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Software licensing: License management for software manufacturers

Software licensing is a complex topic - for both the software manufacturers and the companies that use the licensed software. Against the background of 20 percent of programs still being unlicensed, the subject has not become any less explosive. Software manufacturers must ensure that they are adequately compensated for their solutions. Companies can save a lot on costs using effective license management. In the following, we explain the most important aspects of software licensing and show you how you can form a successful software license management strategy.

Table of Contents:
 Definition: What is software licensing?
 20 percent of the software at German companies is unlicensed
 The problem: Lack of know-how when it comes to software licenses
 Two technical approaches to software licensing
 Definition: What is software license management?
 Conclusion

Definition: What is software licensing?

Because software is the result of creative work just like books, music and movies, it is protected by copyright law, even if it is not publicly accessible. According to BSA (The Software Alliance), the software manufacturer declares its consent to the installation of its software under certain conditions with a software license. The conditions of use or transfer of software are set out in the software license.

An important component part of the license is the license rights and restrictions, such as the purpose or place of use and the hardware used. To this end, the product, acceptance conditions and warranty provisions are defined in the license agreement. Typically, the licensee is granted a non-exclusive right to use to the software for a certain number of users. Copying and sharing the software is usually prohibited. Different license forms are available: commercial software, freeware, shareware and free software licenses.

The role of software has changed dramatically

In the 1960s, when the first computers in the form of mainframe computers changes the world, the hardware played the most important role. Software was just a by-product or was self-programmed. This relationship has been completely reversed over the last few decades. Today, computers and terminals are much smaller and yet far more powerful. A wide range of functions are implemented by the smallest applications, for example apps. In contrast to the past, today’s software should run on as many systems as possible.

20 percent of the software at European companies is unlicensed

The fact is: There is hardly a single business process that is not at least supported by software. No wonder software still continues to be used without permission due to a lack of knowledge and the complexity of the topic. The BSA regularly examines the extent to which software is installed illegally. The Global Software Study from 2018 by the BSA draws the following conclusion: Every fifth program is still unlicensed, which corresponds to a total value of 1.3 billion euros. But there is a ray of light: This is down two percent compared to the last survey carried out two years previously.

Understanding software license management helps save on costs

Despite the slightly falling numbers, software publishers still have to endure significant sales losses. Therefore, software licensing is not just a topical issue for software manufacturers but also for companies. Although software management using SAM processes (software asset management) is becoming increasingly professionalized, it would appear that awareness of software as a commodity is not anchored strongly enough. Many IT managers have problems operating commercial and licensing software assets and software licenses correctly - to their great disadvantage. Because, the better you understand the software solutions you use and the various license models, the more effectively you can use them. In many cases you can save costs, because you often end up paying for lots of unnecessary licenses, or because the scope of the content of the licenses is too great.

The problem: Lack of know-how when it comes to software licenses

In contrast to the paper clip that might be forgotten in small inventories, software is an intangible asset, which is why software license management is often neglected. Added to this is the increasing rate at which new updates are released as well as increasingly powerful computer systems - in both the commercial and private spheres. So software licensing is an increasingly relevant topic for both businesses and end customers.

The following software license models are available

Basically, there is proprietary, commercial and free software. Freeware and shareware, with their subtypes donationware (donation as license fee) and mindware (the user decides the amount of the fee) are proprietary software.

The following provides a brief overview of the license types:

  • In the case of commercial software, the licensee acquires the right to use the software for a certain period of time. The aim is to make money from the software. Commercial software can also be free software.
  • Proprietary software is usually commercial too, but not always. It differs from free software in that it cannot be distributed or changed.
  • Freeware is free of charge and freely available, but it may not be changed. Usually, the terms and conditions are set out in the End User License Agreement (EULA). Freeware is usually distributed for strategic reasons, for example Microsoft's Internet Explorer or Adobe Acrobat Reader.
  • Shareware is available free of charge for a specific purpose or a certain period of time, often as trial access offering the full range of functionality. The user only has to pay license fees once the trial period has expired. Some popular and well-known download portals for shareware, for example, are MajorGeeks.com or FileHippo.com.
  • Free software has existed for over two decades. Examples include the Linux operating system, Firefox internet browser and the OpenOffice office package. In contrast to proprietary software, access to the source text is possible and even desired in order to develop the software. In the meantime, the term Open Source has become more common in the business environment and, among other things, has led to more and more well-known software manufacturers develop products for Linux.

Software license models consist of several components

A license model essentially describes the way a license is paid for. In order to choose the optimal licensing model for the software licenses at companies, it should be based on the existing requirements and circumstances. There are many possible combinations, especially in the business environment. A license model consists of the license class, a license type and the license metrics, among other things.

