Software Licensing Models (what you need to know)

Taking a dive into the world of tech and all of its fancy terms can be very intimidating. For business owners who aren’t tech-savvy, this can be especially true. Understanding the different terms and legalities with licensing can quickly get overwhelming, but it doesn’t have to feel that way. Today I will be breaking down everything you need to know about software licensing models in the simplest of terms.

This includes what they are, why you need them, and even some of the best software licensing models for different types of businesses and uses.

Let’s start with the basics and build from there.

Software Licensing – What is it?

In simple terms, software licenses are sets of rules and agreements that dictate who and how an online software may be used. Some softwares are free to download and use by anyone online, while others may require a monthly or one time payment.

As a business owner, looking into your different software licenses is a very important step to maintaining legal day to day operations. Especially when creating content that you want to be branded as yours.

Common Software Licensing Models

While there are many different types of software licensing models, there are three that are the most common and are used by many among both individuals and businesses. They are:

• Perpetual License
• Subscription Based License
• Consumptive License

Let’s talk briefly about each one so you’ll have a good understanding of how each type of license works and can start to understand which will be best for you and your business.

Perpetual License

A perpetual license is a one-time purchase agreement on software. For businesses, this can be considered capital as it never expires. Perpetual Licenses are great for software that you know you will always need.

Under this model, you will be able to copy and use the product forever. This is mostly used for certain versions of a product, so if you are very fond of a specific version of a program, a perpetual license is your best bet.

What goes without saying (but I’ll say it anyway) is that products under this licensing type are not subject to or available for updates.

You get what you get and you enjoy it forever (until you don’t).

Subscription License

As the name suggests, subscription license models are paid on an ongoing basis after certain cycles (or periods of time). These are also common among businesses and individuals.

Common examples of subscription licenses would be Microsoft 365 or Google Workspace – both of which are available for low monthly fees.

As a software company, if you create software and release it under a subscription license you would have access to a steady flow of income per cycle.

For users, these subscriptions automatically terminate when overdue. And unlike Perpetual Licenses, Subscription Licenses are available for updates when the creator puts them out.

Consumptive License

Unlike the Perpetual and Subscription Based license type, a Consumptive License is, in essence, a pay-per-use system of buying software.

The most common method would be after the period is over, users are provided with their usage and are subject to that amount.

These licenses are great for those who use programs but not enough to need to commit to a subscription.

Which Software Licensing Models are Best?

The three licensing models mentioned above are the most common and among the most versatile.

But if you are in the market for something more specific to your needs as an individual or a business, then keep reading.

Below I’ll dig deep and break down what I feel are the “best value” license models for different types of users.

For Personal Use

Perpetual, Subscription, and Consumptive Licenses are all great options right off the bat.

But going deeper into personal use, there are a few different licensing models under public domain that are easily accessible.

Public Domain

Public Domain Software Licensing Models are a subcategory of models on its own. Licenses under this category mean that they are free for public use and can be simply downloaded off the internet. Of course, this comes at the risk of the user.

Once you download the program, you are free to use and modify it how you want. But different models under Public Domains have different restrictions. A similar option to Public Domain that is more secure are Permissive Licenses, but they have more restrictions.

Lesser General Public License

These are best for those interested in tech and customizing their own programs. These licenses allow you to download existing applications and customize the codes in any way that you want. These are also popular for commercial use but once you begin selling the code you have made, it’s a different story.

Generally, these are great if you want to customize your own programs but do not intend on selling or redistributing.

For Small Businesses

For small and developing businesses, making wise investment decisions is crucial. The last thing you want to do is invest in a Software Licensing Model, and not get the full use out of it.

Here are a few that will get you the most for your money:

Metered License

These licenses are great for small businesses that only need limited access to a software. Under this license type, the licensor can adjust the price and limit the use in terms of how many accounts have access to the software. So instead of paying for an entire subscription or software, you will only be paying for the accounts using it.

This is great in situations like if your business only has one accountant. You’ll need only one account for your accounting software, for instance.

Aggregate User License

These license models are also classified under the Metered Licenses, as they are another type of money-saving license model. Under this classification, similar to the Metered, activity is restricted. But in a good way.

Essentially, the company can purchase software hours and only pay for those hours used. It can be prepaid or postpaid depending on the licenser. This is also a great option if you are looking to try out a few different software types before making a commitment to stick with one.

Trial License

On the topic of searching and trying out different licenses, there are also Trial Licenses. As the name suggests, these licenses are good for a certain period of time before they expire. That way you have the flexibility to try out a few different softwares at a time.

For Corporations

As a larger corporation, you have probably already tried out different software and have a set foundation in terms of how your business conducts its online operations.

Nonetheless, there are so many software licenses available, there is always room for improvement.

Project-Based License

As the name suggests, these licenses are good for a certain period of time for a certain project. This is great for larger corporations working on projects wanting to use different software without having to commit to a long time license.

This is also a great option for businesses working in collaboration with others so that all prior data will be secured in your company’s main software while you work on a separate one specifically for the project.

On-Demand Corporate License

This type of license is ideal for corporations because it allows the most flexibility. Essentially, it combines all the license types mentioned above, and even more. This allows corporations to design their own licensing for the software of their choice.

Overall, it’s a great investment, especially for corporations with bigger budgets. This way no money is wasted from licenses not used to their full capabilities.

Final Thoughts About Purchasing Your Software Licenses

All in all, software licensing isn’t as intimidating as it seems.

The key thing is to identify the different types of programs you or your company uses, and being honest with yourself about its value-to-cost ratio. If the benefits outweigh the price, feel good about your purchase.

Having basic background knowledge of the different types of licenses available to you puts you on the right track to finding the one most ideal for your software needs.