Everything You Wanted to Know about Perpetual Licenses [Guide]

The mighty perpetual software license model remains one of the most popular monetization strategies for both software and hardware vendors alike. By granting licenses that do not expire, an ISV can collect upfront payment when a customer purchases software, and keeps the opportunity to upsell maintenance, professional services, or software upgrades.

Despite an upfront initial cost, end-users often prefer perpetual software licenses as it usually means a lower total cost of ownership for them, along with a choice for when to upgrade their software products.

There are plenty of products where the subscription model simply does not make sense, and where the customers get the most value by being allowed to use the software forever.

What Is a Perpetual Software License?

The perpetual license is a commercial licensing model by which a software vendor grants permission to an end-user to use their application forever ("perpetually").

The important thing is that a perpetual license pertains to the rights to use the product. It usually does not come included with unlimited and perpetual updates and support. Most software agreements include mention of end of life.

What Categories of Software Are Usually Licensed Perpetually?

Operating Systems are typically distributed with a perpetual license model. There's no subscription to MacOS or to Microsoft Windows.

Video Games with an offline mode are usually licensed as perpetual software. I am free to enjoy all of games on my Nintendo Switch forever, for example.

Free Commercial Software, such as web browsers are usually granted with a perpetual software license.

Open-Source Software typically grants the end-user what is technically a perpetual software license, since the software may be used indefinitely, provided that other terms are also respected (by giving credit to the copyright holder)

What Does Perpetually Licensed Software Typically Include?

A perpetual software license for a given app may include:

• rights to use a major release or version of an application

• discounts on upgrades to future releases to the product are common

• updates and minor upgrades

• basic technical support, with an option to purchase premium technical support.

You have the freedom to use the software as long as it remains compatible with your system, but major upgrades may require separate purchases.

What Are Some Benefits to the Vendor for Issuing Perpetual Licenses?

Collection upfront of payment granted via this license model can facilitate cashflow management of the development lifecycle for many ISVs. Often times, it will take a vendor 2 or more years to collect the full LTV of a customer on a subscription, meaning that investments can be slow, especially for bootstrapped startups. Collecting a large amount of the LTV upfront can help the vendor deploy capital faster.

Separate contracts for software and services: a perpetual license agreement may or may not include mention of updates, or support, which can be separate agreements altogether. This model also implies that the vendor is not under obligation to maintain their product, and can sell it as-is.

Conversely, subscription based software licensing always come with support and updates, otherwise it becomes difficult to justify recurring billing for software subscriptions.

What Are the Main Benefits to the End-User of Perpetual Licensing?

There are multiple advantages on the end-user side when it comes to having perpetual licenses.

Better control for software updates (not everyone wants the most up to date version of a product). There are many industries that do not want the most up to date versions of products. For example, when introducing 3rd party software licensing into their own stack usually has internal testing and deployment. Constant updates (especially if they have breaking changes) is a risk. Certain industries, such as space and defense, have stringent security policies, and often need to pre-approve specific versions of a product before they can be de

Although the initial cost may be higher upfront, perpetual licenses can lower the total cost of ownership for the software. Skipping a few major releases might still be a satisfactory update interval for many customers, which would be less expensive in the long run in comparison with a subscription or a per use model.

What Are Some Reasons the Perpetual License Model Is So Prevalent?

There are a few reasons why perpetual licenses are still popular to this day. When a customer purchases software under a perpetual license, they are essentially buying the software rights in perpetuity, as opposed to renting it.

Historical Consumer Habits:

Pre-internet, software was delivered via a physical medium (DVDs, or Floppy Disks). Given the constraints around verifying usage, and sending updates, the simplicity of the perpetual license for major versions was almost always the most practical approach to monetizing software.

Although the always-on connections made delivering updates and patches gave rise to subscription software licenses, the status quo for many segments of consumer and B2B software remains the mighty perpetual license.

Local Usage or Infrequent New Feature Releases:

If the product does not need to retrieve content or resources from a server (which have their own unique value), it's often times difficult for a vendor to justify adding a paywall to their product with a subscription license model.

