Saas licences vs. traditional software licences: key differences between each software licence model

Each model has its own advantages and disadvantages and will be dependent on your circumstances. Understanding the differences between these models is crucial for businesses to make informed decisions and protect their interests. In this guide, we will explore the pros and cons of SaaS licences and traditional software licences. Our aim is to help to equip you with the knowledge you need to choose the right option for your business.

What is a SaaS licence agreement?

A SaaS agreement is contract a between a software provider and a customer for the use of software hosted on the provider's servers. Under a SaaS model, the software is accessed through a web browser or application, so the customer does not need to physically install and store the software on their own premises. Instead of purchasing a perpetual (life-long) licence upfront, customers typically pay a recurring subscription fee for the duration of their usage, which makes it an easily scalable option for businesses. Additionally, SaaS providers handle maintenance, updates, and security, relieving businesses of these responsibilities. To gain a greater understanding of the purpose of a SaaS licence agreement, take a look at our ultimate guide to SaaS licence agreements.

However, it's important to note that SaaS licence agreements may also have potential disadvantages. The customer is dependent on the provider's infrastructure and availability, and there may be restrictions on customisation and data ownership. Let's delve deeper into these factors.

Pros of SaaS Licences

Accessibility and convenience

With SaaS licences, users can access the software from anywhere with an internet connection, making it highly accessible for remote teams or businesses with multiple locations. There is also no need for local installations, so each user can access the software on different devices if necessary.

Scalability

As the business grows, it's easier to scale up or down by adjusting the number of users as part of the subscription with SaaS licences. However, the flexibility to decrease/increase users will be dependent on the service provider’s terms set out in the SaaS licence. It is important to check that you have the right to reduce/increase the number of users during the term of the SaaS licence.

Maintenance and updates

SaaS providers are responsible for managing and maintaining the software, ensuring that the software is up to date with the latest features. This eliminates the need for businesses to continuously manage their own infrastructure and perform regular maintenance or updates to the software.

Cost-effectiveness

Many SaaS licence agreements operate on a subscription-based model, allowing businesses to pay for the software on a recurring basis monthly or annually. This can be more cost-effective than purchasing perpetual licences up-front, especially for small or medium-sized businesses with limited budgets. For more information about SaaS licence pricing models, check out this blog.

Customisation

SaaS models typically may not be as flexible as traditional application software in terms of customisation. Customisation options in SaaS licences are typically limited to the tools and features provided by the SaaS company.

Cons of SaaS licences

Dependency and lack of control

SaaS applications rely on the provider's infrastructure and availability. If the provider experiences unscheduled downtime or other technical issues, it can impact the customer's access to the software and disrupt business operations. Users will also require internet connectivity to use the software, so if the user’s internet drops, this could hinder productivity.

Cost

Although the recurring subscription model can be cost-effective in the short term, businesses should consider the long-term costs of ongoing subscription fees. Over time, these fees can add up, potentially exceeding the cost of purchasing perpetual licences for traditional software.

Data ownership and security

With SaaS, all of the customer’s data is stored on the software provider's servers, which could raise concerns about data ownership and privacy, particularly for businesses that use SaaS to store personal data. In recent years, there have been some high-profile data breaches involving cloud-based systems, and understandably, this has made businesses hesitant about using cloud-based data storage. However, you can take steps to address these concerns. To safeguard your data and ensure you retain ownership and control over your critical information, it's essential to carefully review the terms of the SaaS agreement and the provider's privacy policy. This will help you understand how your data is protected and what measures are in place to keep it secure.

What is a traditional software licence agreement?

A traditional software licence agreement, also known as an on-premise licence agreement, is for the use of software that is installed and hosted on the customer's servers. Often traditional software licences grant the customer the right to use the software indefinitely, although updates and support may require additional fees. You can check out our comprehensive guide to this type of agreement here.

With a traditional software license, businesses have more control and customisation options but also more responsibilities. Let's explore the pros and cons of this model:

Pros of traditional software licences

Customisation

Traditional software licences offer greater flexibility for customisation. Businesses can tailor the software to their specific needs, making it ideal for industries or organizations with unique requirements.

Data control

With an on-premise licence, businesses have full control and ownership of their data. They can store sensitive information within their own infrastructure, ensuring compliance with industry regulations and maintaining data privacy.

Independence from the provider's infrastructure

Traditional software licences allow businesses to operate independently of the provider's infrastructure. They are not reliant on the provider's servers or availability, reducing the risk of disruptions caused by external factors.

One-time cost

Purchasing an upfront software licence eliminates the need for recurring subscription fees. This can be cost-effective in the long run, especially for businesses that plan to use the software for an extended period.

Cons of traditional software licences

Installation and maintenance

Unlike SaaS software licences, traditional software licences require installation and ongoing maintenance on the customer’s own systems. This means that businesses are responsible for managing their own servers, operating systems, updates and security measures which may require dedicated IT support.

Limited accessibility

Traditional software licenses are typically installed on specific devices or servers, limiting accessibility to those physical locations. This prevents users from being able to access the software from anywhere without additional setup and configurations.

Upfront costs

Purchasing traditional software licences can require a significant upfront investment. This may pose a financial challenge for small or medium-sized businesses with limited budgets.

Upgrade and support fees

Although the initial purchase grants the right to use the software, with traditional licence agreements, ongoing support, updates and upgrades may require additional fees.

When deciding between a SaaS licence agreement and a traditional software licence, businesses should carefully evaluate their specific needs, priorities and available resources.

Both licensing models have advantages and limitations, and the decision ultimately depends on factors such as payment structure, data security, flexibility and scalability needs. By evaluating these factors and understanding the nuances of each licensing model, businesses can make informed decisions to protect their interests and ensure their software licences are fit for their business requirements.

Where can you find a SaaS agreement or software licence template?

• To create a SaaS agreement template, click
  here; or

• To create a software licence agreement, click here.