Understanding Perpetual Licenses: Definition and Benefits

Commercial software licenses are configured in many different ways, and perpetual licenses are to this day still one of the most common licensing models.

In particular, software sold directly to consumers is often done through a perpetual licensing model.

Many computer games do not require a subscription to play, and many commercial software applications that run on mobile devices also have a perpetual license model that omits any notion of validity periods.

What Is a Perpetual Software License?

Perpetual Software licensing, as its name suggests, is a commercial licensing model by which a software vendor grants permission to an end-user to use their application for an indefinite period of time.

In other words, if you are granted a perpetual license, the app publisher allows you to use their application forever.

There are various other elements found within a license agreement, however, such as the number of authorized users, permitted usage environments, and specific purposes, among others.

The main distinction is that perpetual licenses lack a validity period associated with the right to use the software.

How Does a Perpetual License Work?

A perpetual license allows you to use a specific version of software indefinitely, without time limitations or ongoing payments.

You purchase the license once, and it typically includes updates for a limited time.

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 of the Benefits of Licensing Software Perpetually?

There are a few reasons why perpetual licenses are still popular to this day:

Historical Consumer Habits:

In the past, before the internet era, software updates were infrequent and challenging to manage.

Remember the days of CDs or even Floppy Disks? Patches, updates, and licenses were transferred through physical means. Due to the inconvenience involved, most software packages didn't rely on overly complicated licensing or subscription models.

Nowadays software updates and patches can be easily delivered online, but consumers have become accustomed to a particular approach.

Some individuals still anticipate the option to buy an application with a one-time fee, without concerns about it being deactivated.

Infrequent Usage From the End-User:

There is plenty of software that people want to have access to for very occasional usage.

For example, I don't need PowerPoint very often, but I like the fact that it's installed on my computer for the rare presentation I need to make once in a blue moon.

I also still play the occasional round of Cities: Skylines, and am glad I don't need to worry about my access being cut.

No Compelling Reason to Monetize Further:

Another reason for the prevalence of perpetual software licensing today is that a lot of software still runs on a local machine, and does not require a lot of maintenance or support, if any at all.

Unless there is some resource being consumed elsewhere or there are frequent updates and improvements to the software, rebilling for software can be difficult to justify from the end-user perspective.

Who Should Offer Perpetual Licenses?

Software vendors across various industries, such as desktop and mobile app developers, video game publishers, or vendors providing Standard Development Kits (SDKs) for integration into other software, often offer licenses without an expiration date.

At LicenseSpring, we encounter vendors who employ multiple licensing models for the same applications, one of which is a perpetual model. Providing this flexibility can help acquire customers with different concerns.

Specifically, customers have varying perspectives on the advantages and disadvantages of two different payment models: paying the total cost of ownership upfront for software versus opting for a Software as a Service (SaaS) model.

With the upfront payment approach, customers bear the entire cost initially but enjoy continuous access.

On the other hand, the SaaS model offers a lower entry point but runs the risk of service termination at any point.

It typically makes sense for the end-user to provide a perpetual software license if the version release cycle is infrequent, and there are few to no remote resources being used.

[Read my Guide on implementing a Subscription Business Model here]

Can an Independent Software Vendor (ISV) 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 a clever upgrade policy between the tiers.

As an example, it is possible to offer a basic (free) tier of the application and provide additional features as paid add-ons.

Vendors should be aware that increasing the lifetime value (LTV) of the customers who have been granted perpetual licenses typically requires the customer to pay for new versions of the application.

From a monetization perspective, it can be preferable to keep a customer forever and allow them to choose when they upgrade at their convenience rather than forcing them to subscribe putting them at risk of churning at any time.

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 from the software.

What Are Alternatives to Using a Perpetual Software Licensing Model?

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

Time-Limited Software Licenses:

• Time-limited licenses come with a pre-set expiry date, either as a fixed calendar date or a specific duration from the license activation.
• Once these licenses expire, the application is no longer authorized for use.

Subscription Licenses:

• In this licensing model, the end user pays at regular intervals and is granted the right to use the license during that specific period.
• Essentially, it is a time-limited license that automatically renews with each billing cycle.
• Typically, the license's validity is dependent on the subscription status, which is managed by the recurring billing provider (e.g., Stripe).

Consumption Licenses:

• Also known as licensed usage metering, this is a pay-per-use 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 a Perpetual Software License and a Time-Limited License?

A perpetual license never expires and would need to be disabled to stop working.

A time-limited license has an expiry date, after which will stop working.

What Is the Difference Between a Perpetual License and a Subscription License?

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.