Types of Software Licensing Models

When a company or individual purchases software, they must agree to the terms and conditions attached to the program. This is because the user is not buying the software outright, but rather licensing its use.

The most common types of software licensing models include perpetual, subscription based and open-source. Each of these models comes with unique terms and conditions binding and protecting both the provider and the user. Because there are several licensing models, each designed to meet various needs based on the software’s use, companies will often use asset management software to track the licenses they have signed.

In this article, we’ll look at each type of license, how they are different and an industry trend towards a particular style.

A perpetual license is exactly what it sounds like: a contract that allows the user to, after purchasing the software, use it indefinitely. The average person is familiar with this framework, as nearly everyone has purchased a program and kept it on their computer forever without paying additional costs.

It’s important to note, however, that there are still restrictions. The user is often forbidden from adjusting the source code of the software or distributing it to others. Additionally, after a certain timeframe, the provider may stop offering support or updates to the program.

• Advantages: Complete ownership, no additional fees
• Disadvantages: Initial investment can be costly, an eventual end to updates

Perpetual licenses have been the industry standard for a long time, with few alternatives. However, in recent years, other models have grown in popularity.

Also known as ‘software as a service’ (SaaS), subscription-based licensing demands that users pay a recurring fee for continued access to a program. This fee is often monthly or annually. This style of licensing has become more common lately, with more businesses offering it as a way to use their products and more organizations taking advantage of the flexibility. These programs often receive more frequent updates and maintenance from the provider.

• Advantages: Lower upfront cost, more frequent updates, ongoing support
• Disadvantages: Ongoing payment

The SaaS model can be ideal when businesses and individuals only need a program for a limited amount of time or when they want to test-drive software before committing to a large investment. This model can also be beneficial to companies that want constant access to the newest technologies, as sometimes subscription-based software updates with every innovation.

Open-source licenses and freemium models often have the fewest parameters of any agreement. Users can modify, download and sometimes distribute the source code of open-source programs. However, there are sometimes requirements in the contract dictating if the code can be used in new programs sold under proprietary licenses or necessitating that the user make their modifications public.

• Advantages: No fees, full access to source code
• Disadvantages: Requires technical expertise, often no support offered, lower tier of services, limited number of users

The trend of moving towards subscription-based licensing comes from a few directions. First, SaaS licensing provides dynamic programs. Not only does the monthly or annual fee come with consistent updates and support, it’s easy for companies to expand their agreements as their needs grow.

Second, depending on the business, many organizations don’t have the staff or resources needed to make optimal use of open-source licenses. These programs can be powerful and flexible, but considering the time and energy it can take to harness them, for some users, the juice isn’t worth the squeeze.

Even as culture and trends shift, it’s important for businesses to look inward when determining where they should invest. Each model is different, and every program provides unique parameters when it comes to cost, support, security and updates. Consider what traits are most valuable to your company as you research licenses that are best for you and your customers.

If you already have a number of licenses, it may be time to look at programs that help you maximize their use. For information in that sphere, check out our post on what asset management software is!