Understanding Software Licenses

In most cases, when you "buy" computer software you don't really own it. Here are the typical kinds of software licensing agreements and the rules you'll need to follow.

In most cases, when you "buy" computer software you don't really own it. Instead, you're paying the vendor for a license to use its software. That license restricts what you can do with the software, where you can install it, and even how long you may use it.

Vendors will sometimes negotiate licenses with especially large, influential customers, although most businesses have to accept a standard license if they want to use the software. Here are a few of the major software licensing issues:

Licensing and Software Costs. Vendors often link their licensing terms to price schedules, sometimes in very complex ways. The contract may include provisions for upgrades, technical support, and other services, depending on how much the user pays.

Most vendors insist that small offices with a few machines purchase an individual license for each copy of the software. Most often, you will pay the full price for each copy, and you'll need a separate license for each computer on which you install the software.

There are ways to save money in this: you may be able to Save Money with Volume Software Licensing for Your Small Business. Businesses can sometimes get volume discounts on as few as three copies of an application, but most vendors require a business to license at least 10 copies before they give a price break. Microsoft, Adobe, and other major software vendors use point systems to award volume discounts (for example, 1 point for an application and 2 points for an operating system), and these typically work out to price breaks for 10-, 50-, 100-, and 250-machine installations.

Licensing Enforcement. Business software often includes built-in tools that monitor how it is used on a customer's network. Usage monitoring and metering tools are bundled with some products and offered as standalone components with others. When a customer uses these metering tools, it shows that they intend to comply with the licensing restrictions. This is an important legal protection for the user, and it also allows vendors to offer more flexible licensing and pricing arrangements. A business may, for example, buy a license based on the number of people using the software concurrently, rather than purchasing a license for each person who might use the software at any time.

Individual Licensing. Most vendors allow a business to license one software copy per computer, regardless of how many people use it. They may permit one person to install software on both their office and laptop computers with a single license, because it is assumed that the user cannot run both copies simultaneously. Some vendors will also allow a user to install software on their home and business computers with a single license.

Network Licensing. There are several types of licenses for so-called "client-server" applications, such as databases, that run over a network:

• Concurrent Use. Only a certain number of users may run the program at the same time. The software locks out additional users until someone quits the program. Some vendors require customers to install special metering software to buy this kind of license.
• Site License. Any number of users on the same company network can use the program. This method was more common before the Internet turned the whole world into one global network, but some vendors still license their software this way.
• Enterprise License. Everyone in the enterprise can use the software, regardless of his or her location. Most vendors reserve these agreements for the largest companies, but as the support tools and infrastructure become available this type of license may be practical for smaller companies.
• Time Delimited Licenses. Microsoft has announced its intention to license software on a time-delimited or expiring license basis - in other words, it will "rent" its software to customers. Given the constant upgrades users feel compelled to make, this may be an attractive option for many businesses.
• "Pay-for-Use" Licenses. Pay for use is a logical extension of the idea of concurrent licenses. Instead of locking out users above the agreed upon limit, pay-for-use monitoring systems allow unlimited usage and simply charge for what was used. The snag, of course, is the fact that customers may have a hard time controlling their software costs, and vendors may not be able to predict their revenues. But again, once vendors get some experience offering this type of license to large companies, they may expand it to smaller organizations.

So what software does your business need? Check out a list of Research Resources for Business Software to get a sense of other venues besides the big office supply chains where you might find the tools you need.

Find more information on evaluating business software for your company at AllBusiness.com.

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