Software Licensing Models Explained: Subscription, Perpetual and Usage-based

Subscription, perpetual, usage-based, per user, per core or per server: the landscape of Software licensing models has become more complex in recent years. That complexity costs organizations money, because the wrong model means consistently overpaying.

The three main models

Subscription

The most common model. You pay periodically, monthly or annually, for access to the Software. Benefits: always the latest version, low entry costs, and flexible scaling. Drawbacks: no ownership, higher long-term costs, and price increases upon renewal.

Perpetual

You buy a license once and pay annually for support and maintenance, often a fixed percentage of the purchase price. Benefits: ownership and predictable costs. Drawbacks: a higher initial investment and no entitlement to new versions without an upgrade. Increasingly, Software vendors are discontinuing this model.

Usage-based

You pay based on actual usage, such as the number of transactions, the amount of stored data, or the number of active users. Benefits: costs follow usage. Drawbacks: unpredictable invoices during peaks and difficult to budget.

Hybrid models

Many Software vendors combine models. Since Broadcom’s acquisition, VMware is sold only as a subscription per core; other vendors combine hardware with Software subscriptions or work with pricing tiers per number of users. Such models make comparisons with alternatives difficult. That works out well for the Software vendor.

How do you choose the right model?

The choice depends on expected usage duration, usage stability, and the importance of ownership. Always have the total cost calculated over at least three years; only then will it become clear which model is truly more cost-effective.

How SoftVaro helps

SoftVaro calculates the models for your situation and negotiates on your behalf for the model and terms that best fit.