Perpetual License: A Complete Guide in 2023

Writa Bhattacharjee

Senior Writer:

green tickReading Time: 8 Minutes
green tickPublished : January 12, 2023

A license is formal or official permission to do, use, or own something. For example, in everyday life, we come across driving licenses, fishing licenses, real estate licenses, etc. Performing these activities without a license can lead to fines and punishments.

Licenses are also important in the field of intellectual property. A license allows someone to use the intellectual property of another person or company legally. It is an agreement between the owner of the intellectual property and its user.

Licenses are especially important in the field of software. You can choose between perpetual, subscription, or annual licenses when buying a software license. However, before you can decide which works best for you, let us understand in detail what a perpetual license is.

Perpetual software licenseSource

What is Perpetual License? 

The word “Perpetual” means “for all time”. Therefore, “Perpetual License” means a license valid for all time or “in perpetuity”.

A perpetual license differs from other types of licenses because of the term for which it is valid. Other forms of licensing include subscription and annual licenses. Both these types of licenses are for limited periods only.

software usage keySource

What is a Perpetual Software License?

A perpetual software license is a license that allows you to use the software indefinitely.

When you buy a perpetual license, you pay the entire amount for it upfront. In return, you can use the software as long as you need. Typically, you host the software on your own server.

A perpetual software license may also include regular updates and technical support. However, downloading updates and technical support are often included in the license for a limited time. After that time, you would need to pay for these facilities. In other cases, you might have to pay for updates and support right from the beginning. 

The biggest point of concern when buying a perpetual license is the cost. Because you get lifetime valid rights to use the software, the upfront cost is usually high. You do get good discounts at times because of the high price. Still, a large upfront investment puts the financial risk on you or your company.

Also, with a perpetual license, you are responsible for updating and maintaining the software. Because of these reasons, some people hesitate to buy perpetual licenses. So, let us consider some benefits to make a more informed decision.

multi-user software licensingSource

What are the benefits of a Perpetual License?

There are many benefits of a perpetual software license. A perpetual license can benefit both vendors and customers.

1. Benefits for vendors

Benefits of a perpetual license for vendors include:

A. Get more revenue upfront

Since customers pay for the license in one go, vendors make more money upfront than they would through other types of SaaS licenses. However, for non-perpetual licenses, the total cost gets divided across multiple periods. So, the revenue earned in one year or one licensing period is much lesser.

B. Not affected by the risk of customer churn

Vendors selling software licenses outright don’t have to worry about customer churn. Churn refers to customers changing vendors from one period of licensing to another. In periodic licensing models, vendors lose out when customers shift to competitors. However, since customers have already made the full payment in perpetual licensing, there is no fear of loss from churn.

software licenseSource

C. Easier to break even

Due to earning more revenue upfront, vendors issuing perpetual licenses break even faster. In other licensing models, it can take up to three years or more for a vendor to break even. If the customer stops using the product before then, the vendor faces loss. With perpetual licenses, the revenue is already earned even if the customer shifts to the competitor. So, break-even happens faster.

D. Continued revenue through support

Most perpetual licenses don’t include updates and maintenance. Even those that do have a time limit on that support. So, vendors offering perpetual licenses can keep earning through annual support and maintenance contracts.

licensed software usesSource

2. Benefits for customers

Benefits of a perpetual license for customers include:

A. No surprises

When customers buy perpetual licenses, they know what amount they are paying. Therefore, there are no unexpected increases in price, which can happen with non-perpetual licenses. Customers also know the full functionality of the software as they buy it.

B. Long-term use

A perpetual license is valid for an unfixed period of time. Therefore, a customer who purchases such a license can use the software for as long as they want to by paying only once for it. And by paying only for an annual maintenance agreement, they can also keep the software updated. As long as the software is functioning, they can keep using it.

perpetual licensing benefitsSource

C. Clear ownership and control

When customers buy a perpetual license for the software, they own it fully. They store the software on their servers. They are also in charge of updates and upgrades, which gives them full control of how and when the software is used.

D. Better cost-effectiveness in the long-run

Even though the initial cost is high for perpetual licenses, they are cost-effective in the long term. Spread over the entire lifetime of the software, the investment becomes highly worthwhile. Besides, customers can sometimes get attractive discounts on the price because they pay in one go.

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What is Perpetual License Model?

The perpetual license model refers to the traditional pattern of software licensing. In this model, the customer pays for the full software in one go and gets clear ownership in return.

This licensing model is very similar to conventional purchasing. For instance, if you want to buy a television, you pay for it and become its owner. If you need repairs or maintenance on the television, you can opt for a maintenance contract after the initial warranty or service period is over.

In a perpetual license model, the same thing happens in the case of software. First, you can buy the software outright and store it on your servers. Then, once the initial support and update period is over, you can opt for annual maintenance contracts for the software.

Perpetual License vs Subscription License

Among non-perpetual license types, Subscription-based licenses are quite popular. The popularity of this type of license is because of companies’ move towards SaaS management software solutions and cloud-based software.

In the subscription licensing model, users pay monthly fees for using the software. The subscription includes updates and technical support. It is like renting the software.

