Industry Article

Subscription Licensing & Software as a Service (SaaS)

Learn the Benefits of Cloud-Hosted Software and Subscription Licensing

Remember when the standard way to buy business software was like buying a new vehicle?

As a new car buyer, you visit a few dealerships, check out competitive models, make your choice, add in extra bells and whistles, then drive off with a big dent in your bank account and the hope that your selected vehicle will meet your needs for the next 10-15 years. If next year’s model happens to have cool new safety features or an extended bumper-to-bumper warranty, you’re SOL.

In the past, the only way to buy business software meant you paid for your software licenses up-front with rights for indefinite use, and then pay more for any implementation services, support, version upgrades, and annual maintenance. If sometime later a version upgrade was offered, you’d either open your wallet again and endure the disruption of a hands-on system and server upgrade, or you’d avoid the cost and hassle entirely and opt to keep your legacy software as is – never reaping the benefit of new features and technology.

It’s no surprise that this inflexible, budget-busting model is being replaced by a subscription-based licensing model involving lower upfront risk and capital investment.

Experts predict most new software spending will be under the subscription model of software as a paid-for service. The International Data Corporation (IDC) stated “Software as a Service – Applications (SaaS – Applications) continued to be the largest source of public cloud services revenue, accounting for more than 45% of the total in 2023.”1 This has been a consistent trend year-over-year.

What is Subscription Licensing?

A subscription license is essentially just a payment plan for access to software. Businesses pay a monthly fee to use the software during an established subscription term. This is a departure from a traditional software business model that requires upfront investment with an “as-is” / “no returns” policy, regardless of performance. Another key difference is that support services and system upgrades are usually included in established subscription fees.

The subscription license model works for both cloud-based hosted software, and on-premises applications that reside on an organization’s internal servers.

Benefits of Subscription Licensing

The benefits of the subscription model are well documented by leaders of the software industry. Microsoft indicates that its subscribers are always up to date; they get the latest and most complete applications; and can use subscriptions across a multitude of devices.

Other benefits include:

Reduced Risk

Subscription replaces the capital outlay of buying software licenses with ongoing subscription payments, making software more affordable.

Shorter Approval

Subscription payments can be treated as an Operating expense rather than a Capital expense, making it easier to get budget approval.

Predictable Costs

Monthly payments cover software licenses, upgrades, support and more, without any annual payment spikes.

Flexibiliy & Scalability

You only pay for what you use and can add or remove licenses to correlate with your project demands.

Tighter Agility

Updates are released in real time and rolled into the monthly price, ensuring no compatibility or obsolescence issues.

License Management

Eliminates issues of buying more than what you need and non-compliant license usage (which can lead to software audit penalties).

The movement to subscription licensing has been powered by the adoption of cloud computing and the growth of Software-as-a-Service (SaaS) solution offerings. According to a new report published by Fortune Business Insight, the Global SaaS market is expected to reach USD $908.21 billion by 2030.

Gartner Inc. reports that worldwide end-user spending on public cloud services is forecast to total $723.4 billion in 2025, up from $595.7 billion in 2024, which was up from $563.6 million in 2023. “Cloud has become essentially indispensable,” said Sid Nag, Vice President Analyst at Gartner. “However, that doesn’t mean cloud innovation can stop or even slow. The tables are turning for cloud providers as cloud models no longer drive business outcomes, but rather, business outcomes shape cloud models.

What is Cloud-Hosted Software-as-a-Service?

Cloud-hosted Software-as-a-Service (SaaS) is an alternative to traditional software installation in the business environment (on-premises). Traditional application delivery required on-premises management of infrastructure – providing and building a server, installing the application, configuring it, and supporting it. In a cloud hosted SaaS environment, management of the system is the responsibility of the software provider, instead of the user company. Within this model, users simply access the application via the Internet, which liberates them from complex software and hardware management.

Benefits of Cloud-Hosted SaaS Applications

According to the 2024 SaaS Industry Marketing Report compiled by FinancesOnline.com, as the adoption of industry clouds unfolded in 2022, the growth in the adoption of SaaS will be relentless as driven by the intensified online-based processes. The pandemic became the catalyst for digital innovation, and organizations from various sectors are focused on migrating workflows online to remain relevant.

What’s the big appeal? Why are so many businesses going with a SaaS model? Benefits include:

  • Anywhere, Anytime Access

    Use anytime and anywhere via a web browser from any device.

  • Lower Initial Costs

    Pay only for what you need without having to buy hardware to host your software.

  • Worry Free IT

    A hosted SaaS solution means no need to worry about software maintenance or the hardware it resides on. Upgrades are included.

  • High Levels of Security

    With security measures beyond the means of most businesses, your data is often safer in the cloud than on a server in your offices.

  • Quick Deployment

    Installed over the Internet in a matter of hours/days compared to on-premises applications.

  • Scalability

    Only pay for what you use and easily scale to meet demand by adding or removing licenses.

  • Lower Energy Costs

    You no longer have to power on-premises servers or maintain their environment, reducing your energy bills.

The Future of Software Delivery

Today, like it or not, software providers are feeling the pressure to migrate their traditional software delivery models to align with industry demand for cloud-hosted SaaS. Business software users are wise to the fact that buying desktop software outright and paying maintenance on it is like repeatedly shelling out tolls on a road to nowhere. Instead, cloud hosted SaaS applications are being sought out for their higher performance, sleek agility, and technological advancement – which ultimately makes them more fun and economical to drive into the future.

About Pandell & Whitestar

Pandell and Whitestar provide a full suite of financial and land acquisition, management, and geospatial data solutions that enable renewables, utilities, natural resources, and pipeline companies to efficiently plan, track and manage their business operations more efficiently.