Over the past decade, we've seen a shift in the payment model for software. For a long time, software was commonly offered for a one-time fee. But now, led by the rise of mobile applications, more software uses a subscription-based model.
While you might not initially think this is such a great idea, it has a lot of benefits to consider. Let's discuss this and see why software subscriptions can be a positive.
One-Time Purchases vs. Subscriptions
Before we proceed, let's quickly clarify the differences between one-off purchases and the subscription model in case you're not familiar.
The "classic" method of purchasing software is paying for it once and having unlimited access. Once you purchase a copy, it's yours to use for as long as you like with no additional fees. However, you usually have to pay for future versions when they arrive. This is called a “perpetual” license.
Conversely, in the subscription model, you pay a monthly (or yearly) fee to access the software. As long as you're an active subscriber, you can use new versions at no additional charge. For most software, you're allowed to cancel anytime. But once you do, you'll lose access to it.
Examples of Both Models
Adobe products are a good example of this shift. A decade ago, Adobe sold Photoshop and other apps as standalone releases. Purchasing a copy of Photoshop would cost you hundreds of dollars.
Now, Adobe sells various plans in its Creative Cloud subscription service. You can subscribe to a single Adobe app for around $21 per month, or access the entire collection for $53/month. All software updates are included, and it doesn't cost you nearly as much at the outset.
Microsoft Office is an example of software that offers both one-off and subscription options. Office 365 is a subscription plan that continually gives you the latest versions of Word, Excel, and other Office apps. Every few years, Microsoft takes the latest upgrades from Office 365 and splits them into a standalone version (currently Office 2019).
We've explained the differences between Office 365 and Office 2019 further if you're interested.
You Don't Truly "Own" Software
When subscription models first appeared, many were apprehensive about them because they wanted to "own" software instead of "renting" it like the subscription seemed to offer. It's understandable that you might not want to invest in software that the owning company could turn off at any time.
However, the idea that you own software when you buy it is incorrect. Unless you use open-source software (where the code is freely available for anyone to view and change), the creator of the software still owns it.
This contrasts with purchasing something like a car or a piece of furniture. If you buy a car and want to use it as a place to store items instead of driving it, you can do so. The chair maker doesn't force you to agree to terms that dictate what you're allowed to use the chair for once you purchase it.
But that's not the case with software. You can't modify closed-source apps any more than the developer allows. When you buy software for a one-time fee, you're really obtaining a license to use it legally, not a physical product you can modify to suit your needs.
Subscriptions Result in Better Updates
Software isn't like a lot of other business assets. When you buy a piece of manufacturing equipment, you might expect it to work well for 10 years or more. But software has a much shorter useful life---it's quickly replaced by something better.
With a subscription model, developers have more incentive to make their software better. Instead of having to put money into an old product nobody buys anymore, they can direct resources into their current offering.
As an example, consider an outdated version of Microsoft Office like Office 2007. Microsoft made money selling licenses for the product when it was new. But after Office 2010, Office 2013, and future versions released, there's little demand for the older version. This means that it's in Microsoft's best interest to discontinue support for Office 2007 and focus on modern versions.
Now, to a point, you can still use Office 2007 if you bought it. The standalone release will function for some time. But it lacks recent features, is open to security vulnerabilities, and isn't designed to work on modern hardware. This will hinder your business instead of helping it run at its best.
This results in a major project when it's time to replace out-of-support software at your company. For example, a business might use an ancient ERP while the competition is running more productive modern software, then be forced to replace it all at once. This takes a lot of time and incurs a large initial cost to upgrade.
Subscription-Based Software Is More Flexible
Introducing a new software into your company is often a big job. It costs a lot of money to purchase the needed licenses, and getting everyone used to it is a project as well. Software subscriptions help reduce some of these concerns.
If the software isn't what you expected, it's much easier and less costly to cancel a monthly fee than to take a hit on the massive investment of time, software costs, and implementation fees from one-off purchases.
Plus, most software subscriptions make it easy to add or remove users. If you have a round of new hires or terminations, you can simply add or remove them and adjust the monthly cost instead of juggling a limited number of licenses.
In addition to all this, you get the latest software updates in a timely manner. Your business won't be stuck using outdated software that holds you back.
It's important to remember that when you purchase software, you don't just want what it offers today. Nearly every app will improve in the future, and a subscription model helps you get these faster and more easily. Software is different than other assets, and a subscription model often reflects the best way to efficiently integrate it into your company.