Software License Management: A Guide for Software Vendors

Every organization dealing with technology must manage software across various aspects such as usage, procurement, and compliance. For software vendors, licensing and distribution are crucial for monetization strategies. LicenseSpring, a cloud-based tool, assists both software and hardware vendors in managing licenses efficiently. This article underscores the significance of Software License Management (SLM) across all organizational activities, including sales, customer support, and operations, emphasizing the necessity of a robust license management solution to streamline and secure software monetization processes.

What Is Software License Management (SLM)?

Depending on the context and the vantage point, the meaning of software license management usually pertains to 2 separate concepts:

For vendors that make software products:

Software Licensing Management (SLM) refers to the processes of issuing, keeping track of, monitoring utilization, providing support for, and generally managing licenses that are distributed to end-users, resellers, or other parties.

Actual software license management could be be as basic as a predefined list of keys that gets uploaded into an e-commerce platform. On the other side of the spectrum, fully-fledged platform that can handles provisioning, dispatching (by email or other means), collecting analytics and usage, providing piracy detection, and that is fully integrated to other services. Some of the primary activities involved in Software License Management for vendors includes:

• Provisioning of the Software Licenses
• Delivery of the licenses to the users (or resellers and distributors)
• Validation of authorized usage, such as activation, deactivation & revocation of software licenses
• Tracking software inventory: having a comprehensive and easy to retrieve records of which customer placed which order, which type and quantity of licenses belong to each order
• Sales and customer support tasks: modifying software license entitlements (adding or removing features), or resetting software license entitlements, as well as upgrading or downgrading license entitlements.
• Monitoring software usage: tracking number of time the application is run, installed, or a specific routine is used and for how long.
• Integrating Software License management into other systems, like CRM, ERP, Support Ticketing, Crash Reporting, or e-commerce tools. Integrations can streamline a whole sleuth of activities for a software vendor, increasing efficiency.

For organizations utilizing licenses (users of the software)

Software License Management (SLM) is the process of effectively managing and controlling the licenses and usage rights of software applications within an organization.

It involves software license tracking, monitoring, and optimizing license usage from their software inventory to ensure compliance with vendor agreements, legal requirements, and internal policies.

In this case, the primary goal of Software License Management is often to achieve cost optimization, minimize legal and financial risks, and enhance overall software asset management efficiency.

SLM is a subset of SAM

From the perspective of software procurement or users software, the term software licensing management is in fact a subset of software asset management (SAM). In this case, software licensing management refers to administrative overhead and compliance work including tracking installations, software usage, renewals, and making sure that the organization does not violate licensing agreements.

For software users, activities relating to Software License Management is usually a subset of Software Asset Management (SAM). For large companies, there are usually dedicated Software Asset Management Professionals, and a whole plethora of tools and services to optimize utilization of software, and ensure compliance with license agreements.

Why should you care about software licensing management anyway?

Whether they are Vendors or users, there are a few reasons why organizations should care about how they manage their licenses.

Why software vendors care:

• Increase Software Monetization opportunities: Licenses are almost always the primary form of revenue for an ISV, with professional services usually a distant second. Software License management is therefore one of the most important activities when it comes to monetization of the software being licensed. Proper license management software will enable an ISV to easily try new business models (for example: pay per use vs subscriptions).
• Improved Customer Support: Software Licenses are one of the main support issues that ISVs need to handle. There are many tasks a vendor's support team needs to handle, such as provisioning, resetting, upgrading or downgrading, disabling, licenses ISVs that do a good job at managing software licenses that they issue will see a decrease in support requests and will deal with them better.
• Gained Product Development Insights: The best software license management tools also track license software usage, and help the product management team learn what users are actually doing with the application.
• Reviewing license compliance with terms within software license agreements.

Why software users care:

• Keep track of (un)used licenses: One of the most rudimentary task of organizations that buy software licenses is to keep track of them, and know who is using which license. A small organization can probably get by with just a spreadsheet. Larger organizations will want something with a lot more detail. At the very least, knowing how many unallocated (unused) licenses that can be given to new employees, or stop paying for unused seats to achieve capital efficiency.
• Remaining complaint with license agreements: When dealing with a given commercial license, agreements typically have specific terms around how the software licenses can be used, and there are often penalties for non-compliance if caught during an audit. This can become very complicated without adequate software asset management tools that can act as a record of evidence.
• Optimize utilization of licenses: being able to properly monitor the usage of software licenses (who is doing what with it) can be an important exercise when planning contract renewals, and performing a cost/benefit analysis.
• Prepare for software audits by maintaining a record of actual software usage: Some vendors are notorious for requesting the ability to audit their software license usage within their terms of service. Maintaining a source of truth on tracking of software license usage, deployment can be an important part of passing these audits, and not having to pay fines or penalties, or when re-negotiating contracts when they are up for renewal.

