cloud based Subscription (Saas) Vs Traditional Licensing

Adobe creative and Microsoft Office 365 moved their licenses to saas cloud platform in the recent past.Adobe offers the "Value Incentive Plan (VIP)" which is Adobe's subscription-based licensing program for Adobe Creative Cloud that includes no minimum license purchase requirement. Organizations can subscribe to as few or as many Adobe subscription licenses as needed. Once enrolled, users receive a VIP number and access to Adobe Licensing Website (LWS), where they keep track of licensing and manage their accounts.(More details on Adobe licensing Link)

In addition, new customers may still purchase Adobe Creative Suite using one of two traditional licensing plans:

• Transactional Licensing Program: A perpetual license with a one-license minimum designed for smaller organizations with a single pricing level.
• Contractual Licensing Program (CLP): A perpetual license with a 10,000-license-point minimum requirement. Customers can purchase and download all Creative Suite desktop products, but support costs extra. The CLP is a two-year agreement.

 Adobe's Creative Cloud licensing model may change the nature and complexion of its audits significantly. One of the major benefits of a subscription-based VIP cloud license is automatic program updates and support, which greatly simplifies licensing compliance. Using a cloud-based service gives Adobe and other software vendors much greater control over the use of its software. It's reasonable to predict that as more organizations opt for the VIP subscription-based licensing program, the need for audits will decrease.

For the large global vendors, it is difficult to transition from a traditional license to a subscription-based model. If you look at the largest 10 global enterprise software companies including Microsoft, IBM, Oracle, and SAP, less than 2% of their revenues are derived from SaaS.

Here are some of the reasons we believe the transition has been so difficult:

1. It is hard to move away from the significant upfront fees earned through perpetual licenses to a much smaller recurring monthly fee.  This would decrease immediate earnings and negatively affect the valuations of the large public vendors.
2. The SaaS business model has not yet proven itself in any meaningful way to be viable given the limited number of software businesses that have achieved scale and profitability.
3. Most in-house development and implementation teams are not structured to build and deliver multi-tenant solutions through the web. This requires significant investment and time.
4. Traditional sales teams have not educated their customers to accept monthly recurring fees and are not structured to facilitate a low touch sales approach.
5. IT departments have been reluctant to share sensitive data through the web for security reasons.

However, the SaaS business model has some clear advantages that are compelling to its customers:

1. There are no significant upfront fees.
2. The client always has the most up-to-date version of the software.
3. The software is easily configurable and takes less time to implement than on-premises solutions.
4. Security has been less of a concern with the introduction of secure data sites and private clouds. Software is being audited to ensure it meets compliance guidelines.
5. Employee workflow is much more efficient, the software is mobile friendly and can be accessed from anywhere.

Source: Startup North and Techtarget