3 Common Software Licensing Models

Author:Chris Luijten

May 27 , 2016

3 Software Licensing Models

There are three common software license models in regards to charging for software use; subscription, perpetual, and consumption based license models. 

Subscription Software License

Subscription based software licenseA subscription based software license is billed each month or annum regardless of use. This model is also known as a software as a service (SaaS) license. It is one of the most popular approaches to software sales today. Subscription based per-user licenses generally include the license, technical support, software maintenance and hosting of the software. They are usually only available for cloud or hosted environments, as it can be difficult to audit usage otherwise. Subscription software license models are popular with the software providers because they can help to establish recurring revenue streams.

Perpetual Software License

One of the original software license models; you purchase the software and may use it forever. Perpetual software licenses are common for self-hosted and on-premise installations of enterprise software. Perpetual software licenses are often used in enterprise level software packages where a company will pay for a large amount of licenses up front. This is generally the most expensive software licensing model upfront, but tends to be a cost-value investment for large organizations who need multiple licenses.

Consumption, or Pay-Per-Use, Software License

Pay per use software licensingIn a consumption software license model, customers pay relative to their usage of the software. This can make costs scalable for small businesses who need to use expensive software. This is also suitable for businesses who have needs that fluctuate over time. Most established companies do not offer pay-per-use licenses for their software and opt for the more stable recurring revenue stream of an annual or monthly subscription, which start ups may be more willing for a pay-per-use model to encourage adoption of their software. 

Determining which software licensing model you should use for your software will depend on it’s application and on your target market. Finding the right balance to maintain strong profit margins while keeping your software attainable for those who wish to use it is key. The longer your software is on market the more you will learn how to appropriately license, and sometimes relicense, your product suite.  

What do you do if you discover software compliance issues?

By default, all software is copyright protected under US copyright law (Wikipedia). However, that doesn’t stop companies and individuals from trying to use software without paying for it. If you know you have software compliance issues or suspect that your software is being used without license, contact usRecovery Lost Revenue with ITCA