Software Licensing 101

No two licenses are the same. even licenses for the same application can vary wildly depending on the needs — and negotiating skills — of the customer. Software vendors add to the confusion with complex terminology. Here’s a primer of the basic types of licenses and language.

Home- or dual-use license.  A license may allow employees to install copies of a licensed application for use when working at home, though restrictions may still apply. Many users assume all licenses allow for this, but they don’t.

Licensing metrics. How licenses are measured — the licensing metric — varies widely. With a per-seat or per-device license, you pay for every machine on which the software is installed, regardless of how many people actually use the app. With a named-user license, a specific individual is allowed to use the software for each license you purchase. A concurrent user license (sometimes called a floating license) allows for a specified number of users to use an app at any given time, no matter how many copies are installed at a company. Server-level and middleware apps are often charged per processor or a portion thereof. Some vendors may eventually move to a metered model in which  license fees are based on the number of minutes an app is in use each day.

Maintenance contract. Bug fixes, product upgrades, and support may be available only for an additional fee, which can range from 10 percent to 30 percent of the initial purchase price per year. For example, Microsoft’s Software Assurance program provides help desk services for IT administrators, training vouchers, a home-use license for Office apps, and automatic upgrades during its three-year term.

Perpetual license. You pay for the software once and own it forever, but you’ll likely have to pay extra for support, maintenance, and upgrades. Some licenses require a single up-front fee; others, like Microsoft’s Enterprise Agreements, spread the payments over a three-year period. 

Restricted license. Some licenses limit how you can use the software, as when, for instance, you purchase copies that may only be used in evaluating the software or in training personnel. In another example, Oracle offers an embedded software license that allows use only with applications that are embedded within specific applications.

Site license. This kind of agreement usually allows software to be run on an unlimited number of machines at a specified location. It’s rapidly becoming an endangered species.

Term license. Sometimes called a software subscription, the term license allows you to lease the software for a specified period, usually from one to five years. At the end of the period you must renew your subscription or uninstall the software. Subscription plans typically include support, maintenance, and upgrades, and are usually licensed per employee.

Unrestricted license. This agreement allows you to use the software for any purpose, including development, production, testing, and the use of backup or standby copies in case the first copy fails. It may also allow you to modify the software for use with third-party apps.