A brief history of cloud software licensing

Anyone working in IT will have noticed the limitless creativity of vendors when it comes to licence types and structures. Per user, per employee, per CPU, per GB, and so on. Most of these have their roots in traditional on-premises IT. And then came the cloud…

Salesforce can probably be credited with kickstarting the cloud-software market with its “no software” claim from the year 2000. Much has changed since then and increasingly more enterprises are looking to support their business needs with services provided from the cloud.

Licence models did not change

Most vendors failed to change their licensing model as they ported their software to the cloud. If the service in the cloud is better for the customer, why not a similarly appropriate licensing model? What I mean by that:

You selected a new application and the sales rep of the vendor asks you how many licences you are going to need. Your organisation employs 5 000 people, so you go and buy the amount required to cover that need, upfront, for a year, but more likely for three years.

Lack of scalability

The issue is that the model in no way matches your actual requirements. What you really require and should expect is the flexibility to scale up and down as your organisational needs change. But before we get ahead of ourselves, let us take a look at what the reality is for many customers today:

Any number of factors will impact the usage of a system in the course of a year. Whether extended holidays, sick leave, employees joining or leaving the organisation, mergers and divestitures, or furloughs due to a global pandemic, all of these will impact usage.