A Cautionary Note on Software Cost Structures

19 July 2016

Software costs structures are changing; this could have significant impact on your business’s long-term profitability. ACA – WA outlines the issues.

Our practices rely on the tools of our trade, with software such as CAD and project management systems providing the backbone of our production and productivity. The models for how we own and operate these tools has changed over time from a ‘perpetual license’ to cloud-based subscriptions. ACA – WA provides this “Cautionary Note” to members to signal some of the major changes imminent, which may have a long-term affect upon your business costs.

Much of the cloud-based collaboration software that is becoming essential to the proper implementation of BIM is also subscription-based. Software such as Autodesk Glue and Revizto require multiple licenses across the whole consultant and construction team to operate effectively. Unless architects are careful, they will either have to pay for all the licenses or try to recoup the costs from other collaborators or from the project budget. Such costs are substantial: it may be argued that these tools result in better coordinated projects, but often the costs are not borne by those who benefit most from the collaboration process. This can only happen if the costs are contained and known at the start of the project and shared or attributed directly to the project.

As of 31 July 2016, Autodesk is ending the sale of perpetual licenses. Soon architects will no longer be able to buy and own new licenses; practices will only be able to rent the software they have chosen to use to do business. This has some potentially significant cost implications. ACA – WA encourages members to be aware of these changes, the potential impacts on their businesses, and to carefully assess current and future needs.

Once upon a time, we simply bought a piece of software, installed it, and focused on refining our workflow. Subscription, in contrast, means making an annual payment to software companies in return for access to the ‘latest updates’ and ‘improvements’ to their products. Subscription is not mandatory, and many architectural practices can probably do without the minor tweaks year-on-year, however, the lack of backward compatibility means that subscription is increasingly the only realistic option. That is, if we don’t subscribe, we run the risk of being unable to collaborate with our industry partners.

The lack of backwards compatibility, together with the high frequency of software updates, also imposes a significant additional data storage and administrative I.T. burden on our business operations. Another vexing concept increasingly employed by software companies is ‘over-bundling’. This involves charging more for the ‘essentials’ by only making them available in a ‘suite’ of other products.

We must also remember that we pay for our software on a license-by-license basis and many of us have a fluctuating staff numbers. The subscription model creates a baseline cost structure that generally aligns with peak demand. This is because it is often cheaper to maintain a subscription for an empty seat (on the off chance that you may need it at some point in the future) rather than repay full price, again, when you actually need it.

Some members have also pointed out the considerations of flexible and part-time staff in relation to such licensing arrangements, commenting that some license agreements may in fact penalize practices with staff working in more flexible ways by not calculating licenses in a full-time equivalent mode, but simply ‘per user’.  This may result in practices having complex ‘work-arounds’ to manage the requirements of multiple part-time or flexible staff, or even job-share arrangements.

The next evolution of the subscription model is the rental model. The upside of renting is that you don’t pay for the licenses when you don’t need them (assuming you’re not partway through the term of a rental agreement), and allows new businesses to avoid the hefty initial outlay of the soon-to-be-historical cost structure.

The rental model could have been the solution to fix the inflexibility of the subscription system. However, our analysis suggests that practices are likely to find that it will cost considerably more in the long run. That’s great for the software landlord, not so good for the software tenant, and who’s to say the landlord won’t raise the rent when they feel like it?

So what does this all mean for our businesses? Will we need to pay for programs we don’t need? How do we plan around unknown future potential costs? This is a substantial conundrum. How many seats will you need now, in five years, or in ten years? If your demand for Autodesk software is steady then you should strongly consider maintaining your current subscriptions for as long as you are allowed.

We recommend that practices carefully consider current and future needs – and do so quickly.

When considering your software requirements examine the following factors:

  • Check the manufacturer’s suggested retail price (MSRP) on the various Autodesk websites – we have noticed discrepancies between the .com and .com.au versions
  • Get alternative quotes from all possible resellers to confirm the actual prices that will be applicable to your business
  • Beware of the additional costs for ‘floating’ network licenses
  • Consider your collaboration requirements
  • Consider other software alternatives

In an ideal world, architectural practices would pass on the costs of software rental to our clients, as disbursements. That is something we should all seriously consider. In the short term ACA – WA advises all members to carefully evaluate the possible impacts of rental versus subscription versus perpetual licensing for your particular practice needs.