With big name, traditionally boxed products like Microsoft Office and Adobe’s Creative Suite turning to new subscription licensing models we, as IT, have to look into this model and determine if and when it is right for our businesses. \u00a0In some cases, like with MS Office, we have choices to buy boxed products, volume license deals or subscription licenses. \u00a0This is very flexible and allows us to consider many alternatives. \u00a0With Adobe, however, non-subscription options have been dropped and if we want to use their product line subscription pricing is our only option. \u00a0As we move forward this will be a trend more and more and something that all of the industry must face and understand. \u00a0It cannot be avoided easily.<\/p>\n
First we should understand why subscription models are good for the vendors. \u00a0Many people, especially in IT, assume that subscriptions are designed to extract higher fees from customers and certainly any given vendor may raise prices in conjunction with changing models, but fundamentally subscription pricing is purely a licensing approach and does not imply and increase in cost. \u00a0It may, potentially, even mean a decrease.<\/p>\n
Software vendors like subscription pricing for three key reasons.<\/p>\n
The first is license management. \u00a0With traditional software purchases it was trivially easy for customers to install multiple copies, perhaps accidentally, of software causing a loss of revenue if software was used but not licensed. \u00a0License management was traditionally complicated and expensive for all parties involved. \u00a0 Moving to subscription models makes it very easy to clearly communicate licensing requirements and to enforce policies.<\/p>\n
For customers purchasing software, this change is actually beneficial as it lowers the overall cost of software because it helps to eliminate illegitimate uses of software. \u00a0By lowering the piracy rate the cost that needs to be passed on to legitimate businesses can be lowered. \u00a0Whether this turns into lower cost for customers or higher margins for vendors it is a benefit to all of the legitimate parties involved.<\/em><\/p>\n The second is eliminating legacy versions from support. \u00a0In traditional software and support models, customers might use old versions of software for many years resulting in many different versions requiring support simultaneously. \u00a0Often this would mean that support teams would need extensive training for a long tail of legacy customers or separate support groups would be needed for different software versions. \u00a0This was extremely expensive as support is a key cost in software development. \u00a0Likewise, development teams would be forced to be split with most resources focusing on developing or fixing the current software version while some developers would be forced to spend time patching and maintaining legacy versions that were no longer being sold. \u00a0These costs were often enormous and meant that great energy was being spent to support customers who were not investing in new software and came at the expense of resources for improving the software and support for the best customers. \u00a0The move to subscription licensing generally eliminates support needs for legacy versions as all customers move to the latest versions all of the time.<\/p>\n Again, this is a move that greatly benefits both the vendor and good customers. \u00a0It only sometimes is a negative to customers who were relying on being “expensive to maintain” customers who used old software for a long time rather than updating. \u00a0But commonly even those customers benefit from not running old software, even if this is not how they would operate if they had their druthers. \u00a0The benefits to the vendor and to “good” customers is very large, the penalty to customers that were formally not profitable is generally very small.<\/em><\/p>\n The third reason, which is really a combination of the above, is that customers who previously depended on buying a single version of a product and continuing to use it for a very long time, likely many years past the end of support, are effectively eliminated. \u00a0These customers, lacking a means to buy in this traditional manner, are normally either lost as customers (which is not a financial loss as they were not very profitable) or they convert to higher profit customers, even if begrudgingly. \u00a0This makes vendors very happy – separating the wheat from the chaff, so to speak. \u00a0Cutting lose customers that were not making them money and creating more customers that are making them money.<\/p>\n Now that we have seen why vendors like this model and why we are likely to see more and more of it in the future as large, leading vendors both demonstate the financial value of the change and condition customers to think in terms of subscription license models, we will look at why IT departments and businesses should consider embracing this model for their own reasons.<\/p>\n To the business itself, subscription licensing offers some significant value, especially to finance departments. \u00a0Through moving to subscription licensing we are generally able to move from capital expenses (capex) to operational expenses (opex) which is generally seen as favorable. \u00a0But subscription value is far larger than that. \u00a0Subscription pricing gives cost predictability. \u00a0A finance department can accurately predict their costs over time rarely being surprised whereas in the old approach software was largely forgotten and then some need would require an old package to be updated and suddenly a very large invoice would be forthcoming with potentially very little warning (often followed by large re-training expenses due to the possibly large gap in software versions.) \u00a0With subscription pricing, costs normally fluctuate fluidly with employee count. \u00a0As new employees are hired the finance department can predict exactly how much they will cost. \u00a0And when employees leave subscriptions can be discontinued and cost reduced. \u00a0Only software that is truly used is purchased. \u00a0The need to overbuy to account for fluctuations or predicted growth no longer exists. \u00a0Subscription licensing also leverages the time-value of money allowing businesses to hold onto their funds for as long as possible requiring them to pay only for what they use as they use it.