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Software Licenses: Types, Uses, and Management

Software licenses

IT teams today are wrestling with complex IT infrastructures, which contain an intricate inventory of on-premise software applications and cloud software, and various SaaS licenses. The impact of managing these software licenses properly is considerable as it has financial and legal implications. 

Since these software licenses are a crucial component for nearly all businesses globally, organizations need to adopt a proactive approach towards software license management. Understanding the components of a software license allows these businesses/organizations to maximize the value of their software solutions and optimize their usage. 

What is a software license?

A software license is a contractual agreement between the software’s creator and its end user. Also known as an end-user license agreement (EULA), it outlines the terms and conditions of the software’s usage, distribution, and modification. 

This license allows users to use the software while imposing restrictions on certain aspects of its usage. Some common software licenses include Microsoft Office Suite, Adobe Creative, and the MIT license.

Types of software licenses

1. Proprietary license

Proprietary software is privately owned and licensed by its creator. To install and use it, you have to purchase the license. Failure to use it without purchasing can result in copyright infringement. Under its user-level agreement, the copyright holder allows you to use one or more copies of its software, under certain conditions. 

You cannot access the source code of such licenses and you cannot copy the program without the permission of the owner. Proprietary software typically has copy protection policies in place to prevent piracy risks.

Unlike free software, proprietary licenses are usually traded on a user subscription basis. Some popular proprietary licenses are Adobe Creative Cloud, Microsoft Office Suite, macOS, iOS, and AutoCAD.

2. Open Source license

Open source licenses allow you to freely use, modify, and distribute open-source code if you follow the guidelines specified in the usage agreement software. Anyone with the necessary knowledge can edit and improve the code. This makes it a hub for information sharing, collaboration, and knowledge production in the community. Apache License, Mozilla, and MIT License are a few common open-source licenses.

software licenses

To understand how the two license types discussed above are made available to end-users, read more about the different licensing models:

Types of software licensing models

1. Subscription licensing

In this model, the user pays a monthly or annual subscription fee to use the software. In this recurring arrangement, the vendor remains committed to delivering value and providing technical support if you encounter issues. With the pay-as-you-go basis, you don’t have to worry about making a hefty long-term investment.

2. Perpetual licensing

With this licensing model, you pay a one-time fee for the perpetual software, giving you unlimited access to it. This cost tends to be quite high as you’ll be using it indefinitely. For repair and support, you will most likely have to enter into a separate agreement with the vendor.

3. Concurrent licensing

Concurrent licenses, also known as floating licenses, allow users to use a set number of licenses at the same time. For example, if you buy 7 floating licenses, only 7 team members can use the software at the same time. Once the software has reached its concurrent limit, more people cannot access it. Once the existing user finishes using it, the license will then become available to the next user.

4. Freeware licensing

Freeware software is available on the Internet for users to download, install, use, and distribute without paying licensing fees. While freeware is available without cost, you don’t necessarily get access to the source code. This license is also protected by copyright laws, so you are not allowed to modify the software. Skype, Adobe PDF, and Mozilla Firefox provide freeware licenses.

5. Shareware licensing

A shareware license gives users free access to the software for a limited time. Not all features are available usually during this trial period. You have to buy the software to unlock unlimited content and use it without interruption. WinRAR and WinZip are shareware licenses that provide limited functionality for free during a trial period.

How does a software license work?

Whenever you’re installing a new software, there’s a couple of steps in which you’re asked to press Next. These steps, before you finally hit the Install button, comprise what is called the license agreement, which is a legally binding agreement between yourself and the software’s vendor.

An end-user license agreement provides guidelines for the fair use, distribution, modification, and liabilities of the software. You must agree to these terms before you can use the software. 

However, keep in mind that the license’s nature depends on whether it’s providing access to proprietary or open-source software.

Below is some of the information that a  license agreement  contains:

  • Charges per user: If you’re purchasing a concurrent license, the user license agreement will specify the cost for each license or ‘seat’, and that of additional seats. Similarly, if it’s a one-time license fee, the purchase cost will be mentioned on the End-User Level Agreement (EULA).
  • Scope of usage: The scope of usage places restrictions on how the end-user can use the software. It also outlines the allowed number of installations, types of devices it can be installed on, and permitted projects to work on.
  • Termination terms: This highlights the violations that would result in the termination of the agreement and the potential legal actions that the vendor can take.
  • Liability: The liability clause places a monetary limit on the financial damages resulting from any software malfunction for which the seller may be liable. 
  • Warranty: The warranty disclaimer states that the seller is not responsible for any corrections or modifications to the software, which will be available as is.

Some other aspects that detail the working of software licenses are:

License keys

A software license key, also known as a product key, or activation key, ensures that only authorized users can install and use the software. This digital token contains a fixed number of digits that users are asked to enter when installing the program. This prevents unauthorized users from illegally accessing, pirating, or tampering with the license.

