Software Licensing

 

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CONTENTS

What is Software Licensing?

Software licensing is the underlying technology and process that enables software suppliers and device manufacturers to monetize and protect their products and services.

Publishers either develop and maintain their own in-house system or utilize purpose-built software licensing solutions that interact with their product lines.

Ultimately, an advanced software licensing and entitlement management strategy allows you to:

  • Manage use rights across on-premises, SaaS, and hybrid deployments
  • Introduce new pricing models, such as usage-based monetization
  • Enable flexible packaging, bundling, and feature configuration    
  • Safeguard against piracy, tampering, and hacking  
  • Implement IoT device monetization models    
  • Facilitate secure delivery and activation
  • Govern license compliance

As it underpins every aspect of sales, fulfillment and security, the software licensing process is key to successful software monetization, and publishers need robust frameworks to serve customers, protect Intellectual Property (IP), and support growth.

 

Software licensing is essential for monetization, security, and reaching new markets.

What is a software license?

In simple terms, a software license establishes rules of use and outlines any restrictions that may apply.

Much in the same way that a driver's license grants legal permission to operate a vehicle on public roads, a software license grants permission to use a specific product or service. 

The terms and conditions of the license determine how the software can be used, just as traffic laws determine regulations for road safety. And just as different types of driver's license state particular limitations, such as not being able to operate heavy goods vehicles, software licenses may restrict the number of users or ability to install on multiple devices.

Aside from perpetual licenses, software licensing typically requires periodic renewal to maintain legal status, as dictated in the software license agreement. 

What is a software license agreement?

A software license agreement is the legal contract between supplier and user, specifying the rights and obligations of both parties and provisions related to support, liability, and license duration.

The agreement typically covers key aspects of expected performance, such as availability and reliability, while also outlining the supplier’s rights to maintain IP.

Payment terms are established, and once the contract is signed by both parties, the licenses can be activated and delivered via software license enforcement technology.

What is a software license key?

A software license key is a combination of numbers and/or letters that authorizes the use of software. This unique code is used to verify a purchaser’s right to install software and makes it available for use, so long as the license key has not already been used.

How do you control software licenses?

Within a strong software licensing framework, suppliers can add tamper-resistance to code, install safeguards against unauthorized access to software, use secure activation mechanisms, and react accordingly to any detected hacking or overuse.

The diagram below demonstrates how a centralized software licensing service enables suppliers to manage monetization and compliance across all deployment models, streamlining operations with a single platform to unify back-office processes.

 

Diagram showing how software licensing works.

Proprietary code software licensing

Proprietary software licenses give software creators the ability to maintain control over who uses the software and how they use it. It's by far the most common legally-defined type of software licensing and governs the vast majority of commercial software.

If software isn't proprietary, it typically falls into open source, where software is publicly shared for anyone to adapt or build on the source code. An open source license usually makes the application freely available, but not always, and there can be some limits on how the software code is used and then distributed, but open source developers have much less control than with proprietary models.

Software licensing and deployment methods

Different types of software licensing can be provisioned according to the application’s deployment model, specifically:

  • On-premises software licensing (otherwise known as on-prem licensing) applies to any software installed on a local computer, device or license server, where it's only accessible locally. This was traditionally the only available software deployment method before cloud-based licensing was introduced.
  • SaaS/Cloud-based software licensing involves software applications that are used, monitored and managed over the internet rather than hosted on local devices. Cloud software is more convenient to install, and allows providers to easily offer patches and software updates. Suppliers and software developers can see data in real-time on how customers use the software, helping them to make product improvements, adjust sales and marketing, or identify unauthorized software access.
        
    Cloud licensing also makes changes to license details easy to manage without physical proximity to a user's device. Customers can also amend authorized users, renew their software license or upgrade subscription tiers instantly.
  • Embedded software licensing refers to programs that are installed on systems and devices, such industrial machinery, medical equipment, automobiles, or consumer electronics. 

    As hardware manufacturers increasingly embrace IoT monetization, the shift toward software-first business models continues at pace with embedded deployments exponentially on the rise.   

  • Hybrid licensing includes both cloud and on-premises aspects in one software license. It may be utilized by producers transitioning to the cloud, but also meet the needs of organizations that prohibit cloud access.

Publishers often struggle with the ‘build or buy’ debate, weighing up the pros and cons of in-house development versus out-of-the-box solutions that integrate into your processes. 

 

The most common software deployments are SaaS/Cloud, On-premises, and Embedded

Types of software licensing

Various forms of software licensing exist, each creating a different relationship between the software supplier and buyer. The most common are outlined in this article:
Software Licensing Models: Your Complete Guide

Understanding software licensing

Forming your approach to software licensing is a business-critical decision that impacts every stage of development, sales and marketing. As such, careful consideration is required to ensure licensing frameworks are compatible with your product monetization strategy.

Publishers often struggle with the ‘build or buy’ debate, weighing up the pros and cons of in-house development versus out-of-the-box solutions that integrate into your processes. 

If you find yourself in this position, read the new eBook for expert insight:
The Build vs. Buy Debate: A Product Manager's Guide to Software Monetization Systems