Question

Topic: Strategy

Perpetual Vs. Annual-right-to-use Licensing For Software

Posted by Anonymous on 3/29/2004 at 2:27 AM ET 250 Points
Dear People,

What is your guidance regarding pricing for business-to-business software today?

Specifically, I'm interested in your recommendations for pricing software on a Perpetual (plus annual maintenance) basis vs. an Annual-Right-To-Use basis.

Secondarily, I'm curious to hear your thoughts regarding how to convert between the two models. For example, when should the two models become equivalent?

As a working example, let's assume we are considering a software product that lists for $10,000 per user as a perpetual license, with annual maintenance costs of $2,000 for updates and access to support. What would be the equivalent annual-right-to-use license fee and what are your perceptions of the advantages and disadvantages of both models?

Finally, are there other models to consider as well?

Best Regards,
Peter
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RESPONSES

  • Posted by Chris Blackman on 3/29/2004 at 2:56 AM Member
    What does "perpetual" mean in the world of software? It sounds unrealistic. You mean if I pay the perpetual price, you'll keep me in all updates forever?

    Frankly, as a user, I find it implausible on two counts.

    One, I can't rely on you to be there forever.

    Two, every other package I have ever bought has had a finite life. So many years, then bang, upgrade or lose support. What makes you different?

    When I buy software I would expect that you will charge me to install (if I can't install myself) and to use the product and then for support. I think I could cope with the term "Purchase" versus "Lease" or "Annual usage charge". In which case I would expect that outright purchase might be the equivalent of three years annual usage charges (without support fees). But that's just me.

    If I pay annual usage charges I would expect to be able to upgrade to any newer version of the product, if applicable, for pretty much the same annual usage charge. Whereas if I bought the sftware outright in the first place, then you bring out a new version, I would expect to be offered that as a significant discount over a first-time buyer.

    Remember that market forces apply in all this. So there's a cross-relationship between utility/functionality, value and competitive (substitute) product costs. And TCO matters to me, far more than price.

    Hope this helps

    Chris Blackman
  • Posted by jcmedinave on 3/29/2004 at 12:04 PM Accepted
    Hello,

    It is important to offer different alternatives of price in order to afford the buyer decision and meet the different Customer needs (size, volume ...).

    a. Perpetual Licence: It will be better for the seller (finance, to tie the customer).

    b. Annual Right-To-Use: It will be better for the buyer (finance, support, freedom of change).

    I think it would be better a mix of both (option b + a), where you can add to a right of use the option to buy the license if the customer wishes it. (Win - Win).

    Bye,
    Juan Carlos
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