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Published on: March 8, 2022
by Edmon Moren

Licensing-As-A-Service (LaaS): The complete Guide

A critical factor in distributing software applications involves managing license entitlements according to the agreements the Software Vendors have with their customers, distributors, or users. It is true that while maintaining a self-hosted solution can offer benefits and be the correct strategic choice for many vendors, it also entails significant overhead, just to maintain a server, update the functionality as the vendors needs evolve, all the while ensuring security and privacy requirements are met. What might start as a simple project to spin up a license server often can grow in scope, involving developers, integrators and dev ops, and project managers, sucking valuable resources from building real value-add into the software applications (guess how we got started back in 2015!). Let’s look at what Software Licensing as a Service is, as well as some legitimate alternatives to using a third-party Cloud service to handle such an important aspect of software distribution.

What is Software Licensing as a Service (LaaS)?

LaaS is an alternative to running one’s own License server. A LaaS provider is a cloud platform used by organizations to handle their software entitlement management for them. A LaaS usually offers a few important capabilities to the Software Vendor:

  • A Vendor interface: the Vendor interface (usually called a platform or portal) is an account where the Software Vendor can log in to and manage all of the entitlements for their apps. Tasks that a software vendor would achieve in the vendor platform include specifying the apps to be distributed, defining and editing license policies, and issuing new or modifying existing licenses. Product Managers, developers, Customer Support Engineers, and account managers all would have reasons to interact with such a portal to fulfill their various roles.
  • Client Application Interface: a means for the software applications which are distributed by the Software Vendors to connect to the license server. Operations performed by the applications include activating or validating licenses (process of binding the license entitlements to a device), or checking and updating the license entitlements with the record against the server. This bridge between the client application and the license server is usually provided in the form of an Application Programming Interface (Licensing API), or possibly a Standard Development Kit (License SDK) for different programming langauges compiled for different environments
  • Portals for different User Roles: Assigning / unassigning licenses, working with software distributors or resellers, or activating licenses on devices that do not have access to the internet often means that there are specific requirements around governing who can issue licenses, who can assign licenses, and who can use them. A competent licensing-as-a-service provider offers solutions to these different workflows.

What are alternatives to Licensing as a Service?

LaaS is a relatively new model for implementing Software License Management. There have been innovations and other robust approaches to managing and enforcing software entitlements, which remain viable for many software vendors in many industries:

Self-Hosted or in-house solutions

It may make sense for a Software Vendor to run their own license servers, whether they developed the License server themselves, or implement a self-hosted license server from a 3rd party vendor on their infrastructure. If the vendor has simple licensing requirements and a capable technical team, they may just want to build a license server themselves.

Some vendors have such unique and specific requirements, that the effort needed to customize a third party solution might not be worth it. Don’t trust an LaaS vendor who says they can cover absolutely all use-cases, because they can’t. Lastly, many Software Vendors simply must run the license server themselves for either their own security and compliance purposes, or that of their customers. For these Software Vendors, relying on an external service (even if that LaaS provider is SOC2 compliant) is simply not a viable option.

Using Dongles for Hardware Locking

A very simple solution to Software Licensing is to require a hardware token connected to end user’s device in order to run the software application, such as a Yubikey. This makes “offline license activation” really easy compared to software-only offline activations. The downside is, of course, that the Software Vendor has to ship and manage hardware dongles for their customers, and this can create a lot of manual work. Such overhead is fine in many industries where a software-only licensing solution tends to be more of a hassle (especially when sharing licenses between devices), or where the trade-off between convenience and security simply makes dongles the more attractive solution.

What are the pros and cons of using Licensing as a Service

Pros:

Ease & Speed: It’s simply not so trivial to build one’s own license manager, and it can be a real pain to maintain the server if one is not in the business of License Management. The number one advantage to LaaS has to be that the Software Vendor can work on building Value into their own apps instead of having to figure out how to build and maintain a license server.

Cost: Cost of Self-hosted solutions, or building one in-house will almost always come with significantly higher Total Cost of Ownership to the Software Vendor ( at least if you choose LicenseSpring as your LaaS ).

Reliability: Given that a LaaS provider is building for many customers, their product offering will usually include capabilities that a software vendor might not have already considered. They will have a dedicated team in place to ensure that the service is dependable. Even if a Software vendor decides to spin up a license server to perform license checks, would they be confident it will run for the next 5 years without a few hiccups? Given Software Entitlement Server are critical infrastructure, service downtime could very well lead to SLA problems, or lost customer revenue.

Cons:

Compromises: Like any off-the-shelf solution, there is likely to be some gaps between a software vendor’s requirements and what is on offer. Sometimes these differences are trivial, sometimes they are not.

Lock-in: Once a License Entitlement Management Solution is up and running, it’s a huge pain to replace them. This dependency on the LaaS provider requires a lot of trust on behalf of the software vendor usually in perpetuity.

Integrations: Depending on what the distributed application is written in and where license data needs to be stored and processed, there might simply not be a reputable Third Party License Manager that can integrate with the Software Vendor.

What are important aspects of selecting a Licensing Vendor

We think there are a few key considerations when shortlisting an LaaS provider to create a PoC:

Trust / reliability: There are many factors that go into whether the License Provider can be trusted. The number of years in which they have been in business for, their country of origin, the number of employees and number of customers, whether they are they backed by a parent organization or through VC funding, are just a few factors to consider when reviewing the reputation of a LaaS provider.

Sophistication & Ease of Use: Does the LaaS provider support the license entitlement policies that the software vendor is looking to implement? Will it take hours, or months to actually configure? Can the process of issuing and managing licenses be automated? Is there an easy integration via APIs or SDKs for the client application?

Infrastructure: Does the LaaS vendor invest sufficiently so that licenses can be issued and validated around the world within an acceptable latency? Will their API be able to support Millions of requests per day, if that’s required? Do they perform stress tests? How about periodic penetration testing? Do they have disaster recovery in place, what about backups?

Privacy: Where is the data located, are they GDPR compliant?

Support: Does the LaaS provider offer support calls and workshops to facilitate the onboarding process? What is the turn around time for a support request? Do they offer an on-demand SLA? Do they add feature-requests to their backlog and to they publish their changelog?

Price: What is their pricing structure? Is it a percentage of licensed revenue (unfortunately, this common practice in the in the industry which we shun), per licenses issued, or some other (better) model?

Does LicenseSpring offer Licensing as a Service?

Although LicenseSpring is used as a self-hosted solution by some clients, it was designed from the ground up to be an LaaS. LicenseSpring is a relatively new vendor in the LaaS space, as it has been developed for in-house projects since 2015 and commercialized to a greater audience since 2017. We pride ourselves for our ease-of-use, our “self-serve” approach of providing extensive documentation and code samples, as well as pricing as a utility (per API calls) rather than as a percentage of revenue. We are GDPR-Compliant, and offer SLAs for enterprise customers.

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Edmon MorenLicenseSpring Co-Founder
Cofounder of PDF Pro Software ltd. and of LicenseSpring Software Inc. I live in Beautiful British Columbia. I want to build the best Software Licensing Company in the world.
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