Cloud-based Subscription Fees vs. Application Purchases 2024

Published 10 days ago5 min readComprehensive Overview of MSP Vendors...

I will be discussing the upside and downside of cloud based subscription services and comparing these offerings against the other option of traditional perpetual license purchases.

We will be giving an overview of the purchasing mechanism rather than the actual function of the software. These days the option to purchase based on a subscription based pricing model is probably the more dominant way software development houses offer their items and it is no secret as to why that is the case. I think everyone can agree that a smaller ongoing commitment definitely benefits the providers.

We will go into the downsides of cloud based subscription fees such as being locked in to a single vendor whereby it can be quite difficult to move your company information away to another provider.

While you are here, Take a look at some of our other IT Computer Consulting related articles below that may interest you:

I am going to crop dust some MSP documentation magic into this article for several reasons. It is one of the areas I am both proficient in and really enjoy and because MSP documentation strategies seem appropriate no matter what the topic is. Perhaps that is just my bias showing.

I mention it so that I may get the opportunity to give feedback on how we maintain documentation for areas such as info recovery solutions or enterprise virtualization as well as how a company documents its acquisition of software regardless as to if they are on a subscription basis or purchased outright.

The technical publication process is an essential aspect of the IT industry whether it be documenting software based assets as discussed here or the steps involved on how to add a new client into your Backups as a Service solution so that your loyal support desk staff can fault-find in a time effective fashion. It enables IT hardware services to manage and maintain the IT infrastructure of their clients effectively.

We have years of experience in working with service providers to document their processes and procedures and there is no area more important to a service provider than how their clients' information including cloud subscription services are documented.

Cloud Subscription Services Origins

Call me a cynic however I think the main driver for software houses to move over to a subscription based model is it is just straight up more profitable for them. Once you sign up and that $87.50 starts being deducted every month from your visa card, you are on the hook.

It was not always that way though, certainly in the 90s and even early 2000s I do not remember ever seeing any software company offering subscription based models other than perhaps for updates.

Technically there were cloud services back in the 90s however they were not widely adopted and I had certainly not heard of them at that time. It is funny how the mind works, I swear Dropbox was the first serious attempt at a cloud based subscription model however it was not released until 2008.

The first real significant attempt at a cloud subscription model was by Amazon Web Services in around 2004 when they released the elastic cloud network (EC2) This was Amazons fortress of solitude of which they used as a solid foundation for the many subscription based services they now provide.

Amazon gained a solid foothold into a subscription cloud based offering. Of course Microsoft Azure and the O365 ecosystem also rose to the occasion and to provide competition and keep Amazon honest.

2015 is the year where subscription based services started to become dominant over standalone software purchases. While you can still purchase, for example, standalone versions of Office (Office 2021) Microsoft tends to go out of their way to where it ends up being the least attractive option.

Upfront Cost Versus Ongoing Indefinite Subscription

I know there are many out there that like the idea of paying the total cost of an application such as Microsoft Office or even a backup solution, effectively being able to hold the product in your hand and taking ownership of the application.

The truth is that it is starting to make less sense to purchase software this way. Often it is a high upfront cost for an outright purchase versus the relatively low monthly premium of a subscription service.

Take Office 2021, for a business to purchase outright, it is about $450 and while it gives you a lifetime access to updates, the reality is that the software is only ever going to be supported for a finite amount of time.

You might get a good 7 years out of the application and when you share the initial cost out across those 7 years, it is certainly a far cheaper option than the Office365 subscription model. More likely though, its life will be far shorter, more like 3 years.

Another disadvantage is hinted at in the name. MS office 2021, it is already 2 years old and while you will get updates over its lifetime, the features that are continuously added to O365 mean that the subscription based option will always have the latest and greatest features. I can tell you from experience that there is nothing worse than seeing a feature you really need on the subscription model that is not available on the standalone application.

Underhanded Vendor Tactics

This can happen regardless as to the purchasing strategy you decide on but I can give a few examples of where I was left high and dry by various vendors after having invested heavily in their standalone application offering.

Back in the mid 2000s and well before brightgauge, I purchased a dashboard system that I think used powershell for my Connectwise Manage from a couple of flash guys from Hollywood in Florida. I cannot remember the name of the app now, it may have been called something like SmartConnect. I spent from memory a good $3500 back then for the application as well as a year of updates which was quite a lot of money for me in those days.

No sooner had I installed the various dashboards to my liking that I got a message advising me that they appreciated my business and that I could continue to use my locally installed copy of their software and of course the updates I had paid for would continue to run.

So far so good:)

They then went on to advise that once my year of updates was up, there would be no possibility of purchasing further updates for the software as they had decided to stop supporting the local instances of their application.

It got worse. They rubbed my nose in this new application they had been working on with all the bells and whistles. It was basically the same application I had paid $3500 for, only it had about 30% more features and of course they were all highly desirable.

On top of that, they worked out a nice price of about $350 a month to transition over to their cloud app. To say I had been bent over and given a painful rogering would be an understatement.

I chose to just use the application I had purchased, the “year of updates” included ended up being a con as they did not once update the application over that year instead investing their efforts into the subscription based offering.

