Microsoft’s Perpetual vs. Subscription Licensing Program Explained

August 10 - 2021

Microsoft recently announced that it will be sunsetting its Open License program which allows consumers to purchase perpetual software licenses directly through them. Though the date this change will go into effect has been pushed back a couple of times, it’s looking very likely that we are quickly nearing the end of this program. Here’s what Microsoft had to say about it:

The Microsoft Open License program was created over 20 years ago for small and midsized customers to buy multiple perpetual software licenses at a volume price. Microsoft is taking a significant step to simplify licensing by introducing perpetual software license purchases through the new commerce experience, as part of our Cloud Solution Provider program for partners, with a target availability date of January 2022. Small and midsized customers will benefit from a simplified approach and greater flexibility in how you purchase software licenses in a way that’s easy to understand, that directly improves licensing asset management, and with predictable costs.

What does this mean for me?

This simply means that as of January 1, 2022, you will need to purchase your Microsoft software licenses through a designated Microsoft Cloud Solution Provider (CSP) partner like Compugen. While this may seem like Let us explain.

If you were buying direct from Microsoft, you could purchase your software licenses through them, install them on your devices, and service them yourself—or through your internal IT team. For a large organization with, say, 100k employees, each one of them would require their own subscription that would then need to be installed, managed, and maintained. Most companies do not have the bandwidth to take that kind

of responsibility on, so they would look to a Microsoft partner to take that off their plate.

At Compugen, we provide this as a managed service offering which means that any moves, adds, and changes are covered under a service level agreement, with round-the-clock monitoring and dedicated technical support.

So yes, this change will require you to find a trusted CSP partner to procure Microsoft licensing through going forward. But, when you work with a company like Compugen who has an entire business practice built around Microsoft, you will actually be squeezing more value out of your existing software investment with a slew of added services designed to right-size your spend.

What is a perpetual license?

In the past, the traditional model for acquiring Microsoft Office software involved purchasing a one-time license that provided perpetual access to the software. This meant businesses would pay a single upfront fee and have the right to use that version of Office indefinitely. Upgrades to newer versions would require additional purchases, including the promotion itself and any associated maintenance costs. 

Under this model, the purchase of an Office license was typically considered a capital expense. It was treated as a long-term investment, similar to buying physical assets or equipment for the organization. Businesses would allocate budget resources to acquire these licenses, and they were accounted for as part of the company's capital expenditure.

However, the rise of cloud computing and Software-as-a-Service (SaaS) offerings has shifted how software licenses are acquired and managed. With the introduction of Office 365, Microsoft's subscription-based service, businesses can now pay a recurring fee to access and use Office applications rather than making a one-time purchase.

This subscription-based model offers several advantages over the traditional perpetual license approach. 

What does a subscription-based licensing model afford?

The subscription-based software-as-a-service (SaaS) model, exemplified by Office 365, offers businesses a convenient and cost-effective approach to accessing the latest software. With an Office 365 subscription, users are entitled to the most current version of the software, and Microsoft takes care of the necessary upgrades behind the scenes. This means businesses no longer need to purchase and install physical licenses for each user, streamlining the management and deployment process. Instead, organizations pay for the required access through a recurring fee, typically considered an operating expense. This shift from upfront capital expenses to operational ongoing expenditures allows businesses to align their software costs more closely with their actual usage and enables better budgeting and resource allocation. Moreover, the subscription model ensures that companies always have access to the latest features, updates, and security patches, promoting continuous improvement and reducing the burden of managing software versions across a large user base.

Perpetual License vs Subscription

The choice between a perpetual license and a subscription model for software acquisition is a decision that businesses must carefully consider. A perpetual license grants users the right to indefinitely use a specific software version, typically requiring a one-time upfront payment. This model was once seen as a capital expense and provided long-term software ownership. On the other hand, a subscription model offers ongoing access to the latest software updates and features for a recurring fee. It provides flexibility in budgeting by converting the purchase into more minor operational expenses. While a perpetual license offers ownership and stability, a subscription model ensures continuous access to the most up-to-date software, promoting innovation and adaptability. Ultimately, the choice depends on budgetary considerations, desired flexibility, and the importance of having the latest software enhancements.

What is a real-world example of how subscription-based licensing works?

Retail is a great industry to look at to understand the value a subscription licensing model can afford. During the holiday season, a retail store might

bring on new employees for a month or two to meet increased demand. If these seasonal employees required Microsoft licenses for tools like Office 365, the store would have to pay for an annual license for folks who would only be using that license for a short period of time.

In a SaaS model, the store pays for a one-month subscription and then stops paying for that access after the seasonal employees leave.

On the data center side, this store may also need to spin up a server to support more traffic to its website during this holiday rush. For time-bound data center projects, it’s much more cost-effective to spin up a virtual server for a few months than purchasing physical equipment that you would have to maintain forever.

Will a subscription-based model help me achieve my sustainable development goals?

When you move away from buying all your hardware and the power, heating and cooling that’s required to maintain a physical data center, you’re no longer consuming those resources yourself. So, there are certainly SDG benefits to pursuing a SaaS model.

When you move to this cloud-based model, you are lowering your organization’s overall carbon footprint as you no longer have to worry about replacing a physical server every three years.

Why Compugen as my Microsoft CSP Partner?

This is one of those times when the combined strengths of two companies are better together for you, the customer. Here’s how it works.

Compugen spins you up on Microsoft’s cloud tenants, so you’re connected to the services you want. These services run on Microsoft’s cloud which means that nothing sits on your device. Microsoft handles all the service updates, proactively, in the background.

Compugen helps you manage your subscriptions by ensuring that all information is always flowing properly and that your company can access everything guaranteed to you through your licensing agreement. And if there’s ever a problem, we help you solve it.

We’ll help you see and keep track of all the subscriptions you have, who they’re all assigned to, and what rules and permissions are associated with them. We make sure every single person who needs a license has one and will help you manage orphaned accounts in order to right-size your investment.

On the data center side, we follow your server naming conventions when spinning new ones up or down based on the needs of your business and provide usage details back to you to show you exactly what you’re spending and how to optimize that spend.

At the end of the day, it’s not about just lowering your overall spend as other partners might say. It’s about making right-sizing the spend and matching your usage to your needs.

We understand your business first and back your licensing requirements into it.

Everything You Need to Know Before Engaging a Microsoft CSP Partner

We created a tip sheet for anyone interested in learning more about what a Microsoft CSP should provide and how to best work with one to squeeze more out of your SaaS. Grab your copy here.

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Topics: Microsoft

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