Compliance & monitoring

Software vendors stipulate certain terms in the license agreement to make sure end users are complying with regulations when using the software. To gauge compliance, this software contains monitoring tools that track the number of installations or which users have access to the software, and other relevant metrics.

Software audits & updates

The software provider conducts periodic audits to ensure your software assets meet the license compliance and usage terms. These audits verify that the number of installations matches the purchased licenses and that there aren’t any discrepancies. 

Another crucial aspect of a license agreement would be its updates. You may receive notifications from time to time to install them, which include bug fixes, security patches, and new features.

License violations & penalties

If the software audits are not properly addressed or license violations are found, companies may be charged with heavy penalties. A recent survey by Unisphere revealed that 64% of companies were inflicted with  additional charges by their vendors over failure to remain compliant, and 35% had to pay fines over $100,000:

Software license management

The consequences of license breaches aren’t limited to financial damages. In severe cases of copyright or license infringement, businesses might have to face legal action. In minor cases, the vendor will simply issue warning notifications or a penalty assessment.

License upgradations

With license upgradation, end-users can access the latest version of the software. The terms of this upgrade are mentioned in the user agreement and usually require an additional payment. Users receive notifications about license updates so that they can unlock additional features and stay informed about the latest advancements.

Introduction to software license management software

As businesses integrate different software in their workflows, they need to address certain associated challenges. Without a strong license mechanism, you leave your data vulnerable to hacking and cyber-attacks. On top of compromising your system’s security, data breaches cost businesses millions of dollars. An average data breach event costs companies $9.44 million in the US. 

Copyrights and intellectual property rights protect software owners from fraud, piracy, and people trying to profit from their innovations. These regulations are quite strict and as a business, you must be very particular about complying with them. If you fail to comply, even inadvertently, you place yourself at a risk of legal and financial consequences. By using a software license correctly, you can establish a strong legal protection mechanism for your business that saves you from disputes, hefty penalties, and copyright infringements.

The conventional license tracking method is quite time- consuming, and puts strain on your IT resources. It is also highly likely that you would overlook critical data by manually tracking software licenses. This is because each license has multiple information associated with it; renewal and expiration date, vendor name, associated users, devices, purchase cost, agreement terms, etc. Oversight in any of this data can lead to missed vendor payments, license expiries, and underutilization of software.

To avoid these hurdles, software license management software should be your go-to choice. From automating tedious processes to assisting in compliance monitoring, vendor payments, usage tracking, and analytics, it is an indispensable asset for modern businesses. 

Below are some of the prominent features of software asset management tools:

  • Reporting: License reports highlight gaps in your licensing framework and give you detailed insights on specific metrics. These include software spend, true-up cost, license compliance overview, etc. The latter shows the number of licenses that are underutilized or overused. These reports also help you cut down unnecessary expenses by displaying the number of underutilized licenses (Potential license savings) that you’re paying for.
  • Automated alerts: Notification alerts can be configured for expiry, renewal, termination, and upcoming payment dates. This way, you never miss out on any important event.
  • Payment management: The payment management section contains details of the amount due to each software vendor, payment due date, and last payment date. 
  • Compliance monitoring: As you have a view of all underutilized, overutilized, or outdated licenses, you can immediately take corrective actions. This ensures your software assets are compliant with license agreements, protecting your company from penalties.
  • Software asset tracking: An automatic asset discovery agent within SLM software gives you real-time details of all hardware and software assets within your network. With Azure and G Suite integration, you can access important user information from individual employee accounts. You can also schedule automated syncs at any time to keep your software programs updated.
  • Reconciliation: Once you’ve upgraded to the latest software version, you don’t have to manually update the license information. By clicking on the reconciliation option, the license details will be automatically updated. It will also display different devices using the software i.e. concurrent users.

Software license management softwares gives system administrators increased visibility into the use of their software assets company-wide. You can implement granular permissions, which decide the level of system access for different user groups based on their designation and department. Having to grant permissions to each user individually, on the contrary, would have been quite time-consuming. 

An example of granular permissions is that you allow sales representatives to only view customer information, while managers can access reports, analytics, and revenue information. Besides role-based access, product keys make sure that only authorized people install the software on their devices, making tracking easier for you.


Software licenses are of utmost importance for both software creators and businesses. They protect the former’s intellectual property rights by mitigating piracy and illegal usage. By using licensed software, end-users, especially businesses, secure themselves from significant compliance penalties. Software license management solutions have streamlined license management, making compliance, monitoring, and usage tracking more convenient than ever.

Frequently Asked Questions

Q1. Can I use software without a license?

Using software without a license is generally illegal and is considered a violation of the software provider’s intellectual property rights. Licenses give you permission to use, modify, and distribute the software. Using unlicensed software may lead to legal consequences, hefty fines, and being banned from accessing the software.

Q2. Can I transfer a license between my devices or users?

This depends on the software provider and your licensing agreement with them. Some vendors permit a transfer under certain conditions, while others prohibit it completely. You should consult your license agreement and contact the software owner for guidelines on proceeding with the transfer.

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