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Microsoft Perpetual License vs. Subscription Licensing Program – Explained in Detail

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Choosing between Microsoft’s Perpetual License and its Subscription Licensing Program can feel like standing at crossroads. In this blog, we’re going to make that choice easier for you. Whether you’re running a business, leading a tech team, or just curious about Microsoft’s software options, this guide is for you. We’ll break down the pros and cons in simple terms, helping you decide which license fits your needs. Let’s get started!

Main Differences between Microsoft Perpetual and Subscription Licenses for the End Customers

Ownership and Duration

  • Perpetual License: With a perpetual license, you make a one-time purchase of the software that grants you indefinite rights to use that specific version. There’s no expiration for usage; however, access to updates and support might be limited to a certain time frame unless you opt for additional support or maintenance services.
  • Subscription License: This license model requires regular payments (monthly, annually, etc.) for software usage. It does not confer software ownership; instead, your access depends on continuous subscription payments.

Cost Structure

  • Perpetual License: This typically involves a substantial initial cost, as it covers indefinite usage rights. Be aware that future costs for updates, support, or newer software versions can arise.
  • Subscription License: Characterized by lower initial expenses but entails recurring payments. This approach can be more financially manageable in the short term, but over time, the total cost may surpass that of a perpetual license.

Updates and Upgrades

  • Perpetual License: Often, updates and upgrades are not included and require separate purchases or are only available for a limited duration. Post this period, additional fees may be necessary for the latest software versions.
  • Subscription License: This usually includes ongoing access to updates and upgrades throughout the subscription term, ensuring users always have the most current features.

Flexibility

  • Perpetual License: Offers greater flexibility, allowing continued use of the software even without upgrading or renewing support. However, this may result in missing out on new features and updates.
  • Subscription License: Provides adaptability to changing requirements. Users can easily adjust their usage scale and have access to the latest features as long as the subscription remains active.

Vendor Support

  • Perpetual License: Initial support may be provided for a set period, with the option for extended support at additional costs. Note that some vendors may cease updates or support for older software versions.
  • Subscription License: Typically, this includes continuous support and updates as an integral part of the subscription, offering a more seamless experience.
Learn how subscription-based licensing works with an example.

Retail is a great industry to look at to understand the value a subscription licensing model can offer. During the holiday season, a retail store might bring on new employees for a month or two to meet increased demand. If these seasonal employees needed Microsoft licenses to utilize tools like Office 365, the store would be required to pay for a license that the employees would only be using for a short period of time throughout an annual licensing period. In a SaaS model, the store pays for a one-month subscription and terminates such access once the seasonal employees leave. On the data center side, the store might also need to spin up a server to handle more traffic to its website during the holiday rush. It would be much more cost-effective in this case to spin up a virtual server for a few months than to buy physical equipment that would have to be maintained indefinitely.

5 Reasons to Switch from Perpetual to Subscription Licenses for the Businesses

Microsoft Perpetual vs Subscription License

Source: Pexels

These five business goals are typically among the top reasons service providers shift their software from perpetual to subscription-based licensing model:

1. High Flexibility

Moving away from perpetual licensing to pricing flexibility allows you to:

  • Reach users with different budgets.
  • Provide users access to pricing packages with relevant features.
  • Break into new market segments.

2. Better Sales Conversion

Selling through perpetual licenses requires customers to pay a substantial sum upfront. A subscription-based license lowers the entry barrier, attracting more customers to purchase.

3. Reduced Friction in Software Updates

Users don’t need to purchase new software with each major update. Instead, updates and new features are instantly available to users, providing ongoing value. Subscription models enhance user experience and retain customers longer.

4. Data Utilization for Forecasting

With ongoing subscriptions, you gather extensive data on user interaction, enabling you to predict problems and strategize effectively. This data helps estimate revenue from a constant stream of subscribers. Insights into different customer segments’ usage can help with feature bundling for attractive pricing. Usage data at the customer account level also indicates which users may need a plan upgrade or are at risk of subscription cancellation.

5. Creation of Predictable Recurring Revenue

Recurring revenue is now a focal point for both software and hardware vendors. A significant portion of recurring income indicates business health and resilience. A steady recurring revenue suggests that numbers will likely remain stable or grow, unlike the potential massive fluctuations with one-time sales.

Case Study: Transition from Perpetual Licensing to Subscription

A leading software company in the industry recently switched from a perpetual licensing model to a subscription-based approach due to evolving market needs and customer preferences. Initially, the company offered its software as a one-time purchase, but with customers seeking flexible and scalable digital solutions, the company partnered with ZNetLive to transition to a subscription-based model. This shift allowed its customers to subscribe to the software on an annual basis, providing them with the flexibility to scale up or down based on their current requirements.

The subscription model proved beneficial for clients as it allowed them to adjust their software usage according to their immediate needs without the long-term commitment and financial burden of a perpetual license. This flexibility also enabled better budget management, especially in dynamically changing environments. For the software company, the move to a subscription model resulted in a significant increase in customer engagement and satisfaction, leading to a substantial increase in revenue and market share.

Perpetual vs. Subscription Licensing: Making the Right Choice

In the past, buying software with a one-time payment was standard practice, especially before cloud computing became widespread. Nowadays, however, both the hardware and software vendors are reaping more and more benefits from the subscription-based revenue models that had been hyped up so much until now. This shift isn’t limited to the legacy software giants but rather many of the companies that have an integrated software and hardware product offering are also making the move. While in some cases, perpetual licenses are still viable, most of the time, subscription-based models offer much more convenience and cost-effectiveness to both consumers as well as vendors.

For those businesses that are considering switching from the perpetual software model to the subscription software versions, ZNetLive offers complete support. For more information, mail to [email protected]

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About author
Priyanka Dadhich – a content writer, can usually be found reading books. She likes to write about technology, healthcare, travel and fashion. Priyanka loves coffee and listens to music in her free time. She spends her free time with her family.
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