Is subscription software costing you more than you think?

In the last few years there has been a wholesale move from buying software as a perpetual license with a support contract to purchasing on a monthly subscription. Often that subscription is per user based.

 

The great thing for businesses is that the cost of entry to using a piece of software is greatly reduced as there is no up-front capital cost to pay. The downside is that, precisely because there is no capital spend, these decisions do not get scrutinised as perhaps they should.

When you compare the cost of a subscription versus the historic license cost the lifetime cost of subscription software starts to exceed the traditional license cost at about the 4-5 year mark. If you consider that a good piece of software will be used in a business for 10 or more years, the lifetime cost of a piece of software bought on subscription may be 3-4 times higher than that bought on the license model. It is no wonder that software providers prefer the subscription model.

It does not necessarily make buying software subscriptions a bad purchase decision, it just means that the decision should be taken with eyes fully open. Different procedures are needed to make sure value is being realised.

With monthly subscriptions there is no natural trigger point (as at annual renewal) for the value the software delivers to be reviewed. Businesses can therefore miss out on improvements in functionality that the continuous upgrade methodology drips into the software. Businesses can end up using a very small percentage of the functionality that is available and miss the opportunity to improve processes that new functionality can deliver.

Monthly subscriptions are not all bad, the ability to grow (and maybe shrink) in small increments (or decrements) in line with the business. Many subscriptions allow different rates to be paid for different levels of functionality allowing costs to be tailored more closely to a user’s needs.

Unfortunately, in summary it is just another process that needs to be implemented in the business to ensure optimum value.