Have you ever seen someone trying to quit an addiction? Software vendors are learning to do without the “shot-in-the-arm” highs of perpetual licensing models, and settle instead for the “drip, drip, drip” of subscription licensing.
The message coming from the boardrooms software vendors is: “move customers to subscription licensing”. The flexibility may be attractive, but lack of respect for customers’ existing investments and the one-sided boilerplate contracts being proposed smack of the same old same old.
Whatever arguments a software vendor might use to cajole you into giving up your perpetual licences, here are five things to remember during the negotiations:
- Recover your investment in perpetual licences. You have had capital tied up for years in the software vendor’s product. Furthermore, if you have been paying maintenance, then the licence is up-to-date. You can legitimately demand credit for this in the new deal. Software vendors will typically price annual fees for subscription licences at around 40% of a perpetual licence. Therefore, you can enter the negotiations asking for up to 2.5 years years’ worth of subscription licensing in exchange for your perpetual licence.
- Flexibility is usually a customer’s motivation to move from perpetual to subscription licensing. This can be especially attractive if you are over-licensed under the existing perpetual model. Make flexibility a priority in the new contract by agreeing pricing for additional licences to benefit from aggregate volumes. Include also the possibility to switch licences off in exchange for other product licences of the same value.
- At support and maintenance renewal time on a perpetual licence, if you cannot agree pricing with the software vendor, then you have the option to run the software unsupported. With the growing list of third party support providers, this is becoming an ever more credible threat. However, on a subscription licensing model, if you can’t agree a new term, you must uninstall the software. Avoid such disagreements by capping price increases to an agreed percentage or published inflation index in the contract.
- Disputes can also arise if a new version of the software does not contain the same functionality as previous versions. Again, under a perpetual model you would have the option to remain on the old version and seek a third party support provider, or rely on expertise within your organisation. On a subscription model that option is gone. To protect against this you should include a contract clause requiring the vendor to support and maintain the software’s existing functionality.
- Include your finance department early in the negotiation process. First of all, they can provide data to strengthen your argument on the cost of having had capital tied up in software licences. Secondly, those perpetual licences may still be being amortised (perpetual licences are usually treated as depreciable assets rather than cash expenses). This could jeopardise the business case for moving to term licences, so best to check that early and take account of any amortisation in your cost analysis.
Don’t forget you are giving up a degree of control over how you use the software. It is not only about making a business case on the costs. You should also mitigate the risks in a new contract.
Image credit: “Attention!” by Blondinrikard Fröberg, creative commons, Flickr.com