Evolution of Software Licensing: From Origins to Today

The history of Software License Management is intertwined with how software was initially licensed, and decisions from that time still have ramifications present today.

At First all software was technically free and unlicensed: In the early days of computing, software was often considered a by-product of the hardware, which in the 60s and 70s tended to only be used by governments, universities, and large corporations. Software was almost exclusively custom built, for singular task and purpose, and for a single customer, to be run on a single machine, there was no need to put much thought on licenses being granted at the time.

In 1969, a key event in the evolution of software licensing was when IBM, under pressure from antitrust investigations, decided to unbundle its software and hardware sales. This decision led to the recognition of software as a separate entity that could be sold independently of hardware. This moment in time is what many scholars believe was the birth of the software industry in its own right.

The mid to late 70s and early 80s also saw the introduction of personal computers. The gradual adoption of personal computers within homes and offices came with a sharp increase in demand for software.

As a result, the world began to think about software intellectual property protection, and software license agreements began to emerge as a contract between the Software Vendor and the Software User. A whole new realm of concerns began emerging, with copy protection schemes to prevent unauthorized use, usage limits baked into the terms and conditions, EULAs (which stands for End User License Agreement) appearing in the 1980s, and Auditing rights appearing in the 90s. Most Commercial software in the 90s was perpetual, or offered as a site license (it could only run on a specific closed network).

The wholesale adoption of the internet in the 90s bought many innovations, as software could be delivered without a physical copy, while license validation and usage verification could also be handled online. Cloud Computing really started to take off in the 2000s, where users did not even have to care about the hardware running the software in order to use it, provided they had an internet connection.

In the 1990s, Digital Rights Management tools (DRM) began to emerge as a response to challenges posed by digital distribution and piracy.

The last 30 or so years also brought fourth several landmark legal and regulatory developments clarifying the role of software licenses, and making distinctions between a sale and a license:

• Adobe Systems Inc. v. SoftMan Products Company LLC (2001): Courts determined that software, even if it's a license, is a good, allowing the purchaser certain rights such as reselling the software (doctrine of first sale).
• Vernor v. Autodesk, Inc. (2010): This case further explored the distinction between a license and a sale. The court ruled that Autodesk's software transfer restrictions were enforceable under its license agreement, limiting the applicability of the first sale doctrine in certain software transactions.

The emergence of App stores for Mobile devices (the first being the App store by Apple, launched in 2008) has transformed the landscape further, centralizing software distribution and licensing, primarily for mobile devices developed by the maintainers of the app store (Such as Apple and Google with the Play store).

The journey of software licensing from its nascent beginnings to today's complex ecosystem reflects an ongoing adaptation to technological advances, legal challenges, and changing consumer expectations, with new innovations in the fields of IoT, VR/Wearables, and Large Language Learning Models, each bringing in additional considerations for software license compliance, management of software licenses, and preventing the usage of unauthorized software.

Benefits of leveraging Effective Licensing Management Software for ISVs

Vendors will see many benefits to optimizing their software license management procedures primarily revolve around improved efficiency

Reduced overhead:

Depending on the volume of licenses being managed, automating certain tasks such as issuing licenses in real time once an online order is processed, or giving the customer access to a portal that they can use to assign or unassign licenses can reduce work involved in provisioning, dispatching, monitoring.

Improved Customer experience:

From our experience selling a popular PDF Editor, we believe that the user does not think much about their software license except at the moment of purchase or renewal, or unless there is something wrong with their license. In general, software license management is one of the primary sources of support requests for ISVs, regardless of software quality. Having a straightforward approach to provisioning, issuing, dispatching, and modifying software entitlements is key for customers to be satisfied with your software.

Reduced piracy and unauthorized use:

It's well established that convenience is a large contributor to software piracy, as in people will pirate if acquiring and using digital goods legitimately is more difficult than going to a torrent site. Having a process in place to easily bind licenses to devices, and handling the many possible edge cases will reduce the incentive for legitimate users to seek pirated copies, while at the same time making unauthorized use more less .

Faster iteration on new business models:

If you can easily provision different license types through your software license management tool (perpetual, trial, consumption-based, bundled, or turning on/off functionality), you'll be able to quickly test and commercialize different business models. Although we believe that the quality of a software title is the primary contributor to the success of a software business, we also believe that the way a high quality software title is productized (also known as software monetization) is key in determining the success or failure of a business. In fact, failure to update and periodically review software monetization strategies has killed countess software companies.

Better integration with other parts of the organization:

Outdated license management software usually is difficult to integrate into your software title, often requiring writing a layer over their API. Similarly, middleware is often developed or implemented for integrations to CRMs, E-commerce, or support platforms. Modern License management software usually provides native integrations with the most popular of these platforms, and a powerful API that takes the pain out of building necessary middleware.