Components of a license model:

  • Kind of license (single license, multi-user license)
  • License class (full version, upgrade version)
  • License type (per device, per printed page)
  • License metrics, which determine the mode of payment (for example 5,000 printed pages per month or 1,000 systems to be managed)
  • License commitments or license restrictions (use on a device with a maximum of two CPU cores or in a specific hardware environment)
  • by describing distribution bans (for example, those of an OEM license) and bans on sale and rental
  • by describing or determining periods of use for the software (limited, unlimited)

Source: 1 x1 des Lizenz-Managements, Praxisleitfaden für Lizenzmanager, Torsten Groll, Hanser Verlag, 2015

Two technical approaches to software licensing

Due to the different approaches in software licensing, MARX® offers two technical options for protecting the software license. The software applications can be protected using either microchip-supported hardware (CRYPTO-BOX®) or a web-based manner without a security dongle.

Software Licensing Option 1:

A security dongle allows full control of the licenses. It also offers more options for monetization, such as limited demo versions, software leasing and pay-per-use scenarios. It is possible to protect applications, individual application modules, data and processes against software piracy and multiple use. Known software protection models using hardware include, for example:
    • Pay-per-use by limiting the duration (expiration date or time to license expiry): Use by the end user is limited to hours or days and can be extended by remote update upon payment.
    • Network-based licensing (site licensing): The license counter determines how often the protected application may be used in the (local) network.
    • In addition, individual data objects can be specified.

The licensing settings can be exported and, with the help of command line tools, generated from one’s own systems (for example, CRM system). This allows the security and licensing process for the applications to be largely automated and integrated into existing distribution systems

Software Licensing Option 2:

The licenses can be easily and quickly updated and extended in a web-based manner. New licenses can also be added. With optional e-commerce modules, some software license tools offer fully automated purchasing and payment of the protected software for 24/7 sales.

Advantage of Licensing Option 1 (security dongle): No activation or internet connection is required. In principle, this variant is more secure than a purely software-based implementation.

Advantage of Licensing Option 2 (software based): You do not have to send any hardware to the customer.

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Definition: What is software license management?

Anyone who understands that a license is not simply a license but rather is composed of numerous aspects as described, can appreciate the need for functioning license management. But what is license management? The term stands for the administration and management of software assets such as licenses (Torsten Groll, 2015). The centerpiece is a defined process for the legal use of software and its license provisions.

Optimizing license management is important

But hand on heart: What company already has a real overview of the software it uses or its licenses? But this is not only a mistake in terms of the potential savings to be made from too many paid licenses. Because the pressure on IT managers to reduce costs is increasing. On the other hand, software manufacturers look for more effective ways to prevent falling sales and lower licensing income. To this end, they are reviewing the agreed rights of use at ever shorter intervals. Anyone who is caught can expect high contractual penalties that, in serious cases, can ruin a company. In addition to the high penalties, the cost savings using systematic license management, which Gartner estimated at up to 30 percent, provide even more motivation.

3 Steps to transparent and efficient license management

You should keep the following three aspects in mind, if you want to introduce functional and sustainable license management:

  1. Central bundling of licenses: The first step is to collect all of the licenses in one place. Modern license management and software asset management (SAM) involves all areas of the company - from the sales and marketing department to production to the customer hotline. Each of these areas uses a wide variety of software with different licenses. In order to facilitate effective license management, all users have to be given role-based access to the system. And don’t forget: Freelancers or back office staff.
  2. Automated workflows: If licenses run together in one place, automated processes can be developed. This allows to-dos, such as audit reporting, product activations or reports on license renewals, to be simplified. With effective SAM, messages and functions or alerts on license expiration etc. can be easily automated.
  3. Self-management is the solution: The more access rights end users and your own employees have, the less there is for customer service or technical support to do with regard to license management. For example, you can delegate compliance reporting, activation, renewals, upgrades, and cancellations to your customers. So you kill two birds with one stone: You increase user-friendliness and reduce the number of hotline queries.

The objective of modern software asset management is to bundle all licenses at one central location and automate licensing and license and software provisioning processes. Transparency and user-friendliness are the most important things here.

Side note: Software licensing in cloud environments

New challenges are arising in the joint management of traditional software solutions and other license metrics as well as billing models from the cloud environment. Sessions, data volumes and new consumption billing models are replacing outdated payment methods. To this end, mobile devices such as smartphones and tablets will also be integrated into the enterprise architecture in the future, which will increase the complexity of software asset and license management. In order to successfully face this challenge, traditional license management must be stable and it must be set up and implemented company-wide. Only then can cloud solutions in a shared IT infrastructure be managed purposefully and transparently.

Conclusion

Software licensing is as varied and complex as the licenses themselves. When creating a new software product, software manufacturers are faced with the question of which license model is most suitable. They also need to decide whether they prefer licensing with a security dongle or a software-based solution. On the other hand, many shortcomings are still to be found in license management at companies. With modern software asset management tools, license-relevant workflows can be automated, saving significantly on costs.

Copyright © 2002, 2019 MARX® CryptoTech LP - Last Update 12 September 2019