Software Monetization Basics Part 2: Software License Types

SoftwareSoftware producers and device manufacturers are looking for new ways to drive revenue as competition heats-up across the global technology stage. As a result they’re looking for new revenue streams and differentiation via software licensing.

A few years ago we posted a "Common License Types and Terms" blog that thousands have viewed. We've updated the content and have re-posted as we've had customers continue to ask us to help them make sense of all the software license types and terms in the marketplace. Note that these types are Flexera definitions and may differ from definitions provided by other software companies (e.g. CRM, ERP systems).

This post will cover some of the more common software license types as our prior post covered common software license terms.

Software License Types

  • Client Server License: Server license that is based on a device metric. In many cases this type of license may also have a Client Access License (or CAL) aspect. In a Server/CAL model a license must be purchased for the physical server (or virtual server – there are varying rules around virtualization) and also additional ‘access’ licenses must be purchased for any users/devices that may access the server for that application.
  • Concurrent License: License which provides wider access to the software but limits the number of simultaneous users using the software. It may or may not include compliance enforcement capabilities. Typically, a concurrent license is “checked out” from the license server when the software is run, assuming a license is available. If no license is available, the requestor experiences a denial of service.
  • Consumption (Usage-Based) LicenseLicense based on software/device usage (pay-for-use, pay-for-burst, pay-for-overage) where fees are based upon actual usage (i.e. water or utilities for a home, cell phone) and revenue is recognized periodically as consumed and paid. This model is gaining momentum in cloud and SaaS-based applications. IDC predicts that usage-based software pricing models will be an option for 80% of applications by 2017.
  • Core/Processor Points License: License based on points applied as a multiplier to the number of cores/processors in the physical server, or in some cases, the virtual machine. Some producers count processor sockets and others count logical processors, or cores, but the license model is similar. For example, an application installed on a 4 processor server with 100 points per processor would require a purchase of 400 processor points to cover the license liability. These licenses are mainly used for data center software licensing.
  • Device-Based License: License for a defined number of software installations. The software may be uninstalled on one computer and installed on any other computer within the same enterprise, so long as the total number of installations does not exceed the number of purchased licenses.
  • Enterprise License: License to install software an unlimited number of times within the enterprise. An Enterprise Agreement is structured as ‘all you can eat’ but the organization must be licensed for a specific quantity of licenses so this is not strictly an ‘Enterprise License’ model in its pure form.
  • Evaluation (aka trial):  License that allows one or more users to install and use software for trial purposes. Evaluation licenses may be time limited, may offer limited functionality, or may restrict or mark output (for example, some PDF writing software includes the name of the software on every PDF document produced from a trial version). After evaluation, a user may purchase a full license, uninstall the software, or (for time-limited trials) the software will simply no longer work.
  • Floating License: Each time a particular software product is run it checks-out a license key from a license server for the duration of operation. For example "Software A" will request a particular license key associated with "Software A" from a license server whenever it runs. If the license server has licenses available, the software is granted a license to run. The software will return the license to the server when the software is exited. Similarly, "Software B" will request a particular license key associated with "Software B" from the license server whenever it runs.
  • Metered Down, Served License: License is stored on a license server and the count is reduced every time a license request is made until there is no longer any quantity available.
  • Named User License: License that allows access to the software by a specific number of named users. In some cases, these licenses can be transferred from one user to another. When you create the license, you should allocate the license to specific users. Only installations associated with allocated users are counted. 
  • Node-locked License: License that allows access to the software on a specific number of named computers. These licenses are usually for server applications such as database products. In some cases, these licenses can be transferred from one computer to another, usually by requesting a new license key.
  • OEM License: License for software that is delivered with the hardware and is only for use on that piece of hardware. These licenses are tied to the lifecycle of the hardware and typically cannot be transferred to other hardware.
  • Perpetual License: License that allows indefinite use (from a time perspective) of the software. This is the most common license type, pay once and unlimited use, revenue hits P&L when the order is booked. Maintenance is usually priced as a separate item. More specific perpetual license types are listed below:
    • Perpetual, Counted, Node-locked: This license is locked and stored on a device (node-locked), has no expiration date (perpetual) and has some maximum amount which must be checked against.
    • Perpetual, Counted, Served but Distributed: This license is initially stored on the license server and served but then distributed to each device. This is often used when the devices do not have connectivity to the internet for the activation process.
    • Perpetual, Counted, Served, Shared Concurrent Apps: This license is stored on a license server (served), and the count is shared across instances of the application on any number of devices as long as the quantity does not exceed the limit. Concurrency can be measured at different levels (e.g. applications, devices, user names).
    • Perpetual, Uncounted, Node-locked: The license is locked and stored on a device (node-locked, has no expiration date (perpetual) and simply indicates access to a function (uncounted).
  • Processor (per Processor/CPU) License: License based on the number of CPU/processor sockets on which the software will run, and NOT the logical processors aka cores.
  • Rental License: Similar to a subscription license in that the right to use is temporary. With these licenses, maintenance may or may not be included. These are typically designed for peak usage needs such as a one-month license. This allows for the delivery of a license to meet a short-term need (ex. tax software during tax season) without discounting a subscription or perpetual license to meet the customer need.
  • Site-Based License: License to install software on an unlimited number of computers at one physical location. 
  • Subscription License: Fast growing, highly flexible, and where revenue is recognized based on a regular schedule (monthly, quarterly or annually) to reflect the delivery of value over time (e.g. the stream of maintenance updates). The subscription license is usually based on annual terms (i.e. one, two or three years) and includes the right to use the software and have access to support. If a subscription license is not renewed at the end of the term, then the customer loses the right to use the software and maintenance rights with no "ownership" of the product after the license expires.
  • Term License: Similar to a rental license with the option to "own" the product.
  • Termed, Uncounted Node-locked License: License is locked and stored on a device (node-locked, has an expiration date and simply indicates access to a function (uncounted).
  • Token-Based License: License based on a pre-defined object – the “token.” The software producer creates a generic license key "token" instead of a license key associated with each product – the idea being that products don't check out product specific licenses, but rather, checkout one or more generic tokens – the amount of which is weighed toward the list price of the product.  With this software licensing model, the customer downloads the software for a portfolio of software, and then purchases a number of tokens that enable the software. Tokens are typically implemented as a subscription license, which expires at the end of a term such as a year. This provides the software producer with some revenue upside as a result of offering this increased flexibility.
  • User-Based License: License that provides access to the software to a specific number of users. All installations of the software will be counted but installations across multiple devices for the same user will be counted as one license consumption.

We hope this helps – let us know if there are any other types you’d like to see!

Need additional guidance on which type to use? Read Rethink Your Software Monetization Strategy.

One comment on “Software Monetization Basics Part 2: Software License Types

  1. Alba on   # Reply

    great article!

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