How to move from perpetual to 1 year software licenses

Discussions
#1

Greetings,

I noticed that more and more desktop software companies start to charge users yearly instead of selling perpetual licenses.
More and more desktop software products are sold on yearly or monthly base.
For example MS Office, Adobe Creative Cloud and even smaller products like Stencyl (game creation platform) now costs $199/year if you want to publish games for iPhone or Android.

With the classical perpetual licenses I sell now I have the following difficulties:

  • My niche is quite narrow, and the price should be high, but for many users the current price (about $300) is quite steep.
  • I cannot publish major upgrades yearly (actually it takes about 18-24 months), so it is not easy to get a regular income from the existing user base (a few thousand users).
  • A small number of old users upgrades to the new versions from old versions: they are either satisfied with the old version or find the upgrade price too high (probably because they purchased an old version way cheaper a few years ago).

So as a potential solutions I see:

  1. Adding time limited licenses (for 1 year or maybe for 3 months) in addition to current perpetual license.
    or
  2. Changing the model from perpetual licenses to 1 year subscription. And stop selling perpetual licenses completely.

Can you please share your thoughts on the move from perpetual to 1 year licenses?
What is the fair price for 1 year license if the price for perpetual license is 300 USD?

Thank you in advance.

#2

I donā€™t have any first hand data to share, but I did want to reply to say Iā€™m in the same boat and will be moving to a yearly license. I sell an ad server solution, and up to this point itā€™s been a lifetime license. Itā€™s really becoming non-sustainable with that type of license.

I watched a video of a company selling wordpress plugins, and they ran into the same issue, they started with lifetime licenses and the ongoing support costs ended up costing more than their profit from the sale. So, they changed to a yearly license and are doing just fine.

Most enterprise software is sold as a time period license with a maintenance contract to extend to future versions and support. Thatā€™s the approach Iā€™m taking. I will offer the new version of the product for $x and you can continue to use it forever. At the end of the year, they can continue to get all updates and support for 50% of $x each year they want to continue. This should help cover my support costs, and they donā€™t have to continue and will still have a working product they paid for, just no updates/support.

#3

I did this exact move 1 year ago for my WP plugins, based on the fact that WooThemes, EDD and others are all moving to similar models. Allowing indefinite support/upgrades for users that arenā€™t paying over the lifetime of the software is just insane, especially when you have ongoing growth. At some point, it will become unsustainable. Itā€™s only a question of when. For me, renewals started in January of this year.

A few prior license holders that had ā€œlifetime updatesā€ that got the notices were miffed AND vocal about the change. Iā€™ve had some renewals, but not everyone is going for it so far. Iā€™m getting less resistance from those that signed up ā€œafterā€ the change, but I also have less of them in the cohort right now.

My suggestion if you try this:

  • Notify the hell out of your users in advanceā€“about a month before the switch, about a week before, and then the day before is probably enough.
  • Make it abundantly clear why youā€™re doing this and phrase it in a way that doesnā€™t seem like youā€™re trying to gouge them
  • Provide some discount or incentive for them to upgrade (esp. for the lifetime ones that are getting the biggest change)
  • Positively address any concerns or public objections, because people WILL see them
  • Be prepared for some blowback, even after youā€™ve done all the above. :smile:
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#4

@quaffapint : Thank you for your reply.
I think your idea is more common, but I wonder, what are the planned incentives for your customers to pay 50% for the next year?

If their license works in the future years then probably they will decide not to pay until any problem with your software arrives.

I though of limiting the software by 365 days. My software is used by users a few times per month, so the idea is they will want the software to work on the next years. As an alternative they can purchase a perpetual license for a higher price.

For example
Old price: $300
New price: $120/year
or 600 USD (=$120*5 years) for perpetual license.

#5

As far as my current user baseā€¦With the current version itā€™s unlimited. Iā€™ll be offering all current users a free years license to upgrade to the next version. Hopefully that along with communication will cause the least amount of pain.

As far as how to get them to upgrade in the futureā€¦Iā€™m not actually pushing them to do so. Putting myself in their place, if I have a product I paid for and is working fine and I donā€™t need any support, why shouldnā€™t I just get to keep using it. I bought Windows, I bought photoshop, etc - I only have to pay again if I upgrade or need extra support. Incentives for them really comes down to if they want new feature X or need support, then they can pay for it, which pays for my time in development and support. If they donā€™t, theyā€™ve already paid for my time with their initial payment. It might not be the most lucrative model, but for my client base, I believe this is the most fitting, at least at this point. Maybe things will change once I start gathering metrics, weā€™ll see.

For your model, it sounds exactly like Tivo. Pay more now for lifetime license or pay x each time period. It seems to have worked for them for many years. Youā€™ll have to think how to limit it after that time period expires. Do you just shut it off, or scale it down like into trial mode. I donā€™t know your client base, but I would be less annoyed if it went to trial mode then shut off completely, and you also can still kinda use it which might be more incentive to renew. Shutting it off might lead you to forget about it.

#6

This might be personal preference, @quaffapint, but I donā€™t agree that perpetual licenses are necessarily better for the customer.

For any software I buy in my business, I prefer a subscription model. I want ongoing support, and I want to be on the latest version. I also want a predictable cost, and (once Iā€™ve chosen your software) I donā€™t want to have to spend more cycles: is the update worth it? Should I renew my maintenance?

My thoughts:
Price: If you release major upgrades every two years, then charge $150/year. If you release major updates every 18 months, then thatā€™s a pretty nice discount. (If you can split it into smaller, yearly updates, then thatā€™s a nice way to give regular value to subscription holders.)
Perpetual option: Keep the perpetual option, but on your marketing site, make the decision easy. Lay out the TCO. The perpetual option should include updates for a year.
Support: Support for perpetual licenses should expire after 12 months, or revert to some lower level of support.
Subscription billing: If you offer a subscription, please please please donā€™t make me go in and buy a new subscription each year.
Examples that spring to mind: Obviously Microsoft. I think their subscription pricing works out as a good discount if you plan on staying up to date. Jetbrains sells all their software on a ā€˜subscriptionā€™, which really just means you get 12 months of support & updates before you need to buy again. I donā€™t like it. Wish theyā€™d just charge me each year and send the receipt.

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#7

@danielstudds Just to clear up my plan - my new licensing will be subscription based, you pay $x now and 50% of $x for each year after. Iā€™m just offering the option to cancel before years end and have the software continue to work, albeit with no support nor future updates. I think thatā€™s the same thing youā€™re saying.

I guess the only question for the OP if he chooses the subscription route is what to do at years end of the customers license if they choose to cancel their subscription - does it continue to work in a reduced state or outright not run.