The most predominant software licensing metrics used today for most enterprise software are either a named-user or machine-locked license. With the named user license metric, fees are applied typically by the name and role of the user accessing a set of software functions. This is often used with enterprise CRM or ERP software. With the machine-locked license, fees are applied based upon usage on a particular machine. These metrics are typically used with traditional desktop software deployed throughout the company.
What is a Concurrent License Metric?
Another type of license in use is the concurrent license metric, or, the case where license fees are paid based on a high watermark – the maximum number of users that can access the software at one time. This is sometimes also called a “floating license” as the license rights are in essence, available or floated among users, provided one is available (e.g. they haven’t all been checked-out). This typically requires some license management technology, and works well in large environments where a large number of users access the software, and the administration of managing a large number of named users or node-locked software deployments becomes overwhelming.
Concurrent licenses are often adopted by software producers that start with a named-user license or node-locked license metrics. There comes a point where there is a need for simplicity, and a concurrent license meets the need. In addition, the availability of software in a concurrent license model promotes deeper account penetration by allowing additional users to “test drive” the software.
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Pricing Concurrent Licenses
The trick is – how do I price the concurrent license? Since more users can potentially access the same “amount” of software when it’s made available in a concurrent method, the software producer wants to ensure that they don’t lose revenue. Certainly, if the software is providing more value, then one can argue that the software producer should make more money than before.
An effective approach is to evaluate software usage for a single license with the existing metric, and then determine usage in the concurrent. From there, pricing can be multiplied by the increase in usage as a starting point. For example, let’s assume that a software producer sells a desktop productivity perpetual software license for $100, and also that the software is used on average 2 hours per day. For a reasonably large deployment, one can assume that the software license will be used 8 hours per day as all users in a particular site will have access to the software (4 times the usage, and presumably, 4 times the value). This suggests that a concurrent license should sell for $400, or, close to that price. Of course, market testing may suggest a slightly lower price. In real world experience, I have seen the software license sold with the concurrent license metric priced anywhere from 25% higher than a machine locked or named user license, up to 400% higher. The method used above was part of the process used to establish the concurrent license price.
Now, let’s assume that the software producer is selling to an enterprise that has a worldwide presence, in which case the software might be used “around the clock”. In this situation, the software license that was only used 2 hours per day may now be used 24 hours per day. This is 12 times the usage, so perhaps a price of $1200 may be needed. Again, the actual price will probably not be so extreme.
Takeaway
What’s nice about offering the concurrent license is that it doesn’t have to be the model license metric, but it can be part of a larger portfolio that enables more flexible pricing and licenses for different types of customers. One can offer a machine-locked license for individuals, a campus-wide concurrent license for SMB accounts, and, a worldwide concurrent license for global accounts.
Common Questions
What are the most common software licensing metrics used by enterprises today?
The two predominant licensing metrics are named-user license, where fees are based on the name and role of the user accessing the software, and machine-locked license, where fees are tied to usage on a specific machine.
What is a concurrent license, and why do companies use it?
A concurrent license, also called a floating license, allows a set number of users to access the software at the same time. It’s ideal for large environments where managing numerous named-user or machine-locked licenses becomes complex. This model simplifies administration and encourages broader adoption by letting additional users “test drive” the software when licenses are available.
How should software producers price concurrent licenses?
Pricing should reflect the additional value and increased usage that comes with concurrent access. A practical way to approach this is to first understand how much the software is used under the current licensing model and then estimate how usage will change when licenses are shared among multiple users. If usage significantly increases, the price should be adjusted proportionally to maintain revenue and reflect the added value.
