A New Era in the Software Licensing World

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by | May 10, 2016

Vincent Smyth Flexera SoftwareBy Vincent Smyth, General Manager EMEA, Flexera Software

The model for how organisations have purchased enterprise software has largely been the same – i.e. perpetual licensing, whereby companies pay the full price of the software up front and are allowed access in perpetuity.

Perpetual licenses have their drawbacks. Foremost, they require higher upfront costs – before any value has been enjoyed. You can always buy more – but if you over-purchase, you cannot get a refund for unused licenses. Also, enterprises are buying on the faith that they will derive sufficient ROI from the software to warrant the high initial outlay.  Similar to any other strategic business investment – it doesn’t always make business sense to purchase software outright.  In certain cases, it makes more sense for organisations to pay for an asset at the same time the value is being received.

The dominance enjoyed by perpetual software licenses is now waning as application producers respond to the licensing needs of enterprises.

Wide array of licensing models

Today enterprises have many more buying options, examples of which include:

  • Subscription licensing: A subscription license enables buyers to rent their software over a contract period, rather than purchasing the license outright. Offerings, such as Salesforce.com, are examples of hosted, or Software as a Service (SaaS)-based software to which enterprises can subscribe. They can also purchase on-premises software using a subscription model.
  • Usage-based licensing: Organisations can “pay as you go” with this model, based on a measure of consumption. For example, the metric could be based on the number of accesses to the software, speed or disk capacity, or the amount of data transferred, to name a few. Like subscription models, usage based models allow enterprises to closely align cost to use.
  • Client/user: Software can also be purchased on a user-based metric, such as number of users or devices, or even named user.
  • Concurrent/floating user: This model is generally used for very expensive engineering software, such as CAD systems, that charge based on the number of users allowed to access the system at any time.   For instance, if two licenses are purchased, a third employee could not access the system until one of the other two signs off.
  • Capacity/infrastructure: Software vendors frequently also charge for software based on the enterprise’s capacity or infrastructure.  For instance, a license may be tied to the size of the server on which the software resides (i.e. the number of cores, processors or sockets) or the type of machine.  This data is then converted to points, which have costs associated with them.  This model helps make software more affordable to smaller companies, or those running smaller infrastructures –with costs rising as an organisation scales.
  • Company metrics: With this model, costs are allocated based on some metric indicating company size, such as number of employees, number of transactions processed, revenue or number of locations. Like the capacity/infrastructure model type, a license based on company metrics favors smaller companies who can pay less now, and scale up fees as they grow.
  • Freemium licensing: Freemium licensing enables employees to access a free, limited functionality version of an application. If the user wants to access a premium function, the license would have to be paid for and upgraded to a full-function version. Freemium models are a good way to introduce a new user to a particular application on a no-risk basis, and secure payment later when it has proven its value.

Freedom and responsibility go hand in hand

With the flexibility organisations have in purchasing software, responsibility comes with it. Complexity is a consequence of have a software “estate” comprised of many different software applications using a variety of software licensing models. Software License Optimisation has emerged as the most reliable type of solution to help organisations manage their complex software estate to help ensure they are buying only what they need, and using what they have.

Software License Optimisation processes and best practices provide organisations with the ability to maximise software use while minimising spend, comply with software license agreements – and crucially avoid overbuying. Let’s see how:

  • Dynamic – Software License Optimisation includes not only the ability to determine an optimised license position for all vendors across the software estate at a given point in time, but also on a continuous basis.
  • Datacenter inclusive – Software License Optimisation can handle all of the licensing models mentioned above, so organisations don’t have to acquire different skills or technology to manage their choices.
  • Spend management focused – Software License Optimisation addresses the need to understand and maintain software license compliance, efficiently addressing or eliminating software audits, and also enables organisations to understand and optimise the spending that takes place on software licenses and associated maintenance plans.
  • Forward looking – Software License Optimisation analyses past and current use of software licenses, but also provides trend analysis and reporting for budgeting and “what-if” analyses to assess the financial impact of changes to the IT environment and compare different options available.

The variety of software licensing models provide enterprises with unprecedented flexibility to pay for this critical asset in a way that makes business sense. At the same time, the choice increases of complexity of managing the software estate. Therefore, the need for adopting Software License Optimisation best practices and processes is the only way to ensure that regardless of the licensing model – organisations are buying only what they need, and using what they have. Otherwise, trouble is likely to knock on organisations’ door!


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