Software Asset Management 

Software Leasing

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        Terry Green

        ASAMA

Software leasing provides an alternative option in financing the use of software. A software lease provides the opportunity to spread the cost of the use of software over the lease period, instead of the standard single up-front payment that is required when software is purchased under a perpetual licensing model. From a financial perspective, software leasing is similar to software as a service.

The availability of a software leasing licensing model is determined by the software vendor. Software leasing provides the software vendor and reseller with a new sales channel that potentially is able to achieve additional sales, over and above the perpetual licensing model. The software leasing licensing model is quite common, however not all software vendors will provide this option. Apart from possibly achieving additional sales, a software lease provides the software vendor with a regular payment and can stop a constant churn in software sales people, who leave after gaining commission on large perpetual licensing model sales.

The benefit of entering into a software lease is the lower upfront payment for access to use the software. As the payments are spread over a period of time, there is more predictability and less drain on the organisations budget in a short period of time. There are similar benefits in a software lease that is also available from a perpetual purchase and some benefits not available to a perpetual licence, these are: the right to upgrade, possibly expending less effort on software compliance management, having software vendor support, the software vendor providing system and security patches. There is also less overhead in accounting for asset depreciation and financial reporting in a software leasing model. On the flip side to the benefits, you do not gain a benefit in that the software is not an asset to your organisation, you will have a reliance on the software vendor during the term of the lease and if the lease is to be extended, a continuance of the reliance on the software vendor, which may result in a higher lease fee.

In negotiating a software lease look at options that at the end of the lease the software is novated to your organisation, as an option at your organisations discretion. Negotiate pricing now, if the lease is extended in the future and that the lease can be terminated with the minimal notice period possible. Another option is to establish the conversion cost of moving from a software leasing model to a perpetual licensing model.

In summary, the main driver to enter into a software lease is usually a financial one. Software leasing removes the requirement for a large upfront payment, with payments normally spread equally over the leasing period.

 

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