Perpetual vs. Subscription
Software licensing is a vital aspect of the modern business landscape, and it is essential for companies to choose the right licensing model for their needs. Two popular software licensing models are perpetual licensing and subscription-based licensing. Each of these models has its advantages and disadvantages, and it is crucial for businesses to understand them before making a decision.
Perpetual licensing is a software licensing model in which businesses pay a one-time fee to use a software application indefinitely. Under this model, businesses own the software, and they can use it as long as they like without any additional fees. Typically, perpetual licenses come with a maintenance agreement that provides updates, patches, and technical support for a certain period. However, after the maintenance period expires, businesses can continue to use the software, but they won’t receive any further updates or support for free.
Perpetual licensing provides a lower long-term cost than subscription-based licensing because businesses pay a one-time fee instead of recurring fees.
Perpetual licensing provides businesses with ownership of the software, which means that you have control over the software and its usage.
Most perpetual licenses do not require internet connections to run.
Perpetual licenses are regarded as assets on an accounting ledger and retain value when selling a business.
Upgrades can be purchased as and when the benefits of upgrading are applicable to the business rather than being compulsory as they are with subscription-based licenses.
Higher upfront investment. Perpetual licenses usually require full payment before the software is activated. however if payment plans are available, these can be used to provide immediate access to the software and improve cash flow over a period of time.
Updates, if required, are an additional purchase. Note: Upgrades are usually a fraction of the cost of a new license.
Subscription-based licensing is a software licensing model in which businesses pay a recurring fee to use a software application. Under this model, businesses can only use it as long as they continue to pay the subscription fee. Typically, subscription-based licensing includes updates for the duration of the subscription period.
Subscription-based licensing requires a lower upfront cost than perpetual licensing, which makes it more accessible for small businesses and startups.
With subscription-based licensing, businesses have regular access to updates.
Subscription-based licensing is easy to scale because businesses can add or remove licenses as their needs change.
Higher cost: Subscription-based licensing will have a higher long-term cost than perpetual licensing because businesses need to pay recurring fee over and over.
Reliance on internet connection: With subscription-based licensing, businesses need a reliable internet connection to access the software, which can be problematic for businesses with low bandwidth or unstable internet connections.
Limited ownership of the software: Under subscription-based licensing, businesses do not own the software, which means that they have limited control over its usage.
Locked in: Businesses choosing the subscription model can feel locked-in to a contract that no longer serves their needs. This would include a case where the software is not used regularly but the subscription is paid annually or even 3 or 5 yearly.
If you choose to stop paying the subscription you no longer have access to open and edit files that you have created. For some businesses this is the key reason to choose perpetual.
Accounting and tax benefits in Australia
In Australia, businesses can claim tax deductions for software licensing. The tax deduction is based on the period of use, which means that perpetual licensing costs can be claimed over a more extended period than subscription-based licensing costs. Subscription-based licensing costs can be fully deducted in the year they are incurred, which can provide businesses with an immediate tax benefit. Therefore, businesses need to consider their accounting and tax needs when choosing between perpetual licensing and subscription-based licensing.
In conclusion, both perpetual licensing and subscription-based licensing have their advantages and disadvantages. Businesses need to consider factors such as upfront cost, long-term cost, ownership, access to updates, scalability, internet connection reliability, value to the business assets register, ability to access previous work done.