Global spending on enterprise software amounted to around $913 billion in 2023.
Today, the average organization’s tech stack includes about 300 tools. That’s 300 software licenses that must be negotiated, tracked, and maintained.
It’s no wonder that companies worldwide only use half their software licenses—the rest remain untracked or underutilized.
Optimizing software license usage can lead to significant savings and also help maintain compliance with license regulations.
In this article, we’ll tell you about the different types of software licenses offered by software vendors and how to choose the software license model that’s best for your business. We’ll also show you how to track and manage all your licenses efficiently and avoid wastage.
Software Licensing Types
Summarize this article for me pleaseWhat Is a Software License?
A software license is a legal document that outlines how software can be used, distributed, and modified. The software license agreement outlines the terms and conditions under which you can access, copy, change, and share the software. Think of it as a contract between you and the software developer.
Different types of software licenses specify the user’s rights and restrictions in various ways, including whether the software can be shared, how many devices it can be installed on, and whether users can access the source code.
Licenses ensure that you’re using software legally and in compliance with all the applicable rules and regulations. They also often outline the terms of support and updates that you’re entitled to.
Moreover, licenses help software developers get paid for their work so that they can continue creating new and innovative software.
Summarize this article for me pleaseCommon Types of Software Licenses
These are the main kinds of software licenses in use today:
Proprietary licenses
These licenses restrict access to the source code and how the software can be used.
A proprietary license, also known as a closed-source or commercial license, grants limited rights to the user. Only the developer or a select group has access to its source code.
Customers can use the software, but they cannot modify, distribute, or sell it without explicit permission.
Proprietary licenses are often used for commercial software that is intended to generate revenue.
For Example: Commercial software applications, such as Microsoft Office and SAP
Open source licenses
Open source software licenses are software licenses that grant users broad rights to access, modify, distribute, and even sell the software. The source code of the software is publicly available, allowing anyone to examine, improve, and adapt it.
An open-source software license promotes transparency and accountability and gives users a high degree of flexibility. Such software often benefits from a large community of developers who contribute to the development and improvement of the software code.
For Example: The GNU General Public License (GPL), the MIT License, and Apache License 2.0
Freeware and shareware
The terms freeware and shareware are often used interchangeably, but they are two different software licensing models.
Freeware is software that is offered for free use. While it’s free, its functionality or features might be limited. It may also have restrictions related to modifications and redistribution.
For Example: Firefox, VLC Media Player, and GIMP
Shareware is software provided for free as a trial version for a limited period or with limited features. The full version typically requires a fee to unlock all features or continue using it beyond the trial period.
For Example: Adobe Photoshop and Microsoft Office
Public domain licenses
A public domain license is a type of software license that places the software into the public domain. This means that the software is completely free of copyright restrictions, allowing anyone to use, modify, and distribute it without any limitations.
Public domain software can encourage innovation and creativity, as anyone can contribute to its development and improvement. There are no copyright law limitations on how the software can be used or commercialized.
Example: SQLite
Summarize this article for me pleasePopular Software Licensing Models
Proprietary types of software licenses can be of various kinds. We’ll break down the main categories here so you can decide which suits your needs best.
TL;DR: 6 types of proprietary software licenses summed up
- Perpetual licensing: High initial cost but stable for long-term use where there is little need for scaling
- Subscription licensing: Flexible, regularly updated, and scalable—ideal for dynamic, growing environments
- Usage-based licensing: Cost-effective for variable usage but requires careful monitoring to avoid unexpected costs
- Pay-for-overage licensing: Budget-friendly until you exceed limits; good for mostly stable but occasionally variable usage
- Device licensing: Best for fixed environments with dedicated hardware, easy to manage but not flexible
- Concurrent licensing: Ideal for teams sharing access, flexible within user limits but requires monitoring
Perpetual licensing
A perpetual licensing model is a traditional software licensing method in which a customer purchases a license to use the software indefinitely. Once the license is purchased, the customer can continue using the software for as long as they need without recurring subscription fees.
Customers pay a single upfront fee to acquire the software license, and there are no ongoing subscription or maintenance fees
Advantages of perpetual licensing
- Predictability: Customers can plan their software costs upfront without the uncertainty of recurring subscription fees or price increases
- Ownership: Perpetual licensing can provide a sense of ownership and control over the software
- Long-term cost savings: In some cases, perpetual licensing can be more cost-effective than other models, especially for organizations that use the software for many years
- Offline access: Perpetual licenses often come with the ability to use the software without continuous internet access
- No vendor dependency: Users are less dependent on the vendor after the initial purchase. Even if the vendor discontinues the software, the user retains the right to use the version they purchased
Disadvantages of perpetual licensing
- No automatic updates: Access to future updates or new features may require additional fees
- Higher upfront cost: The initial purchase price for a perpetual license can be high
- Potential for obsolescence: As technology evolves, perpetual licenses may become less desirable if the software becomes outdated or difficult to maintain
- Maintenance and support costs: Ongoing support, maintenance, and updates may not be included with a perpetual license or may require the purchase of a separate maintenance plan
- Upfront financial risk: The high initial investment represents a financial risk if the software doesn’t meet the organization’s needs or if business requirements change
Also Read: How to track technical debt
Subscription-based licensing
Subscription-based licensing, also known as Software as a Service (SaaS), is a popular software licensing model where customers pay a recurring fee to use software over a specific period.
