order to do this effectively, vendors need to know how customers will be measuring their software’s effectiveness and value.

3. Realize that flexibility and simplicity in licensing are often mutually exclusive. Customers are demanding flexibility and simplicity in software licensing, but if vendors are to offer more flexibility, the byproduct will often be complexity.