Contract Management

The Software License: Everything A User Needs to Know

May 20, 2020

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Manage Software Costs

Ensure your business isn’t wasting spend on unused tools and licenses.

A lot of activities require licenses nowadays. 

Driving, hunting, and even using software. 

While using software cannot directly cause anyone bodily harm like driving and hunting can, the associated licenses are meant to govern the actions of software users. 

What is a software license?

Software licenses govern the way people adopt, apply, and utilize software. Under copyright laws, all software is protected, and therefore, permission is needed to use and redistribute it. 

When buying software for your business, one license is good for one employee, or one “seat.” So however many people are going to be using the tool, that’s how many licenses you need. The licenses will be accompanied by a software license agreement, which is a legal document outlining regulations, restrictions, and terms and conditions of use. 

After a while, your business will acquire a lot of different software tools, and managing all of them can become a giant headache. G2 Track can help you keep up on license renewals, but it also informs you if you are wasting SaaS spend on licenses that aren’t being used. 

Software ownership vs. software licensing

Often times, people will confuse owning software and getting a license to use it. Let’s set the record straight. 

When you purchase a software product, you receive a license to use it. You are limited to the terms and conditions laid out by the license agreement, which might include issues like using the software on more than one device and whether or not you can create backup copies. Even some free software will be accompanied by a license, terms, and conditions of use that you are required to follow as a user. 

When you purchase a software license, you do not own the software. The software ownership belongs to whoever holds the copyright. 

Considering you don’t own it, making sense of the fine print on a software license agreement is worth your while. Because software products are protected with patents, not following the conditions of the license could have some serious consequences. 

Software and copyright law

There are multiple types of software licenses, and every piece of software falls into one of two categories: free and open-source software or proprietary software. The main difference between the two is whether or not the right to re-use a piece of software is given to a customer. 

Free and open-source software

Free and open-source software is software that anyone is free to use, change, copy, and study. The source code behind the software is shared and users are able to improve the design. 

There are four essential freedoms that a software must offer to be considered free software: 

  • The user has the freedom to run the program as he or she wishes. 
  • The user has the freedom to study the software and change it to run as he or she wishes, requiring access to the source code. 
  • The user has the freedom to distribute copies to others. 
  • The user has the freedom to distribute their modified copies of the software, offering a chance for others to benefit from the modifications. 

There are plenty of benefits behind using free and open-source software, including decreased spending, increased security, education, and having more control over the product. 

Proprietary software

Proprietary software is the opposite of its free and open-source alternative. This type of program is not free, and the intellectual property rights are held by the publisher. With proprietary software, the source code is considered a trade secret, which is a type of intellectual property that’s value stems from the fact that it is not generally known or readily available. Owners take serious measures to protect trade secrets. 

In the case of proprietary software licenses, potential users must accept and abide by the terms and conditions of the software license agreement or they legally cannot use the software. 

Software license pricing models

There is more than one way to price software licenses. Depending on the value of the tool, how it will be used, and the features included, customers and publishers will negotiate the right price for the license. The method of pricing typically follows one of three models. 

Perpetual software license

A perpetual software license is a non-expiring license to use a piece of software. The customer does not need to pay for support or update the version of the software they bought. 

Customers will opt for perpetual licenses because it is simple and easy to manage. However, they can end up with some outdated tools, leaving them unsatisfied, and in turn, creating a bad reputation for the provider. 

Subscription software license

A subscription, on the other hand, is a renewable license. Customers typically renew their licenses annually, which includes support and updates during that period of coverage. Unless the customer renews the license, it is terminated automatically. 

For the publisher, subscription licenses offer a steady source of income, rather than getting the money all at once, which also means a smaller initial payment for the customer. Because of this constant interaction, a relationship is created between the consumer and supplier, making it easier for the provider to anticipate their needs. 

However, managing the license on both ends can be a pain when it comes time to renew. 

Consumptive software license 

The consumptive license also has a recurring fee, but it is based on usage. The more the customer uses the product, the more they pay. 

The payment method of the consumptive license most closely related to the value the customer gained from the product, while also providing a decent revenue flow for the provider. One downside, however, is there is even more management required on both ends. 

Software support and updates

Software licenses often include terms and conditions of maintenance. This part of the agreement usually includes updates and support. 

For a major upgrade, the customer is required to buy the update. If it is a renewal instead of an update, the customer will be charged a reinstatement fee whenever the software needs to be renewed. 

The technical support side of things comes in multiple levels: gold, silver, and bronze. The levels of support are distinguished by the method of communication they offer, how often they are available, and how long it takes them to respond. You can also simply get a certain number of incidents in a year that support will help you with. 

Accept the terms and conditions 

Getting a license to use software might seem silly, but the point is to protect the publisher from their work being used illegally and to protect you from the consequences of infringing on a copyright. Pay attention to the terms and conditions of your software license. Avoiding those penalties is worth your while.

Buying software is not a one and done - it requires some upkeep. Check out our next article on renewing software and avoiding unnecessary spend in the process. 

Artboard 1 copy 18@2x
Manage Software Costs

Ensure your business isn’t wasting spend on unused tools and licenses.

Manage your software costs with G2 Track.