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.
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.
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.
- 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.
- 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.
Types of software licensing
Various types of software licensing exist, with the most common listed below:
Perpetual licensing is when the user pays once for the software and can use it for as long as they like. Common before cloud-based licensing existed, it provides clarity in the form of a single fee and few terms. However, it doesn't include ongoing access for patches, software upgrades and support. A perpetual license tends to be most convenient where software is hosted purely on a user's device without relying on internet access, either because of security or location.
Subscription software licenses charge a fee for limited use – usually monthly or annually. If a user does not renew the license subscription, they lose access. A key model in cloud licensing, subscription licenses provide flexibility with less commitment than perpetual licenses, as well as encouraging an ongoing relationship between software developers and the user.
Customers under a SaaS license pay to access software for a specific amount of time in the cloud, rather than downloading and 'owning' a software copy. Typically licensed on a subscription basis, the SaaS licensing model is popular because it allows customers to avoid the upfront costs of purchasing and maintaining software and infrastructure. Instead, they pay for the software on a recurring basis, and the SaaS provider handles the installation, updates, and maintenance.
Attached to a specific user, no matter the device they use, user based licensing is another form of subscription license. It's seen as a good option for software that retains sensitive customer information, no matter where the user is accessing the software application.
Concurrent software licenses come in bulk, meaning users get a defined amount of licenses to be used once and on any device. It's flexible, making it cost-effective for organizations that have staff working in shifts or across multiple timezones. Employees who don't work at the same time can share a software license.
A floating license is almost synonymous with a concurrent license. Software is licensed to a number of simultaneous users regardless of location or device, and can move between different users in an organization to keep software costs down.
By making different software features available to different end users, a feature software license allows the developer or vendors to offer the same application in different pricing programs, as well as enabling a degree of software customization from the developer to the customer. It's often combined with other software licensing terms.
A metered software license limits access to software based on the number of times users sign in, the number of times a feature is used, or the amount of time the software has been in use. Metered licenses can be combined with other models.
Use time and aggregate use time licenses
Use time licensing, also known as usage-based billing, is a form of metered license based on the amount of time the application has been in use. The user pays ahead of time for a certain period, and once the timer runs out, they lose access until they repurchase. Aggregate use time licenses apply use-based licensing to multiple users. An organization can set a cap on the number of hours software can be accessed across specific departments or users, aggregating the organization's software use for billing purposes.
A fixed-term license includes an end date for termination of software access. A form of subscription software license, it is seen as more concrete and less open to renewals.
Trial licensing is a type of fixed term license that allows users to try before they buy. It may place limits on the features or number of users, and require payment details before granting trial access to the software.
Project based licenses are temporary licenses that allow external contributors to use an organization's software licenses during mutual projects.
Academic licenses are license agreements that include features that appeal to educational institutions, teachers or students, typically with discounted pricing or different payment terms.
An on-demand license is a type of metered license, based on use time. The customer buys access for a defined period of time, but they can spread that time out – i.e. the application is available on-demand.
Offline use licenses are subscription or fixed-term licenses that also enable direct download to a device so the application can be used without the internet.
Applying to a certain number of devices, device licensing is first installed locally and then can be used by any user. To install software on a new device, users must first uninstall it from another device.
Similar to device licensing, anchored licenses are attached to a particular device rather than a group of devices. The software may be inherent to the device or be part of a software licensing management strategy that aims to keep tight control over the software's access and use for application security.
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, you can hear expert insight in this on-demand webinar:
The R&D Dilemma: Build or Buy Systems for Entitlement, Licenses and Usage Management