These types of software licenses usually involve a cloud-based product. Customers pay a regular subscription fee, typically monthly or annually, and can use the software only during the subscription period.
Advantages of subscription-based licensing
- Lower upfront costs: Lower initial costs compared to perpetual licensing make it more accessible for small businesses and organizations with limited capital
- Flexibility: Customers can easily scale up or down their usage based on their needs, as there is no lock-in beyond their subscription duration
- Automatic updates: Subscription-based models often include automatic updates and upgrades, ensuring you don’t face obsolescence
- Reduced IT overhead: Cloud-based SaaS solutions can reduce the IT burden on organizations by eliminating the need for on-premise software installation and maintenance
- Easier access to advanced software: Subscription licensing makes it easier for organizations to access and afford advanced or enterprise-level software
Disadvantages of subscription-based licensing
- Recurring costs: Customers must continue paying subscription fees to maintain access to the software
- Dependency: Customers rely on the software provider for ongoing support and availability
- Potential for price increases: Subscription fees may increase over time, which can lead to higher-than-expected costs for organizations
- Limited control: Customers may have less control over the software’s configuration and customization
- Limited ownership: Unlike perpetual licensing, subscription-based licensing does not grant ownership of the software. Organizations may lose access to their data or configurations if the subscription ends
Also Read: Top SaaS examples
Usage-based licensing
Usage-based licensing is a software licensing model where customers pay for the software based on their actual usage or consumption. This can be measured in various ways, such as the number of users, transactions, data volume, or processing time.
This type of software licensing often involves metering or monitoring the customer’s consumption to calculate the fees accurately. The cost of the software can scale up or down based on the customer’s usage patterns. Typically, credit is purchased in advance, and units are deducted with each use.
Common usage metrics include the number of users, transactions, volume of data, and compute resources used.
Advantages of usage-based licensing
- Cost efficiency: Organizations only pay for what they use, making this model particularly cost-effective for those with variable or unpredictable usage patterns
- Scalability: The cost of the software can scale up or down based on the customer’s changing needs
- Flexibility: Customers can adjust their usage patterns to control costs
- Lower initial costs: There are typically lower upfront costs compared to traditional licensing models
- Transparent pricing: Usage-based licensing often provides clear visibility into how costs are incurred, which can improve financial planning and resource management.
Disadvantages of usage-based licensing
- Complexity: Usage-based licensing can be more complex to implement and manage than other models. Organizations need to monitor their usage closely to avoid unexpected charges
- Metering challenges: Accurately measuring usage can be difficult, especially for complex software applications
- Potential for unexpected or high costs: If usage patterns fluctuate significantly, customers may face unexpected cost increases
Also Read: IT budget management strategies
Pay-for-overage licensing
Pay-for-overage licensing is a type of usage-based licensing model in which customers pay a base fee for a certain level of usage and then incur additional charges if they exceed that limit. This model is often used in conjunction with other licensing models, such as subscription-based or usage-based.
Advantages of pay-for-overage licensing
- Predictability: Customers can estimate their costs more accurately as they know the base cost and can estimate potential overage
- Flexibility: Customers can adjust their usage patterns to avoid overage charges
- Cost control: This kind of licensing can help customers control their software costs by setting a budget for usage
- No service interruption: Users won’t experience service interruptions if they exceed their limits, as they simply pay for the additional usage
- Ease of entry: Organizations can start with a lower base plan and scale up as needed
Disadvantages of pay-for-overage licensing
- Unpredictable costs: If usage patterns fluctuate significantly, customers may face unexpected overage charges
- Complexity: Pay-for-overage licensing can be more complex to budget, implement, and manage than other models
- Risk of resource overconsumption: Without proper monitoring, organizations might inadvertently consume more resources than necessary, leading to higher overage charges and increased operational costs
- Dependence on accurate usage reporting: Any discrepancies or delays in reporting can result in unexpected costs or disputes
Read More: Software for vendor management
Device licensing
In device licensing, the end-user license agreement is tied to a specific physical device or hardware configuration. This means that the software can only be used on that particular device or within the specified hardware limitations.
