Leasing is the new software licensing

Global revenues generated by software subscription licences are on an upward swing, while more traditional perpetual licensing models are declining.

According to IDC research, software subscription licensing will grow at a 16.6 per cent compound annual growth rate (CAGR) during the next five years, while perpetual licences will experience decline by 0.3 per cent CAGR.

The study, Worldwide Subscription Software Licensing Forecast, 2004-2008, estimated that, by the end of the forecast period, subscription licence revenues for the worldwide software market will reach $43bn.

"The increased interest in subscription licensing stems from industry consensus that traditional licensing models are no longer suitable," said Amy Konary, IDC's pricing, licensing and delivery service programme manager, in a statement.

"Subscription models help vendors increase the predictability of their software revenues, making it easier to demonstrate future health. Customers enjoy the low upfront cost of the subscription model and the ability to build an ongoing relationship with the software provider that they pay on an ongoing basis."

However, the analyst firm points out that subscription licensing models can have drawbacks. Vendor revenues and even share price can be negatively affected by moving to subscription.

Subscription also requires vendors to sell on the value of their software on an ongoing basis, an aspect that customers like because they believe it results in better customer support.

Konary added: "Perpetual licensing will make the most sense in some cases and in others subscription licensing will. It really depends on the vendor's and customer's situation and preference."