Perpetual licenses and subscription licenses differ in several key ways:

1. Payment

In the perpetual licensing model, customers pay the entire price upfront. Therefore, the amount that they pay is large. However, in the long run, it is cost-effective.

On the other hand, in the subscription-based model, customers pay monthly. Therefore, the amount that is paid at a time is small. However, over time, cumulative costs can be high.

2. Implementation

In the perpetual license model, customers usually host the software on their own servers. Therefore, the software might need a high level of customization and integration to meet the customer’s requirements. 

However, software with subscription licenses is hosted on the vendor’s servers or in the cloud. They also offer a lower degree of customization.

types of licenses comparisonSource

3. Upgrades and Support

In the perpetual license model, the customer gets limited time support and upgrades. They must pay for a separate annual maintenance agreement to get these features and are responsible for updates and upgrades.

On the other hand, subscription licenses include updates and technical support. Therefore, there is no need for a separate annual support agreement. The customer does not need to worry as updates are the vendor’s responsibility.

4. Security

In the perpetual licensing model, customers have more control over the safety and security of the software. This happens because the software is generally hosted on the customer’s servers.

In the subscription licensing model, however, the customers don’t have control over the software’s security as the vendor’s servers host the software.

What’s the difference between Perpetual License vs Annual License?

Annual or yearly licenses are another type of non-perpetual software license. As the name suggests, they are valid for one year only.

Customers have to buy these licenses every year. Once customers do so, they have rights to use the software for a year. However, if they don’t purchase a new license after that, they can no longer access the software.

These licenses are very similar to subscription licenses because of the payment model. The software is hosted on the vendor’s servers, like subscription licenses. And the annual cost includes updates as well as technical support. Therefore, the differences between the perpetual licensing model and the annual licensing model are parallel to those between the perpetual licensing model and the subscription marketing model.

Cost-benefit analysis of software licensesSource

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How to Decide which Licensing Model is Right for You?

Deciding on the right licensing model for you or your business can be difficult and confusing. To make the right choice between the different types of licensing models that we have discussed, you can consider these factors:

1. Compatibility

Software with a perpetual license will work with your other business applications as long as it receives regular updates. However, these upgrades come at an extra cost. At the same time, rapidly changing technology might compel you to use new hardware, which might make your older software obsolete.

Software with a subscription/annual license receives updates as part of the deal at no extra cost. In addition, your vendor can provide updates to ensure that the software works with your other business applications. And because it can be easily upgraded, the software is also more compatible with the latest hardware.

2. Scalability

For perpetual licenses, scalability comes at a higher cost. If your employees increase, you have to buy those many licenses upfront. If employees leave, you might find yourself in possession of more licenses than you need.

Subscription and annual licenses are more flexible in comparison. For example, you can add or reduce the number of licenses you use monthly or yearly. In addition, as the number of employees changes, you can change the amount you pay for software licenses to avoid losses.

3. Cost

For perpetual licenses, the upfront cost is significantly higher. Therefore, if your company has a lower cash flow, it might be difficult for you to purchase the software license outright. However,  a perpetual license can be cost-effective in the long term.

For subscription or annual licenses, there is no large upfront cost. This feature makes it easier for smaller businesses to manage their software needs. The recurring charge becomes part of the firm’s operational expenses. However, the total amount you pay can be quite high in the long run.

software licenseSource

Final Words

Ultimately, the right licensing model decision depends on what is most suitable and viable for your business. At the same time, it might happen that a particular software has only one type of licensing option available. In today’s age of SaaS solutions, for example, many vendors offer only subscription licenses. In that case, you might have no choice except a subscription license.

Perpetual License FAQ's

A perpetual license is valid for the lifetime of the software. If you own a perpetual license, you can use the software as long as it is viable (not obsolete).

Whether and how a perpetual license can be terminated depends on the exact provisions of the license. In addition, the legal position of the respective country on intellectual property can also affect whether a perpetual license can be terminated or not.

Both perpetual and subscription licenses have various pros and a few cons. A perpetual license is more expensive upfront, but it gives you clear ownership and is cost-effective in the long run. A subscription license is more economical on a regular basis and comes with updates and support. However, it does not give you ownership of the software.

A perpetual royalty-free license is a perpetual license that gives you the right to use intellectual property without having to pay royalties on its use.

Royalty is a sum that you pay to the owner of the intellectual property every time you use the said property. However, if you have a perpetual royalty free license, you would pay only the upfront cost for the property, e.g., software. You would not pay any royalty regardless of the duration or frequency of using the software or other IP.

A perpetual license fee is an amount you pay upfront to buy the license. It is a one-time fee and is often a large amount.

A perpetual license gives you the right to use the software indefinitely. A non-perpetual license gives you that right for a limited time only. Non-perpetual licenses can be subscription-based on annual.

A perpetual license can be transferable if the terms of the license include transferability as a feature. It also depends on whether the software itself has transfer capability. If a perpetual license meets both these conditions, it can be transferred from one computer or owner to another.

Updated : September 11, 2023

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