This post originally appeared on techsoup.org's blog and was written by Jim Lynch, Co-Director of TechSoup's GreenTech program.

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With the advent of cloud computing, which is generally regarded as a major IT paradigm shift; there will be some important changes. One of them will be how we will use software and another is how we will pay for it. With cloud services we will pay for our software by making monthly payments, more like renting it, rather than buying it as most of us do now. Here are some pros and cons on "renting" cloud services as opposed to buying your software.

How Software Perpetual License Ownership Works

Most of the software that nonprofits and libraries now get from TechSoup is under a perpetual license that means the software belongs to you forever. There are many terms and conditions that each software package has that are spelled out in user license agreements. Each software company has different terms, but in all of them your organization owns the software and is entitled to use as long as you'd like at no additional cost.

Software companies upgrade the software you own in two different ways. They offer patches, security updates, and other updates pretty frequently - usually on a monthly or even weekly basis. These updates are no cost and are usually delivered over the Internet. Software companies also do major version upgrades every 18 months to 36 months. They usually charge extra for these upgrades and they provide a new user license agreement. It is essentially re-purchasing the software and the cost can range from 18 to 22 percent of total cost of acquisition of each software title you own.

How Cloud Subscription Pricing Works

A good many cloud software services are free like the large array of Google services and Microsoft Windows Live services. More and more, however, have a subscription pay-per-user payment model in which you pay a monthly fee per user, often renewable on a yearly basis. Of course the software is delivered over the Internet rather than living on your computer, cell phone, or network. Most cloud companies offer a "freemium" payment model in which a trial or very basic level of service is free, but the fully functional service has monthly fees per user or an annual subscription.

This arrangement resembles a renting or leasing model more than a purchase model. Cloud services companies often guarantee the monthly payment amounts for one year, and may elect to change the fees after 12 months. Users can usually stop using the service whenever they want though. With cloud services, all updates and upgrades are included in the monthly fee and do not cost extra. Also it is very easy to quickly add users or storage capacity to the service, something called scalability in cloud computing terms.

Planet for Rent by Flickr user J P D

Comparing Renting vs. Owning Costs

Comparing the pay-per-user monthly cloud payment model with the conventional ownership model is a bit complicated. One complication is not being able to get a simple apples-to-apples comparison between the two. For instance using a cloud based data back-up service like Mozy versus doing backups with your local area network involves calculating software, hardware, and labor costs between the two options.

For functions where the comparisons are more direct, like with office productivity tools like Microsoft Office and Microsoft Web Apps (which is currently no cost) or Zoho Office, it involves some effort to try out the cloud based version to see if works for you. Cloud based services are often pretty different from their on premises counterparts.

The Bottom Line

On a straight cost basis, pay-per-user monthly cloud services currently turn out to be generally more expensive than conventional software ownership. This is especially the case when nonprofits and libraries can get TechSoup on-premises software donations. Cloud services may tend to save money in overall IT costs in the amount of tech support and maintenance they require. In other words, they may cost more per month, but save money in the number of IT staffing hours you need. In any case, interesting times are ahead on this.

Photo: J_P_D