How Do Software Licenses Work

How Do Software Licenses Work?

If you’re like most, then working out technical details can seem very intimidating. But as a business owner, it is important to have a basic understanding of how the different software licenses work with your business. Here, I will be discussing everything you need to know about operating software licenses. I’ll cover what they are, how they work, the different types of licenses, and why they’re beneficial to have as a business. How do software licenses work? Let’s find out!

Software Licensing: Terminology

Before diving into the details, it is important to understand the different terms and jargons used when discussing all things related to software licensing:


Let’s define what exactly the term “software” means. Software refers to any computer programs you can install or download to your computer. Commonly used software include Microsoft Word and Google Docs, antivirus programs, internet browsers, among others.


Copyright protection refers to the rights of the owner over their intellectual property, such as software applications. The copyright owner has the right to decide who can use their work and to what extent, price, and restrictions.

Software License

A software license is an agreement between the owner and the user. This agreement covers:

  • Use of the software
  • How many times it can be downloaded
  • Whether or not it can be distributed.

Using unlicensed software is illegal. Furthermore, it’s a form of piracy. The rules and regulations for particular software is in the End User License Agreement, otherwise known as the EULA.

So it is imperative to read it thoroughly to ensure that you are in compliance with the rules of use.

Using Software Licenses

Do I Need a Software License?

In simple words, yes.

While there are many individuals who find their way around licensing, it doesn’t mean that those methods are always legal. As a business, it is crucial that all aspects of your operation are lawful and in compliance with the different rules and regulations.

Methods of Licensing

There are three main methods of licensing:

  • End-User License Agreement, or EULA
  • Subscription Based
  • White Labeling.

Each method suits different needs for the individual or organization. Here’s what you need to know:

End-User License Agreement

This is a contract between the owner and the user. It’s one of the most basic and common methods of acquiring a software license.

The user gains rights to use the software how they please without complications with copyright. The license has created all guidelines and expectations, which the user agrees to.

Subscription Based

Subscription services are most common for SaaS (software as a service). In this method, you will pay for each user in the form of recurring payments, either monthly, annually, or whatever the agreement states.

Subscriptions are incredibly flexible methods of licensing because it allows users to only pay for the services they use or intend to use.

White labelling

Bigger organizations take the most advantage of white labeling. One company creates a product, which they “white-label) and sell to another company who rebrands and resells the product or software. However, there’s a catch.

The original creating company earns a certain amount of profit off each sale of the white-labeled product, as stated in their agreement.

Software Licenses at Work

Types of Software Licenses

There are two main categories of software licensing:

  • Proprietary
  • Open-source

These two categories of software licenses work with privacy, accessibility, and restrictions. Under these two categories, other types of software licenses branch off and fulfill more specific roles.

How Proprietary Software Licenses Work

These types of software licenses are very common among bigger organizations and creators distributing their software.

Proprietary licenses are very strict in that most of the time. Typically, you have to pay to use their software and cannot make any modifications of your own. The owner attains all rights and the purchaser is essentially purchasing the rights to use the product.

How Open Source Software Licenses Work

Open Source software, or free source software licenses, are open for anyone to use, modify, and redistribute with certain restrictions depending on the type of open-source license.

The key takeaway is that open-source software licenses have fewer restrictions. Common free source software licenses include:

Public Domain

Public domain software will give access to the software without restrictions. You can find these on the internet and add your own code to the software and use it in any way you please.

This includes personal use and redistribution. Before adding it to your own codebase, you will want to make sure it is secure and compatible with your existing code.

Permissive Licenses

Also known as “Apache-style” or “BSD style,” these are the most popular free source licenses. While overall similiar to public domain licenses, permissive licenses do have a few restrictions. Thi does make permissive licenses more secure to use, however.

Lesser General Public License (LGPL)

This type of software is generally free to use if you do not plan to modify or redistribute.

An LGPL allows you to release your own applications under any available license if it is linked to your open source libraries.

However, modifying parts of the actual codes and libraries means you will have to release your application following the original terms of the LGPL. This type of license is popular for commercial use.


Copyleft licenses are more of a combination between open source and proprietary licenses. These are also known as reciprocal licenses or restrictive licenses, and are lenient or restrictive based on the software terms.

Generally, you are able to modify the license and code and distribute new works based on it, but you will have to follow the restrictions set by the original software.

Benefits of Software License Business

There are many benefits of software licenses in business. For starters, having the rights to own and use a software helps make day to day operations. Here’s how:

  • Labor – Having a software license allows businesses to use services and computerized software crafted to speed up the process of day to day operations to increase productivity.
  • Personalization and Flexibility – There are many different software licenses to choose from for different software. This allows businesses to pick and choose the type of software their organization will be needing to get the most out of their license.
  • Lawful conduct – As a business establishment, it is important that all operations are compliant with copyright laws. This ensures continuous business operations and prevents unnecessary lawsuits.
Working with Software Licenses

Getting the Most of Your Software License: Tips & Tricks

Now that we have covered all our bases when it comes to software licensing and uses as a business, there are some recommendations to get the most use of your software licenses while saving some money:

Identify needed software

This goes without saying that you should only be purchasing licenses for softwares that you will use. And be sure that this is used to the maximum. Make sure that every aspect of the software will be used to its full potential to avoid wasting money.

Compare Different Services

The internet is very vast. There are many services and programs that are very similar to each other and they almost always offer a free trial. Use them.

Compare the different softwares and figure out which one is the absolute best for your business. This saves you more money than working with one software for a year only to realize you do not like it.

Keep track

It is not uncommon for businesses to have more than one software license. Make sure to keep track of your different licensees.

It’s also important to monitor which software you use more, and which you use less so that you can make further adjustments. In some cases, you can even have software that will manage your other software.

Final Thoughts

At the end of the day, software licensing is pretty basic and not as intimidating when we take it step by step.

By gathering a basic understanding and general background, you are now one step closer to making the best software licensing decisions for your businesses.

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