Trends in software licensing

Veronika Krasteva
5 min
Trends in software licensing

Software licensing is a complicated topic, but knowing a little about it can help you make the best decisions concerning your business.

This article will give you the answer to why the new software licenses are becoming the new trend and why you should use them, too.


A software license is a legal agreement between the end-user and the owner of a software program that defines the rights of the customer to do certain things that would otherwise be an infringement of copyright law. Over the last decade, the price of software licenses and the complexity of licensing agreements themselves have grown gradually. Cloud computing, mobility, and an array of trends — including Pay-as-you-go and new software licensing models — have transformed the way organizations use and manage applications. Sellers can no longer solely dictate the terms of how they sell and price their products. They must take into account the new customer that judges the software by its ability to contribute value — measuring how much and how well the software is used. Nowadays everything is oriented towards personalized customer experience and satisfying customer needs.

Old ways (Before)

Traditional vendor-client models like Node lock, Concurrent user, Named license, Instance-based, are still widely used. Although traditional models have evolved with technology innovations, they do not fully satisfy the business issues faced by today’s enterprises. Issues both technical and economic, such as:

  • Adjusting to the company's changing needs
  • Balancing productivity and efficiency
  • Estimating software needs
  • A large initial capital outlay to “purchase” the license
  • Most software vendors make money compelling their customers to pay maintenance on "shelfware" or software that's licensed but not used.

A recent survey (Opinion Matters) estimates that organizations waste an average of $407 in software license costs per PC, per year. This includes unused software costs of $221 (of which nearly $100 is ongoing maintenance costs), plus the cost of applications that have been purchased but not installed at approximately $186 per machine.

On a device or Single User license model

The single-user license is quite simple for both vendors and clients to manage. The software consumer purchases a license for each user that needs access to the software. These licenses may be either assigned to a named user or node-locked to a particular computer. The process is applicable for low-cost software and if need to buy only a few licenses for each employee. More complicated for expensive software and larger companies where hundreds of people working and business needs change continuously.

Concurrent user

The licensing allows companies to share licenses between employees. It means that expensive software can be shared without having to share physical computers. It typically deals with software running in the server where users connect via the network. Although multi-user licenses are typically more expensive than single-user licenses, the value to the consumer in some of the times justifies the difference. For example, in a 3-user concurrent use license, after 3 users are logged in the system, the 4 user enter is forbidden. When any one of the first 3 logs out, the next person can log in.

Named user license

A wider definition involves named user licenses specific to one user who is typically licensed to use a product on multiple computers; although the most common type of named user license enables users to log on to no more than three computers. By the end of 2014, 30% of new business software purchases will be made through an online marketplace operated by 3rd party

What changed? (Now)

The software producers are likely to offer multiple types of licenses to meet customer demand. Today more and more traditional software licensing and pricing models are being pushed by cloud-based service offerings. Some of the assets that organisations can expect from "cloud" computing are:

  • Reduced application costs
  • Reduced overall IT costs
  • Improved security
  • Reliability
  • Fewer user restrictions

“Cloud computing”, “Software as a Service”, “SaaS” are essentially synonymous terms. It refers to the use of software hosted remotely in the "cloud" by a vendor, made available to a user via the Internet (or mobile or desktop application). Cloud licensing also encompasses license mobility or moving licenses for applications and operating systems from one virtual environment to another. Companies like Amazon, Microsoft, and Google enforce three main software license models in the cloud: freemium, pay-as-you-go, and/or subscription-based licenses.


The word “freemium” is a combination of the words “free” and “premium.”
It describes a business model in which you give a core product away for free to a large group of users and sell premium products to a smaller fraction of this user base. The free users get basic features at no cost and can access richer functionality for a registration fee. One of the most well-known examples of a freemium license model is Google. With its Google Drive and multiple cloud services, Google gives even basic users 15 GBs of free storage space on its public servers.


Pay as you go software license ensures that a company has to pay for only the computing resources it actually uses, meanwhile reducing its costs. The model allows a user to scale and customize resources, including software, storage, and development platforms. Resource charges are based on used services, versus an entire infrastructure. Microsoft Azure is an excellent example for a Pay as you go software license with its Azure Pricing Calculator.

Subscription-based licenses

The idea of subscription licensing is that companies can simply rent the software. Cloud-based subscription licensing diminishes the upfront costs due to reduce setup time and expense—organizations don’t need to invest in infrastructure to host the application on-site or personnel to configure the system. Last year one of the giants in technology, Adobe, made a big change in the way they sell their services- they no longer sell it - its subscription only. That means that users are not able to buy Photoshop or other apps from Adobe. Instead, they pay a monthly subscription to access all of Adobe's products. Cloud software will grow to $67.3 billion by 2016 at a compound annual growth rate of 24%.