An Introduction to Software Licensing
If you develop or sell software of any kind, unless you protect it with a robust licensing engine, you could be giving away your businesses most valuable assets for free. If you are an ISV, find out why a modern software licensing solution is essential for your business.
What is Software Licensing?
Software licensing is a way for end-users to gain access to software, whilst ownership rights remain with the software publisher. Software is creative work that contains a lot of intellectual property, and unless it is in the public domain or non-distributable, all formally developed code is copyrighted. End-users must accept a license agreement otherwise they will not be entitled to use the software.
A software licensing agreement, (also known as an End-User License Agreement or EULA), is a legal document that sets out the requirements that must be adhered to in order for an end-user to be granted permission to use specific software. The licensing agreement usually contains instructions regarding how software can be used, such as the number of installations allowed or any restrictions to modification or redistribution of the source code. The agreement may also contain information relating to pricing or fees – although this is more likely to be covered by a separate document. For software sold over the Internet, many of these legal agreements are published and accepted online.
How Does Software Licensing Work?
Licensing software is a bit like renting a car. In order to run a rental car, you need permission from the owner and a key. The same is true for proprietary software. Software is locked and will not run without a key or the correct permissions being in place first. Permission is usually granted by paying the appropriate fee.
Numerous types of licensing models are available to unlock software for users, varying from simple perpetual licenses and floating licenses to more advanced models such as metered licensing. A perpetual license is a permanent key, which allows indefinite access – usually to a named-user. A floating license is a shared key or set of keys that a group of users take it in turns to use. A metered license is a key that can be used for a specific number of hours and once the allocated time has been used, the software stops running.
For a full guide on all license models, click here.
Examples of Software Licensing
Example 1. Floating licensing – Netflix
Netflix is what is known as an ‘over-the-top’ (OTT) media service. It is a subscription-based video-on-demand service (SVoD) that initially offered video content acquired from third parties, although more recently has included original work. Users can choose from various subscription packages, however, to keep things simple, let’s focus on just the standard plan for now.
Subscribers to the Netflix standard plan are permitted to playback Netflix content on up to 2 devices at once – i.e. they have two licenses available in their license pool. Anyone with access to valid login details can download the app on a compatible device (almost anywhere in the world) and start streaming content. When the app starts streaming, a license is checked out of the license pool and attached to the device that is currently being used to playback content.
If another user accesses the same Netflix account and starts streaming content at the same time, a second license is checked out of the license pool. If a third person attempts to stream content to a third device they will be unable to – the playback limit has been exceeded and no more licenses are available. The Netflix licensing engine conveniently and seamlessly ‘floats’ available licenses between groups of users, whilst maintaining strict control over Netflix intellectual property.
Example 2. Metered licensing – Otter
Otter is a very useful (and surprisingly accurate) speech to text transcription software that records and transcribes speech when the microphone button on the app home screen is pressed. Paid plans are available, however, any registered user can transcribe up to 600 minutes of recorded speech every month for free. A countdown timer is triggered when a user starts recording and when the stop button is pushed, the app stops recording and the meter stops running. This means that users are only ‘charged’ for what they use.
The app home screen shows account holders how many minutes they have left each month, as well as the number of days before the timer resets. After the 600 minutes have been used up, account holders can still log in and access existing transcription projects, however, new transcriptions are not possible until the minutes reset (or a premium license is acquired). The Otter App is a great example of convenient, yet tightly controlled metered licensing, which showcases the basic features of a product in order to convince sales.
These are just two examples from the thousands of use cases that we encounter every day. However even these relatively simple use cases highlight the diverse and complex needs of software publishers in today’s digital environment.
Why Is Software Licensing Important?
Fundamentally software licensing is essential in order to prevent software theft and protect vital revenue streams. However, looking at licensing purely as a means to control usage would be a big mistake. With the right software licensing solution in place, a huge amount of additional data is available that can help not only your business evolve but can also help seamlessly provide software tools to your customers that also help them to drive their own business forwards.
Legacy licensing solutions are hard-pressed to compete in a versatile online world. Not only due to the logistics of external hardware (such as dongles) or firmware, but due to the lack of feedback that offline solutions provide. Understanding how, when, how often and other usage data from your customers, offers an enormous opportunity to not only streamline and refine your product offering but also anticipate future problems. Imagine being unaware that one of your most valuable clients is no longer using your application, or that they are paying for features that are rarely (or never) used by their employees.
Obtaining new customers can be up to five times more expensive than retaining existing ones. With access to more data, when you notice an issue you can mobilise in order to re-price, re-package, up-sell, offer free-tutorials or even just pick up the phone and have a chat with your customers.
How Is Software Licensing Typically Implemented by an ISV?
There are two main ways an ISV can license software: by building an in-house licensing engine or outsourcing their licensing requirements to a specialist. Smaller businesses might be able to manage with a spreadsheet of character strings combined with a delivery mechanism (such as email) to transfer relevant information to authorised users.
But what about free trials, revoking access rights, upselling new features, transferring licenses between devices, tracking usage data and the many other requirements of effective licensing?
Software licensing solutions that require lots of 'touch-points' in a deployment don't scale. In-house licensing solutions can also be very resource intensive to build and ultimately you may not be happy with the end result.
The other option is to outsource licensing to a specialist. This is usually a good option for business that have found product<>market fit and are looking to scale. However, beware of assuming that a third-party licensing solution will automatically help you achieve the flexibility that is essential in today’s fast-paced, data-driven digital environment. Many licensing specialists are still in the mind-set of traditional key-based systems and if you are not careful you may find yourself in a situation where a 3rd party, key-based solution introduces as much friction and admin into your business as building a licensing tool yourself.
If you're considering building your own licensing engine, you may want to familiarise yourself with its pros and cons by reading this article: Software License Manager – To Build vs Buy Conundrum
Future-proof Your Licensing
By now you should have an idea of the importance of software licensing for your business as well as some of the pain points and complexities of meeting diverse user requirements in today's digital world. Many software vendors are unable to tightly control usage – particularly when rights have expired – and end up leaving their doors wide open to unauthorised usage.
10Duke provides a state-of-the-art licensing solution that works very differently from traditional, key-based systems offered by other vendors. Our advanced licensing engine provides cloud-based identity management and software protection in an easy to use solution that instantly automates your software licensing processes.
The 10Duke advanced licensing engine is used worldwide by both smaller, growing businesses as well as global Enterprises. And unlike other licensing specialists such as Reprise, Thales and Revenera, 10Duke will never ask your customer to install a license server at their site or ask you to use cumbersome dongles or hardware. You can deliver digital licenses 24/7 with updates to a license reflected in real-time.
You don’t have to look far to find examples of software licensing in everyday life. It’s everywhere! And more often than not it is completely transparent to the end-user. This is software licensing at its very best. ISVs and developers are offered granular control over revenue and distribution, whilst end-users are provided with a seamless, hassle-free user experience.
Even in the most straight-forward licensing scenarios licensing approaches that rely on static keys or external hardware such as dongles being deployed, are almost redundant in our modern online world.
The more flexibility you can offer your potential customers in terms of free-trial periods, graded pricing, or customised product bundles then the easier it is for your potential customers to make a purchasing decision. In a fast-paced, multi-user, multi-app, multi-device digital environment, could it be time to replace your legacy licensing solution with an agile cloud-based licensing engine?