The same license cannot typically be transferred to another device or used by multiple users. Device licensing can limit the flexibility of software deployment and usage.
Device licensing can be found in specific use cases such as embedded systems (software embedded in devices like printers, routers, or industrial controllers), certain single-user applications, and hardware-dependent software.
Advantages of device licensing
- Simplicity and ease of management: Since licenses are linked to specific devices, they are easier to track and ensure compliance
- Cost predictability: Organizations can easily predict costs, as the number of licenses required corresponds to the number of devices
- Security: Device licensing can help protect against unauthorized software usage and piracy
- Hardware compatibility: It can ensure that the software is compatible with the intended hardware
- Stability and consistency: Device licensing often includes a perpetual license option, meaning the software can be used on the device indefinitely. This provides a stable and consistent usage environment without recurring fees
Disadvantages of device licensing
- Limited flexibility: Device licensing can restrict usage to a single device, limiting flexibility and potentially increasing costs
- Hardware dependence: If the device is lost or damaged, the software may become unusable. Moreover, upgrading hardware may require purchasing new software licenses
- Underutilization: If a licensed device is underused, the license may not be fully utilized, leading to inefficiencies
- Difficulties in remote or offsite work: If employees need to access software from different locations, device licensing can be a hindrance
Also Read: Best free project management tools
Concurrent licensing
Concurrent licensing is a software licensing model that allows a specific number of users to access the software at the same time, rather than assigning licenses to individual users. This is particularly useful in environments where not all users need to use the software simultaneously.
For example, a company where staff work in shifts might purchase a specific number of licenses for design software, knowing that not all their designers will access the software at the same time.
A concurrent license is sometimes also called a floating license.
Advantages of concurrent licensing
- Cost efficiency: Concurrent licensing can be cost-effective for organizations where not all users access the software at the same time
- Flexibility: This model is ideal for organizations with users in different time zones or with varying work schedules, as licenses are allocated based on actual usage rather than the number of users
- Optimized resource usage: Organizations can ensure licenses are not underutilized. When one user finishes using the software, the license can be automatically made available to another user
- Scalability: Licenses can be added or reduced as needed
- Ease of management: License management is simplified because no license needs to be assigned to each individual user
Disadvantages of concurrent licensing
- License contention: There is a risk that not enough licenses will be available when needed, leading to delays or downtime
- Complexity in monitoring usage: Organizations may need to monitor license usage closely to ensure that they have enough licenses to meet demand without overspending on unnecessary licenses
- Potential overuse: If not properly managed, concurrent licensing can lead to overuse, where too many users attempt to access the software at once
- Higher initial costs: The initial cost of setting up and purchasing the required licenses may be higher than other licensing models, especially if accurate usage patterns are difficult to predict
- Dependence on license server: Concurrent licensing often requires a centralized license server to manage the distribution of licenses
Also Read: How IT asset management benefits business
Summarize this article for me pleaseChoosing the Right Software License for Your Business
When selecting a software license, it’s important to evaluate several key factors to ensure the license aligns with your organization’s needs, budget, and long-term goals.
Here are the most critical factors to consider while evaluating different types of software licenses:
Cost
- Assess the upfront cost of the license, including whether it’s a one-time payment (perpetual license) or recurring (subscription-based, usage-based, etc.).
- Calculate the total cost of ownership (TCO). Include any ongoing expenses like maintenance fees, support costs, upgrade costs, or overage fees
- Consider how costs will accumulate over time. For example, a subscription model may have lower upfront costs but could become more expensive in the long run
Usage rights
- Understand if there are limitations in usage rights. Some licenses may restrict usage to certain environments (e.g., on-premise vs. cloud)
- Consider how easy it is to scale the license up or down based on your needs, add or remove users, or transfer the license to different devices or users
- Determine whether certain functionalities require additional licensing or fees
Also Read: IT management software
Support and maintenance
- Evaluate the level of support provided under the license. Does it include 24/7 support, or is it limited? What are the response times and available support channels (e.g., phone, email, chat)?
- Check whether the license includes regular updates and upgrades
- Ensure the license covers critical bug fixes and security patches
Compliance
- Ensure you understand and can comply with the terms of the license to avoid legal issues
- Consider whether the license and the software meet industry-specific regulations (e.g., GDPR, HIPAA) relevant to your organization
Scalability and flexibility
- Consider whether the license can scale with your organization’s growth. Does it allow for additional users, increased data volumes, or expanded functionality as your needs grow?
