When CIOs license software on a subscription basis, they get predictable, low costs; the latest features; a strong bargaining position with vendors; and good vendor service. At the same time, companies can avoid a "sunk-cost" mentality and the risks often associated with deferring maintenance when purchasing software.

Subscription-based licensing wraps acquisition and maintenance into one predictable bill, and CIOs can negotiate contracts to cover multiple years, providing price protection. Though a subscription agreement includes financing charges, it also grants the right to deploy software upgrades. In contrast, when a company buys and maintains software, there are usually version jumps not covered in the maintenance agreement. A single upgrade obtained through a subscription will typically offset the finance charges. Consider, too, that subscriptions let CIOs lower total cost of ownership by avoiding security and operational problems inherent in operating older software.

By including all upgrades and patches in a subscription, CIOs gain access to new features. This is critical when supporting complex, rapidly changing environments. In a subscription scenario, all of the vendor's developers also produce new features for the customer's business.

As with a maintenance agreement, you can terminate your subscription. However, a termination, unlike a maintenance agreement, means a large cash loss to the vendor, and the loss of a customer. Vendors know that winning business back after a subscription is canceled is unlikely, so they tend to work hard to retain their customers. CIOs can take advantage of this strong bargaining position in negotiating the terms of their subscription agreements and ensuring improved levels of service.

Of course, software gets old fast. When businesses purchase software, they can easily fall into two traps:

  • A sunk-cost mentality: After companies spend lots of money to buy software, they believe they need to keep it and make it work. Software licensing lets them avoid feeling locked in and gives them the flexibility to move forward if the software isn't a good fit.

  • The deferred-maintenance argument: "We ran our old system for years and patched it ourselves, so why should we pay someone to introduce new bugs through patches?" companies say. Networked systems, security concerns, and software complexity require constant upgrades to installed software. When companies buy software, they can be lured into false complacency regarding maintenance. A purchase implies that the software is an asset that can be depreciated. However, unlike a physical asset that loses value predictably, software may lose value precipitously based on environment changes. Its future value is often unknown.

    By licensing software by subscription from a good vendor, companies can ensure the software's future viability. The subscription model forces the vendor to recognize that spending operational dollars on its clients' software subscriptions must provide value now as well as in the future.

    Mike Conlon is director of data infrastructure and research associate professor of biostatistics at the University of Florida.