In this guide we introduce all the different types of licensing models for software, including the most commonly used and also some of the more complex types of enterprise software license models.
Hopefully this guide will clear up certain misunderstandings surrounding license models, as we often see them being talked about quite loosely. You may even learn that some of them aren't actually licensing models to begin with.
In total this guide features 19 license models, but if you know of a license model that is not mentioned here, please let us know!
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?
First things first. Before going any further into software licensing models, let’s be clear on what a software license is. On a very basic level, we would define a software license as follows:
A software license is a legally binding agreement between the owner/creator of software and its user.
This software license agreement between the licensor and the licensee establishes two things:
- The ownership rights of the piece of software in question remain with its developer, for example an independent software vendor that sells it for profit
- The rights the end-user has for using and distributing said piece of software, as laid out by the developer in the license
In a commercial context, a software license is a way for a software vendor to state their rights with regards to how a copy of the software they’ve developed is used by their customers.
As a side note: there are other types of software licenses that are non-commercial, for example open-source or freeware licenses, but as this article is about licensing models, we’ll be focusing on commercial licenses (also known as proprietary licenses).
However, a software license alone isn’t enough to make sure users comply with the license agreement.
A legal document simply won’t be enough to deter users without a valid license from accessing your software product.
This is where software licensing comes in, as a method for controlling access to a software product so that it can be monetized. Follow the link to learn what the best methods for licensing are.
What is a License Model?
Once you have some kind of method in place for software licensing, the next step is to apply a licensing model to your product.
Again, we’ll be focusing on commercial software products, so we’ll use a business model analogy.
A business model is how a company creates, delivers and captures value. Put another way, it’s a company’s plan for making a profit. Using this logic, we’d use the following to define a license model:
A license model is how a software business plans to make a profit from selling its product through a software license.
Different license models use different rationales for making a profit, but the overarching theme is that you, the software vendor, define the parameters for how your product can be accessed, used and on what basis you charge your customers.
The goal is twofold:
- to ensure profitability
- to allow your customers to purchase licenses from you in a way they also find sensible.
It’s all about balance, and, hopefully, 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 license model and terms on which you sell your software.
10Duke is a specialist in software licensing and license models.
Our state-of-the-art licensing engine supports a wide variety of license models and we work with the fastest-growing software businesses to help them monetize their software products in the modern online world.
All license models listed in this article are supported by 10Duke.
The Most Common Types of Software Licensing Models
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 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, the perpetual licensing model has been very common as it is one of the original license models. However, software vendors are moving away from it, as there are more effective licensing models that allow software vendors to improve how they monetize their software applications.
Click here to learn more about Perpetual License.
A floating license allows you to define a specific number of 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.
It is also useful to note that when you track license usage in a floating pool, if users try to check out a license but all licenses have been consumed, it creates a great sales opportunity for you as the vendor as it demonstrates that there is more demand for licenses.
The concurrent license is essentially the same as the floating license.
In concurrent licensing, the licensing engine limits the maximum number of users who can access the software product simultaneously. Once the maximum number of concurrent licenses is reached, no more users can check a license until a license is released.
Learn more about concurrent licensing.
A subscription license is one in which the end user obtains a license to the application on a re-occurring basis for a defined period. This might be 30 days (a monthly subscription) or 365 days (an annual subscription.)
Subscriptions typically have no defined end or termination date and they automatically renew after the initial term.
The subscription license is one of the most common license types. One of its advantages is that it is easy for the customer to understand while making a purchasing decision, as so many people have become used to them with mainstream services such as 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
This is one of the most versatile and configurable licensing models.
Metered license means that as a licensor you can license your application with a limited access to any aspect/feature of the application that can be metered.
For example, you might meter the use-time of the application or you could meter access by a user to a particular feature of an application.
A metered license can also be applied to control access to things like:
Overall, the metered license is an incredibly flexible way of controlling access to your application.
It is also worth noting that the metered license model often encompasses or overlaps with some of the other license models (for example “use time” license). This is simply because many license models focus on a certain feature, function or aspect of the application, which can be metered.
In many of these licensing models 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.
In consumption-based licensing the software vendor enforces a 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.
As mentioned, in the use time licensing model a license is defined by the time the user is given access to an application.
The time can be metered to a certain point, after which the license is no longer valid and the application cannot be accessed. The user can then be prompted to purchase another use-time license, or to switch to another type of license that has no time restraints.
Alternatively, the user can be notified ahead of time that the license should be renewed soon.
Aggregate Use-time License
An aggregate use time license is used to limit the overall time an application is used for. The main idea of the aggregate use time license model is that it counts the accumulated time taken to accomplish a task and refers to the total hours consumed by one sector or group of workers. It is also a subset of the metered licensing model, time again being what is metered.
Providing an aggregate use time license is very appealing for enterprise customers as it allows them to better control spending on complex projects. For dynamic projects where the progression of each element has third-party dependencies, delays can often force organisations into a state of software over licensing – software that’s being paid for but not used.
