The traditional commercial software license has, for a long time, come in two flavors. With the advent of Software-as-a-Service, licenses are changing for the better.

End-User License Agreement

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There is the standard End-user License Agreement (EULA), also known as a shrink wrap license, which usually gave a consumer a perpetual license to use the product. The EULA usually includes restrictions on copying -- typically a consumer could make one backup copy -- and transferability of the license. It is intended to serve a single user on a single computer.

This licensing model is difficult to manage beyond a few users. Ensuring compliance with EULAs is a daunting task for IT administrators. It is also a difficult model to scale, either up or down. Administrators have to factor time to purchase new licenses -- and sometimes media -- when employees are brought on, but find they can’t easily relinquish them when those employees leave.  

Enterprise License Agreements

Then there are enterprise license agreements. These are driven by contracts that vary widely from company to company and vendor to vendor.

In general, an enterprise license agreement gives a company a number of licenses for a defined period of time, although that period may be forever. More often than not, a yearly maintenance fee covers support and upgrades but really is intended to provide an annuity to the vendor.

Administering licenses under these contracts can be complex, requiring that a minimum number of licenses be purchased or that IT forecast the number of licenses ahead of time. IT always runs the risk of predicting wrong with costly results. Periodic audits to ensure compliance with the terms of the contract are also burdensome.

SaaS Changes Licensing for the Better

With the move to Software-as-a-Service (SaaS), often referred to as cloud apps, software licensing has dramatically changed for the better, from the purchaser’s perspective. The most common model is the per-user, per-month subscription.

Unlike the other commercial licensing schemes, users are provisioned or deprovisioned immediately. The monthly subscriber model creates a tremendously elastic system where the number of licenses can fluctuate with the number of users. Monthly subscriber models and SaaS applications make it easy to scale up and down as needed.

The model also allows temporary users such as contractors and seasonal workers to use the same applications as others in the company without a long-term licensing commitment. The sheer flexibility of the model helps create a more flexible and agile environment.

Not only is the monthly subscriber model more flexible, it’s easier too. Licenses are managed automatically and there is no need to perform time-consuming and costly audits for compliance with licensing agreements. The cloud ISV takes responsibility for managing the license pool and billing accordingly.

Ultimately, this makes managing software licenses less costly and distracting with less legal risk.
A lot of the attention given to cloud computing focused on it as a way of turning the infrastructure CAPEX into a monthly OPEX. Another advantage that has been discussed at length is allowing IT to focus on the business of IT and get away from managing data centers. All of that makes sense, but the organizational agility created by the monthly subscriber model is also a major value of the cloud application model. 

Image courtesy of alexscopje (Shutterstock)

Editor's Note: To read more of Tom's thoughts, check out Social Task Management: A View of the Future