Software Licensing Featured Articles

Traditional Software Licensing Giving Way to Pay-Per-Usage Models

June 27, 2012
By Jacqueline Lee, Contributing Writer

The traditional model of software licensing has historically involved annual renewable license models that contain maintenance elements or perpetual licenses linked to the number of users. Now, as more businesses transition to cloud computing, these traditional software licensing paradigms are giving way to pay-per-usage models.

Different models have their pros and cons depending on the needs of the company. According to Guy Creese, a blogger for Gartner Research, SaaS pricing models have their advantages.

SaaS licensing fees are treated as an operating expense on a business income statement. Also, businesses that use SaaS can avoid having to purchase expensive servers and can reassign administrative personnel to tasks that involve innovation or revenue generation.

Additionally, support and upgrades are included as part of the monthly SaaS price. Traditional software licensing models often charge a premium for support and upgrades.

“SaaS delivery models are threatening the status quo in the software industry because they’re more flexible, scalable and cost-effective, and certainly provide overall better value for money,” says AnsgarDodt, SafeNet’s SRM VP of sales, EMEA.

For some organizations, however, more traditional models make sense. In general, three or four years of annual SaaS payments match the cost of purchasing a traditional software license. This does not, however, take into account equipment savings or savings on hiring in-house personnel.

Enterprises also lose the hefty upfront pricing that can make them rethink their purchases. If a company purchases software licenses for Version 3 of a product, then upgrading to Version 6 several years later requires a large sum of cash for new licenses, new training and the ever-costly migration process. Instead of making the upgrade, many companies go through a review of their solution so that they can choose the most innovative product on the market.

When companies use SaaS, staying with a product for the long-term becomes easy thanks to the complacency afforded by consistent low pricing. Companies don’t have the incentive to reevaluate their solutions, which could result in lost efficiency.

Many managers also don’t anticipate the challenges of managing software licensing in a virtualized environment. If a company in the Middle East uses a virtualized solution hosted in the U.S., then laws, rules and regulations will affect the company’s data usage and content.

Overall, SaaS is challenging many software licensing models. Competitive pressure and customer demand will force traditional on-premise vendors to reevaluate the status quo.

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Edited by Rachel Ramsey

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