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Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

Aquamarine

Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

Since the subscription model is becoming hot, and PTC apparently wanting to be a Subscription based company, I want to go understand this better.

Subscription Licensing VS Cloud Subscription Licensing:

First lets make the distinction between Subscription Licensing on your own Servers vs Subscription Licensing on the Cloud.  I was lumping them together but if you look carefully they are actually offered as 2 different options.  Subscription by itself (no cloud) only refers to the license and on the user and admin level is used exactly like our perpetual licenses when maintenance is paid.  The difference is strictly on the business level

If you think about it the current Perpetual model is really a subscription based model, because there is an annual cost to keep 'using' the software, but with a few key differences:


PerpetualSubscription (no Cloud)
1) IC?High initial CostLower initial cost
2) Continued costs?

Theoretically less, but PTC controls the price hikes on Maintenance costs.

Customers can do nothing about high percentage increases year after year until/unless they get fed up and decide to eat the cost of switching CAD vendors and leave PTC for another CAD company.

Theoretically higher annual costs but seems locked to inflation as represented by the annual CPI (Consumer Price Index) which means PTC would have a 3rd party limit to how much they can raise prices.  This is certainly a benefit to the Perpetual model.
3) Tight times?

Theoretically a company can stop paying maintenance and just use the latest version we paid for but with no support...yet for larger businesses I think this is easier said than done.  In addition if you take up maintenance again after lapsed years, PTC charges for years missed.  So this is likely to cost more to stop paying maintenance if doing with the intention of starting again down in a couple of years.

If maintenance was turned off for a year, it would not dramatically/negatively affect the design team

As soon as stop paying for a year, no one can use the software period.  Only option to reduce costs is to reduce the number of floating seats.

This would dramatically/negatively affect the design team as if the number of licenses were reduced each designer would be vying for a license to use the software which translates to loss productivity.

What do you think about Subscription Licensing (being used on your own servers...ie NOT Cloud) VS Perpetual Licenses?  What do you like or dislike about these?  Thanks for your input!

6 REPLIES 6
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Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

I think you under estimate the option of not paying maintenance on perpetual seats, at least for smaller companies.  We have adopted an approach that has us paying our maintenance every 3rd year.  Yeas, PTC does charge for "back maintenance" to have seats reinstated, however, historically that has only been 12 months back.*  By paying every third year we've cut our overall maintenance bill by a significant 1/3.  With ever lengthening release cycles, we may even lengthen that.

Additionally, when you've been off maintenance for 18-24 months, PTC gets hungry to get you back and all kinds of previously unavailable deals open up.  We actually renewed 3 months earlier than planned this year because we were offered a deal that re-aligned our seats to the functionality that we really use (a downgrade, essentially) and lowered our future maintenance bill.  We saw this as well in the 2009 recession where we tried to negotiate a reduction in our seats from the full (and pricey) Flex 3C to foundation + AAX, but PTC wouldn't budge.  We stopped paying maintenance for 2+ years and then were able to negotiate exactly what we wanted.  PTC lost 2+ years of some of our money because they refused to negotiate and demanded all of it.

Lastly, the subscription model can be attractive for short term needs (and our VAR has pitched it this way to us), but PTC is requiring a 12 month commitment.  That's too long in my view and is close to and may even cross the break even threshold for perpetual vs. subscription pricing.

* Yes, PTC seems to be tightening the reins on this now, but they've done so in the past as well.  Eventually they understand that these customers are not coming back on punative term and they return to something like the 12 months back payment. I assume the same will evnetually happen here.

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Doug Schaefer | Engineering Manager
Crow Works

Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

PTC Links

Comments

  • Subscription terms are currently 12 months.  This seems too long.  I would be more interested if I could add capability in one month increments.  Imagine only having to purchase Creo Simulate or the Reverse Engineering Extension when you have a project that needs them, and then be able to stop when that project is complete.  Our project lifecycles are typically 2 - 6 weeks, not 12 months long.
  • The current subscription model requires written cancellation notice 90 days prior to the end of the current 12 month term.  You can't just let it lapse.  You can't cancel 30 days before it's due.  You have to be very proactive and make sure you give proper notice or you're going to get a bill, like it or not.
  • PTC appears to be offering certain software capabilities to subscription customers that they won't offer to "regular" customers.  "Unique Capabilities: take advantage of PTC Creo capabilities not available to perpetual license customers." (2nd point)
  • Current subscription pricing is running about 35% of the perpetual license cost plus the first years' maintenance.  For a business with relatively stable needs, and stable employee count, the subscription model is going to start costing more after six years for new purchases, and two years for existing licenses converted to subscriptions.
  • General rule of thumb - a subscription license costs about twice as much as the annual maintenance on a perpetual license.
  • Here is a simple analysis comparing perpetual license costs with subscription costs:

Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

Thanks Doug Schaefer‌, you have a good point about not paying Maintenance in order to negotiate, or if you don't need support.  Support is not for everyone, as many people on this forum has indicated, though Support and build updates have been relatively good to us.  Are you also using PDMLink?  Being on the order of having several dozens of licenses, and the dependency on PDMLink definitely make it more complicated to loose support.  I wonder if other medium to large size companies see it this way too...?

Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

‌, thanks for the articles, sample break down, and other comments.

I agree that for many companies the Subscription model of 12 month contracts and changes due 90 days before end of contract severely mitigates the benefits they are trying to market.  It seems odd that they have not yet seemed to account for even the basic need for companies with a stable user base but perhaps may have an influx of users during summer months (interns).

Showing the sample numbers is definitely helpful on several levels so thanks for running them and posting them.

For new subscriptions, convergence after 5-6 year seems pretty good considering that that money can be used for other important company investments in the mean time.

To convert from existing Perpetual Licenses to subscriptions, PTC would have to offer a fairly hefty financial incentive otherwise because with the initial Cost burden out of the way, subscription would essentially be higher maintenance costs without the negotiation benefit.

Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

Any other comments or perspectives?

Re: Subscription Licensing (w/o Cloud) VS Perpetual Licensing (w/o Cloud)

We do not have PDM Link, but we have looked into it.  I think it, or more likely PDM Essentials, is in our future.  With it, we'd definitely need access to tech support, which we don't make much use of now.

--
Doug Schaefer | Engineering Manager
Crow Works