Channel: MSPs / VARs / SIs

Channel Sellers: Is There a Future for Perpetual Licensing?

October 27th, 2022

By Nikhil Korgoankar, Regional Director, Arcserve India

Software-as-a-service (SaaS) solutions are increasingly popular. The 2022 SaaS industry market report projects the global SaaS market to reach $720.44 billion by 2027—one of the IT industry's fastest-growing categories. There are many reasons many vendors, including backup and recovery solution vendors, are moving to a SaaS subscription-only model.

But the most important reason is that it provides them with a steady stream of recurring revenues, supporting more accurate financial projections. Subscription pricing models also make these vendors more attractive to investors in public and private markets. But is a subscription-only model the best choice for customers, too? Not always. The reality is that vendors offering only a subscription model are making some of their customers—and channel partners—very unhappy.

Some customers are complaining that the cost of their data backup solution could have doubled or even tripled after their vendor stopped selling perpetual licensing on July 1, 2022. That forced the vendor’s users to switch to a subscription model. Understandably, many customers on perpetual licensing agreements are uneasy about moving to subscription-based models. The reasons are fears of higher costs and a belief that a subscription model primarily benefits data backup and recovery vendors.

Comparing Perpetual Licenses to SaaS Subscriptions

We believe perpetual licensing still has a place in the digital marketplace. But it’s crucial for customers to choose between staying on their perpetual license or moving to a SaaS model.

But first, let’s step back and define each payment option.

A perpetual license is a traditional approach to buying software. The user pays for the license when they make the purchase, and they get to use the software for as long as they want. A perpetual license may also give them the right to download updates to the software and receive technical support if they have a maintenance and support contract in place.

SaaS is a subscription-based service where the user typically pays a monthly or quarterly fee to use the software. As part of the agreement, the user usually gets the latest software updates and versions. The key benefit of SaaS is that it makes software purchases much less expensive at first. That’s especially appealing if the customer is a small business that doesn’t have—or doesn’t want to spend—the substantial upfront capital it can cost to buy a perpetual license.

That said, perpetual licenses can offer a better return on investment over the long term. Generally, the breakeven point is about seven years when comparing the two license payment structures. After that, perpetual licensing can be the better option because it becomes less expensive with each passing year.

Multiple Options: The Best of Both Worlds

Vendors that only offer a subscription model may limit their total addressable market (TAM). That’s especially true when targeting mid-size and enterprise companies. Vendors shouldn’t restrict themselves to providing just one kind of license. In fact, many vendors offer multiple pricing models, including monthly subscriptions, annual pre-paid plans, and perpetual licenses that let customers use the software only for a year. The beauty of offering multiple options is that it enables the vendor to match every customer’s preference and requirements.

Multiple options are crucial for vendors of data backup and recovery solutions. It turns out that many organizations could choose to skimp on these services if they are only offered a subscription model—especially if the cost of backing up its data increases over time. That’s a problem, as data backup is a fundamental business necessity today, as businesses must protect themselves against ever-increasing ransomware attacks, cyberattacks, and other disruptions.

Channel Partners: Expertise Plus Proven Solutions

Every company must have a solution in place to handle data protection and defend against disasters. But not every company has the financial resources or the personnel to deploy and maintain these solutions.

That’s why many turn to resellers and managed services providers (MSPs)—like Arcserve’s many channel partners. These experts help them evaluate and operate the backup and recovery tools they need to securely store and manage their ever-increasing volumes of data while meeting compliance requirements.

These channel partners can also offer data backup and recovery solutions from their partner vendors that are cost-effective and highly scalable. Unfortunately, some partners don’t have business systems to support a subscription model, so they only offer perpetual licenses to their customers. Others may understand that the subscription model can cost more over the long run and, as a result, avoid selling software that way. Regardless, customers are more likely to look for data backup and recovery vendors that offer a variety of licensing models if they want choices.

The Bottom Line on Perpetual Licensing

Perpetual licensing isn’t going away anytime soon. Software vendors, including data backup providers, need to keep all their options open when it comes to licensing. That gives them a clear advantage in meeting customer needs and budget requirements.

If you’re an MSP, VAR, or reseller, learn more about becoming an Arcserve partner.

To learn more about Arcserve solutions, find an Arcserve technology partner.

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