US businesses across all industries have a variety of software options to choose from. However, with the different types of software licenses, it may be difficult to make cost comparisons.
Your business requires various software, such as human resource management (HRM) systems to manage your IT infrastructure and employees, or customer relationship management (CRM) systems to provide the best user experience to your clients and customers.
However, the usage of software requires the initiation of software licenses and for you to agree to the software licensing terms and conditions.
To ensure legal compliance, it is integral you understand the types of software licenses, their terms, associated costs, and limits before purchasing any software for your organization.
Software Licenses Explained: What Are Software Licenses?
A software license is an agreement between the software creators and the end user, which in this case, is your business. Software licenses protect the source code of the software and place limitations on how the program can be used.
Software licenses include:
- Installation rights
- Distribution rights
This text document is very meticulous and serves the main purpose of protecting intellectual property and the legal rights of the software developer. The best way to ensure you have understood a software license properly and to get help with software license management is by getting in touch with an IT professional who can examine and break down the details for you.
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How Do Software Licenses Work?
When you purchase licensed software for your business, you enter an end-user license agreement (EULA) with the software provider.
This contract establishes the rules that must be followed by your organization when operating the software. The EULA will outline when the agreement becomes active, the duration of the agreement, and the terms of the cancellation of the agreement as well. Details regarding charges and billing per user will also generally be included in the software license EULA.
Breaching the terms of a software license will violate copyright law and can land your business in hot water with the law, so you should make it a priority to understand the software license details before purchasing it.
Software License Fees Models
The fee developers charge you to use their software will depend on the user and payment structure of the subscription software.
There are various user and payment structures available for subscription software, including:
In a user-based or per-user pricing model, the software developer will charge your business for every user of your product. The greater the number of users you have, the more the developer will charge. User-based licensing pricing models may charge your business based on every user downloading the software or for every user who actively uses the software.
If you have several employees who each require their own personal login credentials and heavily rely on the software, then this may be a good choice for you. These licenses sometimes come as concurrent user licenses where you are charged for the number of users using the system at the same time rather than for all the users that access the system.
The usage-based pricing model or consumption model offers a variable pricing option. With this form of pricing, you will be given a base rate and then charged an additional rate based on the amount of usage your business gets from the software.
If you expect your usage of the software to vary over time, and you have the resources to thoroughly monitor the usage, this may be a good option for your business.
Flat-rate pricing models offer a fixed price for all the features the software offers. With this billing method, your business will be charged the same amount every time a billing cycle is complete. This is a good option for companies who don’t need software with many features and who want more predictable costs.
Another ‘flat-rate’ pricing model is the perpetual license, where you only have to pay for the software once (typically upfront). Though the software is ‘yours’ to use without further charge, the EULA still applies.
Aside from various user and payment structures, there are also different types of software licenses for you to choose from.
Different Types of Software Licenses
Software classified as public domain or private unlicensed software is not covered by software licenses. However, software that is licensed is generally either classified as free and open source software (FOSS) or proprietary software (closed source).
FOSS and proprietary software are very different but they both cover the responsibilities, limitations, liabilities, warranties, and disclaimers regarding the usage of the program.
According to research by RedHat, enterprise businesses are increasingly using open-source software to meet their operational needs. This license type is a great option for your businesses if you want to personalize software for your specific organization’s needs.
The downside of FOSS is that support and troubleshooting largely fall on you to manage. Because this type of software does not generate revenue, support from developers will be limited and fixes will come in the form of patches built by other users.
Proprietary Software Licenses
Proprietary licenses are not as flexible, and they usually only come with an operational code ― not a source code that can be altered at will. This is a better option for your business if you find software that fits your business perfectly and you do not want to reverse engineer it to better suit your business goals.
The main types of open-source software licenses include:
Copyleft licenses are known as restrictive licenses. These licenses allow you to alter the code and even distribute the changed software product as long as you distribute the source code of the new works under the same software license. This clause often leads organizations to refrain from using such licenses since they do not want their competitors to get access to their software code. Some licenses such as the MPL also contain patent grants and others such as AGPL are only triggered when the software is being distributed.
The available copyleft licenses include:
- GNU General Public License (GPL)
- Lesser General Public Licenses (LGPL)
- Mozilla Public License (MPL)
- Affero GPL (AGPL)
- Eclipse Public License (EPL)
Permissive licenses are also known as attribution-style licenses. Unlike copyleft licenses, permissive licenses place only a minimal number of restrictions on how the software can be used, altered, and distributed. In most cases, permissive licenses will only require you to include the copyright information in a file when you are distributing the software. Some permissive licenses like the Apache license also include a patent grant, while others include multiple clauses such as the BSD license.
The most common permissive licenses include:
- MIT License
- Berkeley Source Distribution (BSD) License
- Apache License
Dual Software Licenses
In some cases, software developers choose dual licensing in which they use both an open source license as well as a commercial license. This is done so the open source license grants you easy access to the code, but if you want to profit from the software, you will need to step up and obtain a commercial license.
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What Do I Need to Know About Software Licenses? Accounting for Software Licenses to Optimize Your Business
Selecting the right software for your business goes beyond simply approving the program’s function. You also need to verify the software license for the program suits your personal business goals.
When searching for a software license, it helps to keep the following points in mind:
- If you have found the perfect software that does not need to be modified or distributed, proprietary software licenses are a viable option
- If you wish to alter the source code and have more privileges when distributing the software, FOSS may be a better option
- If you are looking for the most relaxed open-source software licenses, permissive licensing such as MIT may be the best choice for you since copyleft licenses come with more restrictions
Choosing the right blend of software to optimize your business can be a daunting task. When trying to understand software purchases and their associated licensing it is always a good idea to get in touch with an IT professional so your business can benefit from their experience and insight.
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