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April 5, 2024 Business Technologies

If I Have On-Prem Licenses, Why Do We Have to Pay a Yearly Fee?

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By Connor O'Keefe

We talk a lot here about the benefits of cloud-hosted software, but sometimes on-prem licenses are just the best fit. Many businesses like the control they have with an on-prem model when it comes to services, resource control, data, and the like. But when we purchase these on-prem models, some may be confused as to why they continue to pay regular, yearly fees on the product. You own it, don’t you? It’s on-site with you. If you have on-prem licenses, what’s up with those yearly fees? The answer may actually surprise you…

Why Do My On-Prem Licenses Need Fees?

Annual/Quarterly Updates

Nobody wants to be saddled with a dead, unsupported solution. Updates bring additional features over time and iron out Quality of Life issues with the software. Unsupported software (especially ERPs) is incredibly prone to glitches and security breaches. An unsupported solution has no fees or costs after initial buy-in, but you might find that a lack of updates/ongoing system support makes it more of a headache than it’s worth.

Money makes the world go round, and your software programs are no different. With regular fees and license costs, providers can continually support and update your on-prem software to ensure it keeps operating at peak efficiency.  Those fees go toward regular maintenance and upkeep of your system in the form of quarterly/yearly (depending on your vendor) updates and additional features added to the system’s interface and functionalities.

You’re Paying for Support Lines/Assistance

Sometimes we all need a little help. Support lines for software issues and related technical hiccups are vital to any business working with any type of solution, full stop. As much as we’d like to think we can handle our issues internally, sometimes there’s no better resource than the providers themselves. But customer support costs money, and that may very well be what you’re paying for with your fees. Depending on the price you pay, it may seem a little high, but the best way to think of it is like an insurance policy for your solution; nobody likes paying insurance premiums until they need to phone their agent to make a claim.

You Don’t Actually Have a Perpetual License

Historically, on-prem software came with a heavy one-time implementation cost along with a perpetual license; a one-and-done payment that let them access the software indefinitely. But this was back in the old days, long before the convenience of the cloud and the advent of SaaS. Nowadays, most software is sold as a SaaS product you pay regular subscription fees you’re familiar with. Longtime customers with pre-existing perpetual licenses still maintain access since they’ve been grandfathered in.

For the most part, vendors no-longer work in perpetual licenses, with Sage sunsetting their perpetual offerings a few years ago. Current perpetual license holders can get additional perpetual licenses only so long as they’ve kept up with their maintenance fees, otherwise they approach the process the same way a new customer would. Today, vendors that offer on-prem solutions like Sugar, offer them as subscription-based services.

Here are the most common types of software deployment in the age of SaaS:

  • Vendor Cloud/SaaS – Software is hosted in the cloud by the vendor.
  • Public Cloud – Some vendors offer the option to host the software on the platform of your choice such as AWS, Azure, etc.
  • Private Cloud – Private cloud is an option that allows you to have full control over their data and infrastructure and you host this on either your own cloud environment or on a private hosting company’s environment.
  • On-premises – This option is where your company hosts the software on either physical service in your office or on a virtual machine inside of your IT system. Something of a relic, this is one of the least common deployment methods for software these days, usually reserved for special cases/grandfathered in clients.

If you’re wondering why you’re still spending money on your on-prem software, you may want to check your license deal again. If you’re unsure about your current billing situation, call your vendor and check with them.

Want to Learn More?

Curious about licensing fees? Interested in investing in a new solution that gives you more bang for your buck? We’re here to help. Our team of experts is available round the clock to talk with you about any question you might have about your current on-prem software, or a solution you may swap to in the future.

On-Prem or the Cloud?

On-prem users maybe considering moving to a cloud-based system instead. The cloud offers different pros and cons compared to on-prem and it’s worthwhile to compare them before making a decision.

<<Tell Me the Differences!>>

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Author Bio

Connor O'Keefe

Connor O'Keefe joined BrainSell as the content marketing manager in 2023 but has enjoyed writing since he was old enough to spell his name. Connor's passion for creating content is rivaled only on his love for camping trips and trivia nights.

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