Brief Introduction to Financial Implications and Comparison of Purchasing Permanent Software Licenses vs Subscription Licenses, including possibilities for cost optimization.
For more please see:
https://www.vizor.cloud/blog/financial-implication-of-switching-to-cloud-subscriptions/
2. 1. Financial Implications Permanent vs Subscription
2. Cost Over Time Permanent vs Subscription
3. Suggestions on How to Optimize Subscriptions
Table of Contents
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3. Permanent Software Licenses
– Multiple benefits
– Rigid model
Subscription Model
– More flexibility and possibilities
Could help reduce costs
– Requires more management
Permanent vs Subscription - Financial
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4. Permanent vs Cloud / Subscription
Capital Expenditure Operating Expense
OPEX costs
Financial Perspective of Subscriptions
4
5. Financial Implications of Each Model
5
Permanent Subscription
Cash flow
Assets in Balance Sheet
Short term operating
income
Cost Over Time
Tax Benefits
6. or ?
Depends on many factors such as:
- Financial Needs of the Organization
- Board of Directors
- Public / Private
- Industry (utilities, energy, tech startup)
Which One Is Better?
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7. Financial Implications of Each Model - Focus
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Permanent Subscription
Cash flow
Assets in Balance Sheet
Short term operating
income
Cost Over Time
Tax Benefits
8. Permanent: less expensive over time
Subscription: more expensive over time
Permanent vs Subscription - Common Approach to Consumption
0
1
2
3
4
5
6
7
year 1 year 2 year 3 year 4 year 5 year 6
Cost
Cost Over Time
Permanent
Subscription
Total P
Total S
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9. 0
1
2
3
4
5
6
7
year 1 year 2 year 3 year 4 year 5 year 6
Cost
Cost Over Time
Permanent
Subscription
Total P
Total S
Permanent: less expensive over time
Subscription: more expensive over time
Permanent vs Subscription - Common Approach to Consumption
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Can Subscription be less
expensive?
10. • Trend
• May become the only option
• Characteristics:
– Scalable and Elastic
– Metered by use
– On demand pricing
– Faster deployment
– Option to switch products
The Subscription Model
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11. Can Subscriptions be Less Costly?
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Variables of
Dynamic
Organization
# of employees
# of projects
# of customers
Other fluctuations
HiddenCosts
Upgrades
Scale up
12. Can Subscriptions be Less Costly?
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Variables of
Dynamic
Organization
# of employees
# of projects
# of customers
Other fluctuations
HiddenCosts
Upgrades
Scale up
13. • Regular Hardware and Software Upgrades
• Hardware upgrades to scale up
• Software upgrades to scale up
Windows, SQL Server, etc
Licensed CPUs, memory, number of users, etc
non-linear increments
volume discounts marginal in comparison range
Hidden Costs of Permanent Licensing
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15. Ex: Costs Perm vs Subsc – Dynamic Org
1 2 3 4 5 6 7 8 9 10 11 12
Number
of
Users
Month
Costs per Month – Permanent vs Subscription
Costs Dynamic
Costs Permanent
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16. Area in blue = $ savings
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Ex: Costs Savings Perm vs Subsc – Dynamic Org
Potential Costs Savings Area – Permanent vs Subscription
Costs per Month
17. • Vendor Limitation
– 3 month minimum
• Buy more any time
1 2 3 4 5 6 7 8 9 10 11 12
Number
Of
Users
Month
Costs per Month – Permanent vs Subscription
Number of Users
Costs Permanent
Costs Dynamic
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Ex: Costs Perm vs Subsc – Dynamic Org - Vendor Limitation
18. Area in blue = $ savings, Area in orange = $ waste
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Ex: Costs Savings Perm vs Subsc – Dynamic Org – Vendor Limitation
Potential Costs Savings Area – Permanent vs Subscription
Costs per Month
19. • Identify software licenses tied to dynamic variable in your
organization
– Users
– Projects
– Customers
If does not change, no case
• How often your number of licenses change?
– Hires
– Leaves
– Change job positions
Suggestions: How to Optimize?
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20. • Establish processes to remove licenses
– Orgs keep them
• Validate Usage
• Automate
Suggestions: How to Optimize? - Continuation
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21. Dynamic Variable:
Change Positions
New Hires
Leaves & Terminations
Needs change
Permanent Licensing:
Future cost increased with every peak
Subscription Licensing:
Opportunity for saving
Dynamic Organization
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22. Dynamic Variable:
Changes every week, month, year?
Permanent Licensing:
Stable
Subscription Licensing:
Opportunity for saving if more often
Dynamic Organization – How Often?
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23. Establish processes for removing licenses when …
• Person removed from
Active Directory
• Person removed from
Human Resources
system
• Mainly Job Position Changes
– overlooked
Remove Licenses
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24. Ideally:
• Managers define mandatory software
• Validate if users still need software
• Validate again every X time
– Once every year, etc.
Validate Usage
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25. • Vendors don’t offer true cost agility:
ask for what you need
• Difficult to track changes
– hires, job changes, leaves
• Adding and removing licenses
inside the software may not be
simple
• Labor costs could significantly reduce savings
Main Challenges When Optimizing
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26. • Select your preferred model
Permanent vs Cloud / Subscription
• Evaluate your options
• Identify software solutions that offer elastic pricing aligned to
your variable
• Keep track of allocation per user
• Validate what users need the software
• Remove licenses after changes in your HR system or AD
• Add and remove licenses promptly in the software
• Automate
Conclusions
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