What is software licensing?
If you are an independent software vendor (ISV) or software publisher you will most likely want to monetize the software application you have developed. The terms under which you provide your software to a customer is defined by the software license - how much the customer has to pay, for how long, which versions of your application does their license apply to, etc. Historically, a lot of software products were licensed on a perpetual license under which the customer paid once, but then could pay an option annual maintenance fee to continue to receive newer versions of the application, bug fixes and perhaps some support. As more and more software is being provided online, there has been a shift away for the limitations of perpetual software licensing to much more sophisticated licensing models that can be better suited to the software product being sold.
What are the traditional methods for licensing software?
The simplest way to license software is to simply have a written paper license agreement between the software vendor and the customer. The vendor would then trust the customer would comply with the terms of the software license and, normally, the software license would contain some right of audit, under which the vendor could do an occasional 'spot check time' to ensure that the customer was using the software in a manner consistent with the agreed software license. The obvious drawbacks of such an approach include a lack of scalability (paper contracts are slow to process), significant room for abuse (it's tricky to audit a customer without irritating them) and if the software was distributed, it is impossible to limit its unauthorised use by anyone who manages to get copy.
The use of dongles turned out to have significant limitations.
In order to address these issues, software vendors turned to a digitally-based solution called a dongle. Dongles (known as a licence dongles or keys) are electronic / hardware-based protection locks initially introduced by ISVs to protect and prevent unauthorised usage or unwanted distribution of their high-value software applications (normally desktop apps). The dongle's firmware is integrated with the software of the application and contains information used to authorise access - what and how can the end-user use the software. The user can get access to the software application only if the dongle is physically present on the computer. While in theory dongles seemed to work well, they turned out to have significant limitations - someone had to keep track of them being issued and returned, they broke and had to be replaced, there were hardware compatibility issues and they could be easily transferred between people in the same company so they didn't prevent software abuse within a customer site.
What is Licensing As a Service (LaaS)?
In order to overcome the limitation of traditional licensing methods and to capitalize on the opportunities created for software publishers by the Internet, a new method of software licensing has emerged called Licensing as a Service (LaaS). When a software vendor uses a LaaS solution what is happening is that the vendor is choosing to focus on their area of expertise - creating the software application - and they are in effect outsourcing the responsibility of enforcing the license terms of the software license to the LaaS provider rather than worrying about that in-house and having to developing the licensing features on top of the core software application. The software developer remains in complete control of the terms under which their software is licensed and they are just asking the LaaS provider to enable and enforce those terms with the end customer.
What new capabilities are offered by a LaaS Provider?
A LaaS provider will typically offer many of the same capabilities provided by any Software as a Service (SaaS) provider just with specific reference to the aspects of licensing software. This includes general 'aaS features like cloud-based delivery, global coverage, monthly or consumption-based billing, and web-based configuration. In addition, a LaaS provider will typically enable features such as selecting and enabling the correct license model for the software product and enforcement of the specific license terms under which the customer has licensed the software application. A LaaS provider will provide a ready-to-go licensing engine that simply needs to be configured to suit the software products or product suite of the software vendor before being deployed.
A LaaS provider can provide alternative models that enable a software product to be monetized more effectively.
What License Models are supported?
One of the big advantages of working with a LaaS provider is that they will typically support a wide variety of license models. This means that the software vendor can simply select the license model best suited to their product and customer base than could such as number of end users, price paid, time elapsed, and geographic locations in which the software can be used. While there is current trend to deploy subscription-based license models, not all software products are best sold on a subscription basis and a LaaS provider can provide alternative models that enable a software product to be monetized more effectively. This is particularly the case in a business to business context as well as large-scale consumer offerings.
Some example license models that a typical LaaS provider can offer includes common models such as perpetual and subscription, but also more complex models such as floating licenses, corporate on-demand licenses, offline usage (a license model well-suited for the construction or mining industries), aggregate use time licenses, concurrent usage, and more.
How do you work with a LaaS provider?
The whole point of working with a LaaS provider is that the software vendor can focus on her application and let the LaaS provider take care of licensing. In practice, this normally involves a small integration between the application and the LaaS provider's engine, an integration to a 3rd party payment provider such as Stripe or Braintree if the software vendor wants to accept online payments, an integration to the CRM or ERP system in order to keep customer information in sync for the vendor and that's pretty much it. The new licensing solution is then typically deployed to software vendor's existing customers at the next application update or immediately for new customers.
What advantages come from using a LaaS?
Software vendors gain a number of advantages by working with a LaaS provider:
- Access to a best of breed licensing solution that just has to be configured and integrated rather than developed from scratch, saving time and money.
- Access to license models that the software vendor may not have thought of or considered for his software product that may help to better monetize it
- Access to better features that may allow the vendor to offer his software product on terms best suited to his customers such as concurrent usage, license by feature, and self-serve license purchase and renewal.
- Immediate global coverage if needed.
- Better IP protection and license enforcement.
- Time-savings, allowing the deployment new license models quickly, rather than the software vendor having to develop, debug, and test.
- 3rd party integrations to CRM, ERP and payment providers. This is key, particularly in regard to payment providers. If the software vendor needs to switch, he won't have to do the (re)integration.
- Support - most LaaS providers will offer comprehensive support packages which the vendor can access if and when needed.
Working with a Licensing as a Service (LaaS) provider can offer software vendors many advantages over developing a licensing engine in-house. These range from being able to support a wide variety of license models and application types to getting immediate access to a best-of-breed solution that you pay for monthly or based on what you use. LaaS providers are able to overcome many, if not all, of the limitations created by more traditional licensing methods such as dongles and offer software publishers a more flexible and effective means of monetizing their software products quickly and easily.