Similarly, if a software product or service is not constantly evolving, then distributing using a perpetual license model usually makes the most send.

Incremental Monetization Provided as Add-Ons:

There are many ways to monetize software that does not use a subscription model. For example, the core product might be distributed using perpetual software licenses, with a maintenance fee charged for software updates, for example.

Perpetual license models might be granted for offline use of the application, with a software subscription for online use. This is common in the video gaming industry (I pay a monthly fee to play Mario Kart 8 online, for example).

Can an Independent Software Vendor Monetize a Perpetual License After It Has Been Issued?

A perpetual license usually limits the end-user to a specific version of the software application, and may or may not include updates. ISV can charge for upgrades to more recent versions of their application, and can also charge a maintenance fee for updates.

Another strategy would be to offer different editions of your software product and manage an upgrade policy between the tiers. For example, it is is possible to offer a basic (free) tier of the application and provide additional features as paid add-ons. The basic tier can use a perpetual software license

Subscription cancellations can happen quickly, once the customers start looking at competing software subscription services or once they feel like the recurring charge is greater than the value they attribute to the software.

What Are Some Drawbacks for the Consumer Considering the Perpetual Licensing Model?

There may be some significant downsides to a perpetual model, and customers may be better served with other license schemes, such as the subscription license model, a "pay-per-use".

Higher Upfront Costs. Perpetual licenses are usually paid for upfront and amortized over time. Consumption or subscription licensing better matches the value derived from usage and payment for the software license.

Managing Major Product versions can be problematic: Subscriptions enjoy the benefit of maintaining single or a small number of supported versions for a product, simplifying software procurement. Perpetual licensing can be challenging for an ISV to manage, and control who has access to which version of a given product.

What Are Some Alternatives Perpetual Software Licensing Model?

The main license models that are not perpetual licensing have some validity period component, which are usually seen as:

Software Subscription Model:

• Most software-as-a-services follow a subscription model, meaning that the rights to use a software application are only granted for a specific period of time.

• All users typically have the right to use the most up to date version of the product or service.

• Whereas the perpetual licensing model usually means the user pays upfront, subscription software lowers the barrier to entry for the user, while typically increasing the customer lifetime value for the Vendor.

We wrote a guide on SaaS and subscription models for software.

Pay-Per-Use:

• Also known as licensed usage metering, this is consumption-based licensing model.

• While consumption-based software licenses typically lack specific validity periods, perpetual licenses, on the other hand, do not track or limit usage, making them distinct from this type of software license.

• Charging per number of API requests is an example of consumption-based software licensing.

• Remember that a software application may have components that are licensed perpetually, and other components or add-ons have a validity period.

What Is the Difference Between Perpetual and Subscription Software Licenses?

Generally speaking, the main difference is the source of truth. LicenseSpring acts as the source of truth for the license validity for perpetual entitlements, whereas a CRM or a recurring billing system would be better suited to act as a source of truth for a subscription. Check out the LicenseSpring integrations to see which ones we support!

At first glance, the time limitation feature sets subscription licenses apart from perpetual licenses.

We ensure continuous synchronization between the license status and the subscription status.

So, as long as the subscription remains active, the license remains valid and accessible.

Only when we receive notification from the recurring billing system indicating that the subscription is no longer active, the license is then disabled.

This functionality mirrors perpetual licenses, where online license checks consistently pass unless intentionally disabled or revoked by the vendor.

How Vendors Use LicenseSpring to Offer Both Perpetual and Subscription Licenses?

LicenseSpring allows software and hardware vendors issue different license models for the same product, including perpetual, consumption, or time-limited licenses, meaning that you can configure the state of your product according to your license agreement, without having to create separate products.

We offer versioning and distribution capabilities for your product. We include a timestamp for maintenance expiry, which can be modified for any license issued. For example, you can compare the expiry of the maintenance window with major product releases to easily deliver the most up to date version of your product that the customer is entitled to.