We are often asked the difference between Licensed software vs Subscription based software accesses that (SCC IT) offer, here is a brief explanation indicating key differences (pros and cons)
| # | Factors considered | Licensed Software Cost | Software usage on subscription basis | ||||||||||
| 1 | Raw Software Cost | One time License cost are mostly on higher side | Initial setup and localization cost + recurring subscription cost. | ||||||||||
| 1.1 | Cost of Deployment (as licensed software is normally delivered in CD/DVDs) thus they are usable only when these are deployed on machines within the premises | Cost of hardware (Servers -Database/Software and Network server) are to be included in the cost | These upfront cost factors are less significantly as these are shared by the software supplier with other customers | ||||||||||
| 1.2 | Cost of Hardware upgrades: Not to underestimates the evolving hardware industry, hardware upgrades are part of recursive expenses to keep operations live | Cost of upgrades need to be budgeted | End customers are insulated from this factor and software suppliers keep their infrastructure in sync with industry trends | ||||||||||
| 1.3 | Cost of IT man power | Required to maintain software operation ability | No need for specialized IT man power | ||||||||||
| 1.4 | Cost of licenses for technology used for application | Cost of Language (.Net for eg) and database (Oracle) need to be included in addition to the business application | Cost is included in first time setup fees and shared amongs many other customers thus much less in comparison | ||||||||||
| 2 | Cost of Maintenance | Organisation may need to sign separate annual maintenance contract also as otherwise licensed software provider may not give support to your operations | Includes cost of maintenance within its subscription cost. | ||||||||||
| 2.1 | Cost of Logistics to maintain operability (office space, electrical, power backup etc) | Increase in operational cost of enterprise | None, all cost included in subscription fees | ||||||||||
| 2.2 | Service and Support Quality Assurance | AMC cost is normally taken upfront at the time of start of period with no assurance except contractual clauses (that may not be used for the sake of litigation), in case of poor service, cost incurred on license has to be written off | As it is monthly or quarterly service, supplier is always under pressure to deliver good service to the customer. Customer power is much stronger in these relationships. | ||||||||||
| 3 | Cost of software upgrades | Software upgrades may be charged | These costs are included in the subscription cost. | ||||||||||
| 4 | Cost of Visit to site (as Licensed software may be deployed onsite server) | Annual Maintenance supplier may charge for every visit to onsite as an addendum cost | As software and hardware are hosted on internet, any problem could be diagnosed remotely. | ||||||||||
| 5 | Number of Users: Number of users are dynamic in any enterprise thus a scalability (up or down) must be weighed accordingly | Licenses are mostly issued in term of number of users, thus cost incurred on license for the users could not be reversed or reduced in case your user base shrink. If it is not unlimited license, you may have to incur cost of license for every ramp-up in user base | Freedom to reduce or increase number of user as and when it may be required. Thus reducing the cost or increase the cost when it is appropriate depending on situation. | ||||||||||
| 6 | Cost of Decommissioning (may be required for multiple reason)
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The cost spent needs to be written off | Subscription based model,Simply switch it off at no cost to provider or your firm. You just need to inform the supplier to stop the service from next billing cycle. |
Also note: In case you have taken specialised license software for limited users that not proportional to your real user base (eg. in Calibration industry, license software may be taken only for operator staff who would take observations from engineers and fill it in the application), the cost of operator staff should be added in such cases to arrive at real cost for the purpose of comparison with the subscription based usage model.
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Trend in favor of subscription based model has forced large licensed software provider providers to offer its application on cloud server based on subscription model.
