To understand the advantages of Licensing as a Service, a bit of background to software licensing in general is needed. If you’re already familiar with it, feel free to skip ahead a couple of chapters.
If you are an independent software vendor (ISV) or a 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 are 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 from the limitations of perpetual software licensing to much more sophisticated licensing models that can be better suited to the software product being sold.
In order to overcome the limitation of traditional licensing methods and to capitalise on the opportunities created for software publishers by the Internet, a new method of software licensing has emerged called Licensing as a Service (LaaS).
The simplest way to license software is to have a written paper license agreement between the software vendor and the customer. The vendor would then trust that the customer will 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’ 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 distribfuted, it is impossible to limit unauthorised use by anyone who manages to get a copy.
In order to address these issues, software vendors turned to a digitally-based solution called a dongle. Dongles (known as 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.
When a software vendor uses a Licensing as a Service solution 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 Licensing as a Service provider. This means they don’t have to worry about licensing in-house or having to develop 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 the Licensing as a Service provider enables them to enforce those terms with the end customer.
providers of Licensing as a Service will typically offer many of the same capabilities offered by any Software as a Service (SaaS) provider – but 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, LaaS providers 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 Licensing as a Service 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.
One of the big advantages of working with a licensing specialist 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, such as the number of end users, the price paid, time elapsed, and geographic locations in which the software can be used. While the current trend is to deploy subscription-based license models, not all software products are best sold on a subscription basis and a Licensing as a Service provider can facilitate 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.
The whole point of working with a Licensing as a Service 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.