<\/p>\n For IT the benefits are even greater. \u00a0IT should benefit from having a better relationship with finance and human resources as the costs and needs of incoming or outgoing users are better understood. \u00a0This eliminates some of the friction between these departments which is always beneficial.<\/p>\n IT also benefits from the effective enforcement of best practices. \u00a0It is common for IT departments to struggle to convince businesses to invest in newer versions of software which often results in support issues and unnecessary complexity and less than happy users. \u00a0With subscription pricing, IT is constantly supplied with the latest software for users which, in nearly all cases, is an enormous benefit both to IT and to the users of the software. \u00a0This eliminates much of the friction that IT experiences with the business and with management by moving the need for updates to an external mandate and no longer something that IT or the users must request.<\/p>\n IT benefits from easier license management on their end as well. \u00a0It is generally far easier to determine license availability and need. \u00a0Audits are unnecessary because the licensing process is generally handled (generally, nothing technically requires this) via an authentication mechanism with the vendor which means that unless specific effort is taken to violate licencing (cracking software or some other extreme measure) that licensing accidents are unlikely and easy to correct.<\/p>\n IT may also benefit from easier ability to handle complex licensing situations such as providing a higher feature set level for one user and not for another. \u00a0Licenses can often be purchased at a minimum level and upgraded if more needs are discovered. \u00a0The ability to easily customize per user and over time means that IT can deliver more value with less effort.<\/p>\n Many of the objections with subscription licensing are not actually with subscription licensing itself. \u00a0Often it is a perception of higher cost. \u00a0This is, of course, difficult to prove since any given company may choose to charge anything that they want for different license options. \u00a0Microsoft offers both subscription and non-subscription license options for some of their key products such as MS Office. \u00a0This gives us a chance to see how they see the cost differences and benefits and to compare the options so that we can find the most cost effective option for our own business. \u00a0By keeping both models Microsoft can be audited by their customers to keep costs of each model in line. \u00a0However, by offering both they also lose many of the benefits that pure subscription models bring such as needing to support only a single version at a time.<\/p>\n Adobe, on the other hand, made the switch from traditional licensing to subscription licensing basically all at once and appears to have decided to raise their prices at the same time. \u00a0This is very misleading because Adobe actually raised the price, and it is not the subscription model creating the price increase. \u00a0The benefits of subscription pricing are benefits of the model. \u00a0The pricing decisions of any given vendor are a separate thing and must be evaluated in the same way that any pricing evaluation is done.<\/p>\n The other common complaint that I have heard many times is an inability to “own” software. \u00a0This is a natural reaction but one that IT and business units should not have. \u00a0In a business setting software is not owned by people and we should have no emotional ties to it. \u00a0Software is just another tool for completing our work and whatever gives us the best ability to do that, at the best price, is what we want. \u00a0From a purely business perspective, owning software is irrelevant. \u00a0The desire to own things is a human reaction that is not conducive to good business thinking. \u00a0It is also very valuable to point out that IT should never have this mental reaction to owning software – it is the business, not the IT department or the IT professionals, who own software in their business. \u00a0IT is simply selecting, deploying, configuring and managing the software on behalf of the business that it supports.<\/p>\n Overall I truly believe that subscription licensing models are good, in general, for nearly everyone involved. \u00a0They benefit vendors in such a way that it enables them to be more viable and profitable, while making it easier for IT departments to deliver better value to their users often while enforcing many best practices that businesses would otherwise be tempted to\u00a0avoid. \u00a0The improved profitability may also encourage vendors to pursue niche software titles that would have been previously unaffordable to create and support. \u00a0Vendors, IT and end users are nearly universal winners while businesses face the only real grey area where pricing may or may not be beneficial to them in this model.<\/p>\n Originally posted on the StorageCraft Blog<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" With big name, traditionally boxed products like Microsoft Office and Adobe’s Creative Suite turning to new subscription licensing models we, as IT, have to look into this model and determine if and when it is right for our businesses. \u00a0In some cases, like with MS Office, we have choices to buy boxed products, volume license … Continue reading Should IT Embrace Subscription Licensing<\/span>