A software licensing model defines how a company profits from its software through various licensing agreements.
In this guide, we introduce various software licensing models, including common ones and more complex enterprise models.
This guide aims to clarify misunderstandings about licensing models, as they are often discussed loosely. You may even discover that some aren’t actual licensing models.
This guide covers 19 license models, but if you know of one not mentioned, feel free to let us know! All license models listed in this article are supported by 10Duke.
If you’re new to software licensing concepts, we recommend reading our introductory guide to software licensing first to learn the basics.
What is a Software License?
Before diving into software licensing models, let’s define a software license:
A software license is a legally binding agreement between the software owner/creator and its user.
This agreement establishes two key points:
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The ownership of the software remains with the developer (e.g., an independent software vendor selling it for profit).
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The end-user’s rights to use and distribute the software are defined by the developer.
In a commercial context, a software license specifies how a customer can use a copy of the software.
There are also non-commercial licenses, such as open-source or freeware licenses, but this article focuses on commercial or proprietary licenses.
However, a software license alone isn’t enough to make sure users comply with the license agreement. A legal document isn’t enough to stop unauthorized users from accessing your product.
That’s where software licensing comes in, which controls access to a software product to allow effective monetization.
According to IDC's 2027 forecast, the shift in software business models towards subscription-based services is gaining momentum. The following graph illustrates the projected growth and dominance of the subscription model in the software industry.
What is a Software License Model?
Once you have a method for software licensing, the next step is to apply a licensing model to your product.
A software license model is how a software business profits from selling its product through a software license.
Different types of software licenses use various approaches for profit, but the core idea is that the software vendor defines how the product can be accessed, used, and the terms on which customers are charged.
The goal is twofold: ensuring profitability and offering customers a sensible way to purchase licenses. It’s all about balance and flexibility.
If you develop software for profit, it is likely that you’ll rely on a licensing system to help enforce compliance with the specific software license model and terms on which you sell your software.
10Duke is a specialist in software licensing and different licensing types. We work with the fastest-growing software businesses to help them monetize their software products in the modern online world.
The Most Common Types of Software Licensing Models
Perpetual License
A perpetual license is one where a software application is sold on a one-time basis and the licensee can then use a copy of the software forever.
The perpetual software license normally applies to a specific version of the software product. It does not normally include subsequent software patches, fixes or enhancements, although in some cases the one-off perpetual license fee may include these items for one year.
Historically, perpetual licensing was common, but software vendors are shifting away from it in favor of more effective models that improve monetization.
Floating License
A floating license allows you to define a specific number of software licenses to an application that are shared among a specific group of people.
For example, you may provide 10 floating licenses to a company, but that company may have 30 people who may request a license from the floating license pool of 10 licenses. Once all 10 licenses are checked out, no other access is permitted until a license is returned to the pool.
A floating license works on a ‘first come first served basis’ and is a great way to allow your customer to share licenses between a group of people.
Tracking software license usage in a floating pool can reveal strong sales opportunities, as users unable to check out a license indicate higher demand.
Concurrent License
The concurrent license is essentially the same as the floating license.
Concurrent licensing limits the number of users who can access the software at once. Once the limit is reached, no new users can access it until a license is released.
Subscription License
A subscription license allows the user to access an application for a set period, like 30 days (monthly) or 365 days (annually), with automatic renewal unless canceled. It’s a common and easy-to-understand model, familiar from services like Netflix.
Learn more about the benefits of the subscription model.
On the other hand, the subscription model isn't always versatile enough if you want to license your application in a more specific way. Learn about the alternatives to the subscription license model.
More Advanced Types of Software Licenses
Metered Software License
A metered license is a versatile model where access to specific features or usage time is limited and tracked. For example, you could meter overall use-time or access to particular features. It can also control access to other aspects of the application:
A metered license is a flexible way to control access and often overlaps with other models, like “use time” licenses, since many focus on metered features or functions.
In many of these licensing types the focus is on time, and because time can be metered, these licensing models are in fact just subsets of the metered licensing model, as in the case of use time license.
Consumption-based License
In consumption-based licensing the software vendor enforces a software license model that enables them to charge users based on their usage (or consumption) of the application.
This consumption could be use-time, the number of times a resource is accessed, a feature is used, or an action completed.
In practice, the consumption-based license is just a different name for the metered license.
Use-Time License
In a use-time license, access is limited by time. Once it expires, the user can renew, buy a new software license, or switch to a non-time-limited option, with optional renewal reminders.
Aggregate Use-time License
An aggregate use-time license limits the total hours an application is used, making it ideal for enterprises managing complex projects. It prevents over-licensing by allowing unused time to remain unbilled. Companies buy a pool of hours that any user can draw from, saving money by paying only for actual usage.