I used it for a year or so until the lack of updates made it incompatible with the newer versions of CW Manage. So that is an example of where you can be treated quite unfairly by vendors if you make the decision to make a large upfront payment for an application.

I believe several years later even Connectwise started to make it quite difficult to have a server based copy of their software running locally. The details are murky due to the passing of time however I am pretty sure I paid a large upfront amount and in the end we were forced to adopt the subscription model too.

Which Model Do Vendors Prefer?

I think it goes without saying, they all got addicted to the subscription model once they realized that consistent, reliable nuggets of cash could be extracted from consumers on a monthly basis indefinitely.

Which Model Do Consumers Prefer?

This is a bit more difficult to answer however in today's environment, subscription based services have become more sophisticated and easier to manage. The days of standalone software products for a vast majority of corporate applications is coming to an end.

Vendors know it is in their best interest to have signups and so they do tend to make the subscription services appear more desirable than their standalone counterparts.

Given the choice, my opinion is that subscription based software services win in all areas from the ease of signing up (sometimes a curse) the lower initial amount required coupled with ongoing updates meaning you know you always have the most up to date version.

Disadvantages Of Subscription Based Applications

The first disadvantage is the amount you pay in a subscription service is often inconsequential and at a level where you do not give signing up a second thought “what is $30 if it solves a problem, what is another $130 to solve another problem” and on and on.

Compare this to what is often a significant overhead when you buy a perpetual license. The amount gives you reason to pause and ask “Do we really need this?” You tend to scrutinize it far more even though it may be a far more cost effective option than a subscription service over its life.

My second thought is also both a blessing and a curse and that is ease of signup. Vendors have signups down to a fine art. Most integrate with existing authentication systems and so you do not even need to put a password in, 3 clicks and a drop down box and you are done.

Why is that a disadvantage? Ever notice you tend to collect subscriptions to MSP applications coming out of your credit card? $40 here, $150 there and before you know it you are noticing a hefty wad of cash leaving your account and are never entirely sure which of them is important and which is not.

Often the job to go through and cancel subscriptions you do not need can be time consuming and so it gets put off. The end result is your outgoings are higher than they should be and Kaseya execs are getting fat off of extended steak lunches courtesy of you.

The ease of which you can sign up is why this accumulation of subscriptions happens. One piece of advice here is to set up virtual credit cards, one for each vendor, that way it segregates everything and makes it a little easier to manage and cancel non required services. It also prevents cretins from charging your account for services you did not approve.

Other disadvantages of subscription based payment models are that you need to relinquish some control and are at the mercy of the cloud application vendor. If they are not solid then there is a possibility they could go zero dark thirty with your organization's information.

As mentioned, getting your information out of a vendor's ecosystem can sometimes be far more difficult than it needs to be. Lets face it, the vendor has no incentive to make this process easy or painless.

Examples of this are ITGlue where all you get is a flat CSV file of all your company information if you decide to move over to Hudu or another documentation platform. This means the years of invested time that went into relating items together will be lost and need to be re done.

Advantages of Subscription Based Cloud Apps

The primary benefits for going subscription over purchasing apps outright is the lower upfront cost and a lower barrier to entry. Subscription based apps these days are generally very convenient to sign up to and will include a trial period without handing over credit card details.

The good ones also allow you to cancel anytime so if your circumstances change then you can end the relationship that is a maximum of the billing cycle (usually monthly)

Ongoing and continuous updates to the product you are paying for is also a great feature to have as well as the fact these changes are usually very minor compared to the sudden shock of having to upgrade to a new version of the same software such as going from Windows 10 to Windows 11. It is enough of a change that you will require time to get used to the new version.

Advantages Of Perpetual License

The biggest advantage is that it is yours meaning you often have greater control of it than a subscription license although much of that is probably just perception.

The cost over the life of the application is nearly always less than with the equivalent subscription model. There may also be tax advantages that come with paying an upfront cost for an application rather than ongoing lower payments over many years.

Finally, you do not rely on a vendor to remain in business to use your licensed product, it is yours. If they go out of business one day then most likely you can continue to run the application without any noticeable effects.

Compare that to a cloud vendor who will disappear with your company information, your clients information and a wake of confusion and wasted time figuring out why your cloud app is not working.

Conclusion

Depending on the relevant application, you may not have much of a choice these days when it comes to choosing which strategy you want to use to pay for your business applications.

My view is that the tide has now turned and there are far more advantages in choosing the subscription model over an outright perpetual license.

Of course there are exceptions, while it is appropriate in most circumstances to use a subscription service for example, online MSP backup solutions, Office productivity suites and even network hardware, there are still some software categories that can still be purchased in its perpetual form.

An example is the OEM version of the Windows 11 operating system as well as Office 2021 however I am pretty sure they have started to roll out at least an option to obtain Windows 11 as a subscription. I suspect that given another couple of years there will be no software that will use the perpetual licensing method other than perhaps the OEM version of operating systems that come with pre-built machines from the likes of Dell or HP.

We have a number of other I.T provider articles listed below that will provide you with more detailed information on a number of related topics:

https://optimizeddocs.com/blogs/consulting/consulting-index-page-01

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