- Evaluate how adaptable the license is to changes in your organization’s structure
Compatibility
- Ensure the software is compatible with your existing IT infrastructure, including hardware, operating systems, and other software tools
- Consider how well the software integrates with your current systems and workflows
Vendor
- Research the software vendor’s history and financial stability. A stable vendor is more likely to provide reliable support and updates over the long term
- Look for customer testimonials, reviews, and case studies to gauge the experiences of other users
Simplicity
- Consider the software’s user interface and ease of use. Software that is difficult to use can lead to lower productivity and higher training costs
- Evaluate the availability of training resources, including documentation, tutorials, and customer support, so your team can effectively use the software
Read More: SaaS knowledge base software
Longevity
- Consider whether the software and the licensing model will meet your long-term needs. Evaluate the vendor’s roadmap and how often the software receives updates to ensure it won’t become obsolete
- Look at the software’s potential for adopting future technologies or evolving with industry trends, which can help keep your organization competitive
Customization and control
- Consider whether the software allows for customization to fit your specific needs. Some licenses might restrict the extent to which you can modify or configure the software
- Also, figure out who controls the data. In cloud-based or subscription models, it’s essential to know how data is stored, who owns it, and how it can be accessed or migrated if you change providers.
Selecting the right software license involves balancing cost, usage rights, and support with your organization’s needs and goals. By carefully evaluating these factors, you can choose a software license agreement that not only meets your current requirements but also positions your organization for future growth and adaptability.
Here’s a tabular comparison of the main types of software licenses to help you analyze them faster:
| License Type | Cost | User Rights | Ease of Use | Flexibility | Support | Best For |
|---|---|---|---|---|---|---|
| Perpetual Licensing | High upfront cost | Unlimited use of the purchased version | Simple once set up | Limited | May require separate maintenance contracts | Long-term use with stable needs |
| Subscription Licensing | Recurring, lower initial cost | Continuous access, often includes updates | Simple | High | Includes support and updates | Businesses needing up-to-date software |
| Usage-Based Licensing | Variable cost based on usage | Pay per use; often tied to specific metrics | Requires monitoring | High | Basic support | Fluctuating usage patterns |
| Pay-for-Overage Licensing | Base cost + fees for overages | Fixed base usage rights; pay more for excess | Easy until overages occur | Moderate | Basic support | Mostly stable usage and occasional spikes |
| Device Licensing | Per device, stable cost | Tied to specific devices | Simple | Low | Basic support | Environments with fixed workstations |
| Concurrent Licensing | Medium to high cost, shared | Pooled licenses shared among multiple users | Requires monitoring | High | Shared support | Teams with overlapping usage needs |
Also Read: A guide to business process management
Summarize this article for me pleaseHow to Track and Manage Software Licenses
As organizations grow and operations expand, the usage of software applications increases exponentially. With growing usage, managing software licenses efficiently while keeping costs optimized can be quite the headache.
ClickUp is a task management software with robust tools that empower organizations to manage their software licenses effectively, ensuring compliance while minimizing overspending and improving record-keeping practices.
Centralized license management
Teams can create a centralized repository for all software licenses in ClickUp. You can also set up individual Folders by team, software type, or any other preference. The ClickUp Hierarchy ensures that all your information is saved systematically.
With various ClickUp View options (like List, Board, or Timeline), teams can visualize their software asset management processes effectively. This makes it easy to track licenses owned, their costs, and usage levels, helping organizations avoid unnecessary purchases.
Set up triggers for license renewal dates with ClickUp Automations, ensuring you never miss an important deadline.
Granular categorization and tracking
Users can set up Custom Fields to categorize licenses by type, cost, expiration dates, and usage frequency. This structured approach enables teams to identify underutilized licenses and optimize spending accordingly.
Create custom Dashboards in ClickUp to monitor license usage and compliance status in real-time, enhancing overall record-keeping efficiency.
ClickUp Reminders makes it easy for you to schedule regular internal audits. This proactive approach ensures that your organization remains compliant with licensing terms and is prepared for any external audits.
Documentation
ClickUp allows users to create detailed documentation related to software licenses, including terms of use, renewal dates, and compliance records. Create your documents collaboratively with your team with editable ClickUp Docs and share them in a single click with relevant stakeholders.
With rich text formatting, tables, and nested pages, you can organize all of your documents in a structured, easy-to-use style. This ensures that all the required information is easily accessible, secure, and organized.
Summarize this article for me pleaseManage All Types of Software Licenses Efficiently With ClickUp
Today, companies require a proactive approach to software license management, including centralized tracking systems, accurate record-keeping, and employee education on compliance requirements.
By implementing IT governance best practices, you can mitigate risks associated with software licensing compliance and optimize your software investments.
Modern IT operations management software, such as ClickUp, can help you efficiently manage and track all types of software licenses in one place. The all-in-one software enables document management and team collaboration in one centralized, secure platform to take the pain out of IT procurement and management.
Sign up for a free ClickUp account today.
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