Feature License
A feature license model is a common variant of the metered software license. If your current system doesn't support feature-based licensing, we recommend trying 10Duke Enterprise for a complete solution.
User-based License
A user-based license allows a specific user to access the product across devices with one login, simplifying access.
User-based licensing is a way to simplify things for both the user and the vendor, assuming an appropriate customer identity management solution is used to provide user identity.
While there are other licensing providers that provide user-based licensing, 10Duke is the only one that offers a built-in customer identity management solution as part of the licensing solution – no need to use an additional product like Okta or AD.
User-based licensing is also known as 'identity-based licensing'.
Fixed Duration License (FDL)
As the name suggests, a fixed duration license is simply a license to a piece of software for a defined period of time.
Trial License
A trial license offers limited-time access for users to test the product, with the goal of encouraging a purchase. It typically restricts certain features and lasts for a set period.
Project-based License
A project-based license is designed to support collaboration between multiple people who work for different companies.
In the project-based licensing model, the customer purchases a main license from the licensor and then grants entitlements to access the licensed application on to project team members. These team members can then access the application under the main software license, even if they are part of a different company or organisation.
Academic License
An academic license is provided to students, researchers, and educational institutions, offering access to software at a reduced cost or for free. It encourages usage among students, who are more likely to continue using the software in their professional careers. This model is often used for complex applications like CAD, CAE, or simulation tools.
While not a distinct software license type, it differs by offering special terms, such as lower pricing or limited feature access, to promote software adoption in academic settings, with the goal of long-term user loyalty post-graduation.
Company Fixed Duration License
This is kind of a combination of a fixed duration license and a floating license.
Example:
Company ABC buys a 1-year software license to Product X. Multiple authorised employees can use the license on several different machines, but Product X will only run on one machine at a time.
There is no distinct ‘license check-out’ workflow.
On-Demand Corporate License
An ODC license offers flexible terms, allowing Company X to use Product Y for 365 days within a year, with usage limits per employee.
Offline License
An offline license allows users to access an application without internet connection for a set period.
It's ideal for remote industries like mining or construction, with customizable checkout durations determined by the vendor.
Node-locked License / Anchored License
Node-locked licensing, or workstation licensing, ties a license to a specific device using a unique hardware ID. The software can only be used on that machine, ensuring it’s restricted to the designated device.
Device License
Different to an anchored license, with a device license there is no human actor involved.
A software license is granted for use of the application on a defined number of devices.
Support and Maintenance License
Whitelist License
A specific set of users can access a product based on a defined whitelist.
The whitelist license is ideal for product testing with select users.
Extended Software Licensing Types
Pay-Per-Use License
With pay-per-use, customers are charged based on actual usage, such as data processed or time spent. This model is flexible, allowing businesses to only pay for what they actively consume.
Pay-for-Coverage License
The pay-for-coverage model is based on the extent of service or features covered. Users pay according to the level of coverage or support they require, making it a flexible pricing approach.
Outcome-Based License
Outcome-based licensing ties costs to specific results or performance goals, such as increased revenue or efficiency. This model aligns pricing with the tangible benefits delivered by the software.
Capacity-Based License
Capacity-based licensing charges based on the software’s usage limits, like the number of users, devices, or storage. It's commonly used for enterprise-level applications, allowing scaling based on needs.
Token-Based License
In token-based licensing, users purchase a set number of tokens to access certain features or usage levels. It’s flexible and allows businesses to manage software usage based on their token balance.
Elastic-Based License
Elastic licensing adjusts dynamically with usage. Prices fluctuate according to demand, enabling businesses to scale up or down easily and cost-effectively, ensuring they pay only for what they actually need.
While some of these licensing types may not be traditional licensing types, they remain relevant in today's diverse software ecosystem.
How to Choose a Licensing Model?
Now that you’ve explored the different types of software licenses, how do you choose the right one for your strategy?
With so many pricing models available, which should you select?
To effectively monetize your software and boost revenue, a solid software license solution can help you choose the model that best fits your application.
To choose the right software license model, follow these three steps:
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Define the terms under which you want to offer your application to customers.
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Select the license model that best aligns with your goals, keeping in mind that you can use multiple models simultaneously.
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Consider any constraints—such as time, features, geography, or device—by which you want to limit access to your app.
By combining your chosen model and constraints, you can configure your ideal license in 10Duke to control access effectively.
10Duke Enterprise, a modern software licensing solution, supports all of the software licensing types mentioned here.
If you’re looking to enhance your licensing, contact us for a no-obligation demo of how 10Duke can optimize your software licensing process.
Key Summary
Unlock 15-35% more license revenue from existing customers
10Duke is a best-in-class, cloud-based software licensing platform that enables fast-growing software businesses to ship modern software licensing models.
Improve how you license and monetize your software products.
