The decision process to purchase new enterprise application software can be daunting. A critical part of the evaluation process is to clearly understand the flexibilities a software provider offers to license and deploy the solution for your use.
Taking a step back and asking your provider the right questions can enable you to make a much more informed purchasing decision. Some key considerations include:
Hosted or On-premise Deployment.
Do you have the choice of deploying or running the application software in a ”Hosted” (cloud) environment or can it run on your own servers (on-premise)?
Hosted software deployment typically means the software vendor provides or manages the server infrastructure and operating system/database and the users access the enterprise software via the Internet.
In contrast, on-premise deployment typically means you must acquire and manage the server hardware and system/database operation, and users access the enterprise software through your network or a remote network connection via the Internet.
Examining your IT infrastructure and capabilities, along with your security requirements are important factors to consider here. Companies will often utilize the services of an outside Information Technology (IT) firm to assist them.
Some software providers offer the flexibility for a combination of both hosted and on-premise deployment of their enterprise software.
Named or Concurrent Users.
Do you have the choice to obtain licenses as “Named Users,” where a user license is assigned to an individual, or “Concurrent Users,” where a license can be shared by multiple users?
Typically, “Named Users” are less expensive, but you may need to purchase more licenses compared to purchasing shared or “Concurrent Users.” Concurrent users work well in split or multi-shift work environments.
Some software providers offer the flexibility for a combination of both named and concurrent users.
Subscription or Perpetual License.
Do you have the choice to use and pay for the software application through a “Subscription” license model, which is like renting the software or purchasing a “Perpetual” license, which gives you an ongoing right to use the software?
Under a Subscription license model, you will only have access to the software during the time period you are paying. Under a Perpetual license model, you have a right to use the software for a lengthy time period specified in the license agreement with the software provider. Typically, a Perpetual license model requires an additional annual maintenance component that provides access to support and software upgrades.
Under both license models it is essential to understand how software maintenance, updates and support are handled and paid for.
There are also accounting factors between the two models that should be considered and reviewed by your internal or external accountants. Generally, Subscription license payments are treated as period expense items that are recognized ratably over the subscription period, whereas a Perpetual license purchase can be capitalized and depreciated over its useful life.
Typically, this results in more flexibility and less upfront cash for Subscription licenses, while Perpetual licenses have lower cost advantages for long-term use. There may be other specific tax implications between the two models that should be reviewed by a qualified accountant.
Additionally, Subscription or Perpetual license purchase models can be independent of whether you use a Hosted or On-premise deployment. Hosted deployments are often restricted to Subscription purchase models, however that is not true for all software providers.
Lite User or Temporary User.
Do you have the flexibility to access software licenses as a “Lite” user with reduced functionality, which is usually accompanied with a reduced price? Or, can you utilize the software as a “Temporary” user for an increment of time with a corresponding price reduction?
A lite user license can address the need for someone to access a very limited amount of information, while a temporary user license can address seasonal business needs without having to pay for licenses that are always available.
Understanding the flexibility that software providers offer for licensing and deployment is an essential component of completing a thorough software purchase evaluation. How your users are licensed and the method of deployment, along with ongoing costs for the software, will have dramatic differences across the spectrum of variations.
As part of your evaluation process, consider constructing a 3, 5 and 7-year cost analysis so you have an accurate projection of the ongoing costs for this area of your software acquisition purchase. Additionally, if you have a methodology to project business benefits for your new software, then complete a cost/benefit analysis for a projected return on investment.
I wish you much success in the evaluation and successful implementation of your enterprise software.
Wayne Wedell is President and CEO of WorkWise, a software and solutions company specializing in helping small to medium size businesses with modern ERP and CRM solutions. Wayne has lead WorkWise since 2001 and has been a leader in the enterprise systems space for over 20 years.