Software licensing models

Managing software licences is not straightforward because of the many different ways in which software can be licensed by vendors. Although there are many common software licensing models, each software vendor has commercial freedom to choose their own. Here are some of the popular licensing models:

  • Per user – one licence is required for each individual user of the system. This could be on a per user-account basis or a per named-user basis.
  • Per installation – one licence is required for each desktop or server where the software has been installed. Multiple users can share the same computer with the licence.
  • Concurrent – one licence is required for each concurrent user of the system. This essentially defines the maximum number of people who can use the system at any one time but there may be significantly more users and installations.
  • Per site – all computers and people within a single corporate site can use the software with the same licence
  • Per processor – an adaptation of the per-installation licence for systems with multiple CPUs. This was adapted further with the introduction of multi-core processors.
  • Freeware – software which can be downloaded, used as needed, copied and distributed without any restrictions. Freeware is often accompanied with advertisements for commercial software such as a more advanced version of the same product. The ‘free’ in ‘freeware’ doesn’t include freedom to modify.
  • Shareware – software that is distributed free on a trial basis. Shareware may have a built-in expiry date or present reminders every time the software is used. Output from the software may have ‘Trial Version’ embedded, preventing it from being used. It could be free for personal use but requires payment for commercial use.
  • Open Source – source code is available to everyone to download, use, modify and redistribute. Code is available under the General Public Licence (GPL) and all derivatives made available must be under the same terms.

With a growing number of cloud-based services where the vendor has control and responsibility for the platform, software vendors and their customers are able to exercise better control over software usage and licensing. For example:

  • Per feature – some features are provided as standard and others are enabled once the agreed fee has been paid. Features can be enabled and disabled by the vendor.
  • Per space – the price charged is based on the storage space used
  • Per bandwidth – price based on the quantity of data transferred
  • Per feature usage – price is charged for each time a specific action is taken within the software. To simplify purchasing within software applications, a popular approach is to introduce the sale of credits, then for credits to be used within software features.

Individual software vendors have the freedom to choose one or more licensing model or any variation on the same theme for their products.  This can change over time as new software is released and new delivery methods become available.

Given the diverse range of software licensing models, it is sensible to adopt a centralised procurement system for software licences. Benefits include:

  • Avoidance of scenarios where an organisation has a site license for a product along with a number of individual licenses for the same product at the same site
  • A pool of licenses allowed to be controlled and transferred between people as needed
  • Use of the most appropriate type of licence for the required usage corporate wide. It might be more economical to purchase a site licence for example, an option that would not be considered with decentralised purchasing.
  • Reduced expenditure through economies of scale
  • Specialist knowledge about software licensing can be concentrated within a single team allowing other teams to focus on their core duties

Centralising the purchasing of software licences becomes more important as businesses grow and will in the long-term reduce expenditure. Having individual departments or teams responsible for their own software purchasing can become costly, inefficient and increase the number of software licence disputes due to lack of awareness and control.