L I C E N S I N G
The Many Opportunities and Few Risks of Software Subscriptions
My first version of MS Office still came on discs in a box and was paid for with Deutschmarks . It served me well for a long time , until my mail provider decided to change the security standards and my old and dear MS Outlook stopped working . This meant that I had to buy a new version of MS Office . I was very upset about having to pay good money for new versions of a software that I had been using for such a long time . In all other walks of life , nobody bats an eyelid at having to buy new versions of old products . The average European buys more than 10 cars over their lifetime . And we keep buying our favorite albums again and again , first on vinyl , then on cassettes , then on CDs , as downloads , and now streams .
The key to solving this conundrum is a subscription service : The subscriber pays only a fraction of the cost of a software package in exchange for the ability to use the software – always in its latest version – for a defined period of time . No need to pay full-retail every few years , and the subscriber still gets the newest security and safety standards guaranteed . On the other side of that relationship , the provider gets a dependable revenue stream and the certainty needed to plan and budget for future developments and new products .
Which models are there ? In the software scene , maintenance subscriptions and software subscriptions ( and any combination thereof ) have established themselves as the typical models on offer . With maintenance subscriptions , the user would buy the software outright in the first place and then enter a maintenance contract for access to regular updates and , frequently , exclusive services . As long as the maintenance contract is active , the user will always get the latest version of the software , and when it ends or is cancelled , that latest version will be the one the user is stuck with ( but that they can still use ).
With software subscriptions , the user enters into a regular subscription contract without having to buy the software first . However , the right to use the software would be lost as soon as the subscription ends ; even older versions are not available anymore . This means that the threshold for becoming a user is far lower , but the threshold for cancelling the subscription is far higher than with a maintenance subscription .
The technology behind both options is identical : Upon ordering the subscription , the user will get a license that is regularly refreshed as long as the contract is active . With maintenance subscriptions , the period of access to maintenance services is extended ( Maintenance Period ); with software subscriptions , it is the license for the software itself ( Expiration Time ). When the contract is cancelled , the licenses will not be refreshed anymore , or the Expiration Time is set to the end of the contract .
Which pricing policy will work ? In recent issues of this magazine , we took a closer look at the technical niceties of subscription licenses . Now we need to take a closer look at the commercial considerations : Pricing and revenue . Take a concrete example : A software product that is sold for € 5000.00 .
Without a subscription option , the user can buy updates to the software , usually at a 50 %
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