IDC predicts perpetual licensing exodus

Some vendors who try to support both a perpetual and subscription model will 'find themselves in no-man's land', says market watcher

At least three software vendors will move to scrap all perpetual licensing in 2016 as they struggle to square it with their burgeoning subscription-based businesses.

That was one of 10 predictions made by market watcher IDC as it set out its vision of how the software licensing and pricing market will evolve in 2016.

Writing in a Pulse Post on Linkedin to promote the research, IDC research vice president Amy Konary predicted that software subscription revenues will grow by 21 per cent next year to $130bn.

The main benefit to IT buyers of moving from a perpetual licensing to a subscription model is the ability to purchase software more efficiently by aligning costs with experience or use, Konary said.

"In addition, subscription models are typically more transparent and less complex than perpetual counterparts, and offer customers the ability to pay for software via an operating budget," she said.

On a related note, Konary predicted that at least three software providers will announce in 2016 the intent to end all perpetual licensing.

Some vendors that try to support both a perpetual and subscription-based model will "find themselves in a no-man's land of trying to sell two different things and not having a real significant focus on either one", she explained.

Stuart Fenton, chief executive of Microsoft CRM partner QuantiQ Technology (pictured), said the prospect of vendors exiting perpetual licensing would not surprise him.

"It's becoming increasingly difficult to justify perpetual licensing models," he said.

"Software isn't going to be developed any more in big bang releases. We are moving towards an ongoing release methodology and the only way that really works is in a subscription model, where you're constantly being updated with the latest features and functionality."

Licensing complexity

Konary also predicted that software licensing complexity will indirectly cost organisations an average of 25 per cent of their software licensing budgets in 2016.

Complexity leads to costs when organisations "license up" to mitigate compliance issues, she pointed out. End users also rack up costs because of non-compliance, which is tough to avoid due to the complexity in licensing, Konary added.

The task of getting licensing estates in order is a fraught one due to the hundreds of different types of licence that must be administered and the fact that sources of important licensing information are often paper-based, she explained.

The problem is not helped by the fact no two vendors license their software in exactly the same way, Konary added.

Among Konary's other tips were that outcomes-based software pricing models will be an option for 20 per cent of applications by 2017.

"IDC is observing a cross-industry shift from ownership-centric models to experience- or relationship-centric approaches that represent a more personalised way of doing business with customers," she said.

"Many of the most disruptive companies today are focused on capturing the value of experiences. Outcomes-based pricing has its roots in business value based pricing, which is represented by a business process-related measure."