With an aggregate use time license the software may still sit redundant while work streams are coordinated, however, the key difference is that software is not consuming budget. Some lower-end prospects won’t be using your product continuously, and extending the lease period may be too expensive with some prospects only willing to pay for the amount of your product they actually use – regardless of how long they possess your product.
With an aggregate use time license, an organisation can purchase a total number of licensed hours and this time allocation can be consumed by any number of users. This is why the aggregate use time license type is a literally a money-saver.
The feature license model is used to limit the use of a specific feature of an application. In feature based licensing you, the software vendor, can control which features of your software the end user can and cannot use. The feature license can also be used to limit the number of times a specific feature of an application is used.
A feature license model is in effect a subset of the metered license. It is one of the most commonly used variants of the metered license and if your current licensing provider (or your in-house built licensing system) cannot support feature-based licensing, it is highly recommended to try out a complete licensing solution such as 10Duke Enterprise.
Learn more about feature-based licensing.
User-based licensing means that a license is issued for a specific user.
This can be useful if you want them to have access to your product regardless of the device they’re using, for example if your product has a desktop, mobile and web-based version. Or you want them to have access to your product suite using just one set of credentials, similar to how Google allows access to Gmail, Maps, Calendar, and so on.
Especially for the end user this license model is great, because it makes the licensing process much simpler for them.
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.
To learn more about 10Duke’s unique approach, where licensing decisions are based on the authenticated identity of the user, you can read about Identity-based Licensing here.
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.
A trial license is like a fixed duration license, but with the main difference that you are allowing access for a user to allow them to test your application with the hope that they will ultimately purchase a license.
Users expect to be able to try out a software application before they buy it. This trial period might be a few days or a few weeks, but with the recent explosion in both consumer and business-focused online products, offering a free or ‘moneyback’ trial has become the expectation.
The trial period is normally defined in advance. The trial license also allows you to control what features or aspects of your application can be accessed during the trial period.
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 license, even if they are part of a different company or organisation.
An academic license isn’t really a distinct license model. Rather, it is a license provided to a distinct group of people, but as it is very popular we have included in this list.
The academic licensing model is typically used by companies providing educational or engineering applications to schools and universities. It provides access to an application for that specific group of users and the license typically has different commercial terms (lower cost, free to use, throttled access to some features, etc).
Academic licenses are much like trial users in that they are either provided for free or at a reduced rate in order to encourage usage of an application by student users. Or, even better, the usage of an application by academic researchers and teaching staff who both use it themselves and use it as a teaching tool for their students.
The basic idea here is that if a student become familiar with a software application while at university, they are more likely to use that same application once they join the professional workforce.
This is particularly the case with more complex applications, such as CAD, CAE, simulation or visual effects applications.
Company Fixed Duration License
This is kind of a combination of a fixed duration license and a floating license.
Company ABC buys a 1-year 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
This license also combines aspects of other licenses to create flexibility for the software publisher.
With an ODC license Company X buys 365 days of Product Y to use over a 1-year period.
The agreement includes a minimum and maximum license duration an employee is allowed to take at a time, but total use time for all employees will not exceed 365 days.
Offline Use License
With the offline use license, a user can check-out a license for a defined period of time and is not required online access.
Offline licensing is ideal for use in the mining or construction sectors where a user of an application may be in a remote area or underground where connection to the Internet is not possible.
The time for which a license can be checked out is entirely configurable by the vendor – it can be 1 day, 365 days or whatever the vendor prefers.
Node-locked License / Anchored License
Node-locked licensing, also known as the anchored license, is one in which a license is provided to a customer, but it is anchored (or "locked") to a specific device or machine.
The application can then only be used on that specific device.
The way it works is that the license is paired with a unique hardware ID (or "device fingerprint") that identifies the specific machine the license will be valid on.
Another term for this license model is the Workstation License.
Support and Maintenance License
A support and maintenance license is typically used as an add-on to the perpetual license. It is normally used to provide software updates and fixes to a licensed software product purchased under a perpetual license.
In some cases, this license is a way for software vendors to work around a perpetual license and finding alternative ways in which to generate recurring revenue.
How to Choose a Licensing Model?
So now that you’ve learned about the different software licensing options, how do you choose the right one for your software licensing strategy?
Out of all the software licensing pricing models which should you choose?
If you are looking for the best license model to help monetize your software and increase your revenue, there are many options available and a good license management solution should provide you with the model that best suits your application (rather than the other way around!).
When deciding on a license model, the best way to approach it is by following these three simple steps:
- From a business perspective, decide on what terms you’d like to provide your application to your customers.
- From the list above, select a license model that you think best corresponds to the way you want to license your application. Keep in mind it is possible to run more than one license model at one time! Of your preferred license model, is there any particular constraint by which you want to limit access to your application? For example, do you limit consumption by time, by feature, by geography or device?
- By combining your preferred license model and then applying any particular constraints to that model, you will then have configured your ideal license that can be configured in 10Duke and used to control access to your application.
10Duke offers the quickest and easiest way to monetize your software applications and increase revenue while preventing unauthorised access and IP theft.
If you’re looking to improve your licensing, do not hesitate to contact us and we’ll give you a no-obligation demo of how 10Duke can help you improve the way you license your product.