March 5, 2021
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Don't Forget About Software Licensing

  • By Jani Järvinen
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When developing commercial software, licensing options and sales models are often an afterthought. Often, development and coding are the main focus areas. Things like sales prices and licensing are often the details left for the marketing department to determine. Software licensing, however, is also technology and can be a deal-breaker if not done properly.

In fact, customers today expect to have solutions to a multitude of needs. For instance, many users have both a desktop computer and a laptop. If you sell your product to a single user, should he or she be able to use the software on both computers? Will they be able to use it on their home computer?

Similarly, corporations want flexibility. They might acquire another company or merge their businesses. They might be using Windows Terminal Server or Citrix XenApp systems and run your application multiple times on the same server. Or, they might virtualize your application or load-balance it on two or more servers. Do you have a licensing model for these situations?

This article talks about different licensing options and sales models for software products with focus on smaller ISVs. The aim of this article is to provide information about different licensing options and best practices. Let's begin the tour from regular desktop applications.

Exploring Licensing Options

Finding the best licensing models for your software can be difficult. This is especially true if you are not aware of all the possibilities that customers have learned to purchase software. Table 1 lists common licensing models and related considerations.

Table 1. Common software licensing models and considerations

  • Per-User and Per-Computer
  • Concurrent, Time limited
  • Per-Processor
  • Educational, government and non-profit discounts
  • Home usage
  • Terminal Server/Citrix usage scenarios
  • Hosted applications, CPU hours
  • Virtualized environments
  • Multi-boot computers
  • Trial periods

The basic licensing model for end user applications is the per-user model. This means that a single user would be able to use your product on any number of computers, including desktop, laptop and home computers. Should you like to restrict for instance home use, you could state so in your licensing agreement. The clearer the agreement is the better.

An interesting option to enhance the traditional per-user or per-machine models is the concurrent licensing model. In this model, a certain number of users can utilize the product at one time. That is, any user (depending on the licensing rules, of course) could use the product provided that the maximum number of simultaneous users is not exceeded.

The concurrent model is particularly useful for applications that are needed by many, but not very often. Thus, the customer can provide the application for many of its users, but only pay for the actual usage. Work shifts might also be attractive usage scenario for the concurrent model.

Note that different companies use different names for concurrent licenses. Some call them networked, floating or simultaneous user licenses, but the idea is the same. It is common for the price of a concurrent license to be three to five times the price of a regular per-user license. There might also be limitations on how many installations a concurrent license allows; for instance a single license might let the application to be installed on 20 computers.

Activation – Bliss or Dread?

Many ISVs worry about pirated software and lost sales. If this is a concern to your company, the easiest option is to clearly state in your licensing agreements how your application is licensed and the unauthorized use is illegal. Clarity helps: too complicated agreements irritate users and can lead to lost sales.

A statement on an agreement can be a little toothless, though. Since Windows XP's debut in 2001, mandatory software activation or registration has become increasingly common. Simple and working activation can be good, but too many application developers fail to imagine how things could go wrong. For instance, Internet connections might malfunction or your licensing servers might be down for maintenance. But while you maintain, business on the other side of the globe is in full swing.

Assume that you sell your solution with a license that allows a single activation. Computers crash and the software needs to be reinstalled. How would your licensing engine supporting this situation? Or, the customer needs to move the license from one employee to another. Could that situation be handled without a costly phone call to your support organization?

Uncommon situations can cause trouble for activation systems, but so can time. For instance, can you guarantee that your licensing servers still support activating older licenses after, say, ten years? If you sell perpetual licenses to your customers, then legally you ought to provide activation services for a long time. Recent collapsed music businesses and DRM server shutdowns provide an example of what happens when activation is taken offline. The same thing applies to software systems.

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This article was originally published on April 27, 2009

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