Better customer insights:

A great software license manager can also be used to track software utilization. Knowing how a prospect used a trial license can lead to more productive follow-up conversations when the sales team is attempting to convert them to paid customers. The product development team would also find it informative to know what are the most widely used functionality of the product, while the support team would gain to know what component of an app is causing an uptick in support issues.

Challenges in replacing a Software License Management tool

The main challenge we hear from established organizations that use an outdated software license management tool is inertia. Many companies know all of the many benefits their organization would have if they simply upgraded their license management software. It's not so simple for several reasons:

Switching software license management solutions is painful:

Importing licenses from one system to another, updating the interface between the licensed application and the new license manager, and then ensuring validation works often requiring several intermediate software updates is something no software vendor would do by choice, even if the new license management software is an order of magnitude better or cheaper. No one was ever fired for going with the status quo, one of our customers once told us when deciding to stick with an overpriced and inferior service to ours :)

Integration of a new software license manager is notoriously difficult:

Although we make it as seamless as possible, we acknowledge that given how deeply embedded the software licensing management tool like ours into the software being shipped, and all of the internal systems, it's not a trivial undertaking, as it requires careful planning, handling of edge cases unique to any of the software vendors that work with us. Most of our current customers came to us when their status quo was no longer tenable (like when the contract renewal tripled the cost).

Getting buy-in from internal power brokers:

As mentioned above, no one gets fired at a company for choosing an incumbent provider, even if it leads to a poor outcome. Selecting a vendor can at times be political within the largest companies.

Choosing the Right Software License Management Solution

There are a few key considerations when comparing software license management solutions. While every ISV might weigh criteria differently, here are some of the more important attributes to scrutinize:

Service Reliability:

The License Manager must not go down due to all of the upstream and downstream repercussions. Does the Software License management solution publish credible uptime (or report their downtime)? Do they communicate where their servers are hosted and what their disaster recovery and business continuity plans are? Have these plans been tested? What is their bus factor? Depending on your organization, you might want to ask them whether they provide managed self-hosting, or single tenancy options.

Security & privacy:

Business-critical data is stored within your software license management tools, which is why the provider's security posture is of utmost importance. Some questions you can ask include: does the software licensing management provider conduct regular penetration testing? Do they have ISO 27001 certifications or obtained SOC2 compliance? What is their general security posture, and how open are they at sharing this information with you? Can you really trust them with all of your customer data such as license usage and customer account information?

Complexity to implement:

Does the provider offer a trial account so that a thorough evaluation can be conducted? How difficult is it to get the software to interface with the software license management tools? How difficult is it to integrate the License Manager to other systems like the CRM, ERP, support tool, or recurring billing system?

Ease of use for agents / operators:

Remember, there will be many different people in your organization who will be interacting with the license manager, not just your developers. You might need to document how to issue and edit licenses for support staff, for example, while being provided with an intuitive platform is valuable. Similarly, a user portal can make the lives if your end users easier.

Richness of relevant functionality:

There are countless ways for licenses to be provisioned, delivered, validated, and tracked. Does the provider offer the feature set that is pertinent to your use case?

Pricing structure:

Traditional vendors will charge a percentage of licensed revenue. Others will charge per licenses issued. Others still will charge based on feature set and usage (this is what Licensespring does). It's important to understand the cost structure of the software license management system in order to determine if it fits within your business model.

Support & Documentation:

Understanding how much the vendor is willing to work with you to help with answer questions while implementing the solution, accept and implement new feature requests, and make available clear, easy to use documentation are all cornerstones to serious vendors that offer a software licensing management tool.

List of License Management software Vendors:

Here is a list list of all of the known vendors we track. We strive to make LicenseSpring the world's best software license management system, and recognize that part of the process of due diligence is comparing all available vendors.

Essential Features of a Software License Manager

An effective Software License Manager should encompass the following essential features:

• License Tracking: The ability to monitor and keep a detailed record of all software licenses, including the number of licenses issued, expiration dates, and usage information, software installations, etc.
• License Issuance and Management: The capability to issue licenses to end-users, manage license allocations, and handle license activation and deactivation.
• License Compliance and Reporting: Tools to ensure compliance with licensing agreements and generate reports on license usage, helping you identify potential issues and maintain software license compliance.
• Support for offline license activation and usage: Not all customers will have systems running in environments that have access to the internet at all times (or ever), so having an intuitive solution for license activation and validation (at the very least!) is often a pre-requisite.
• Flexible Licensing Models: Most in demand license models that are requested by ISVs include node-locking, floating, time-limited, feature-based, per seat, and consumption-based licenses.
• Software Version Management: Ability to manage different software versions and ensure that users are using the correct version according to their licenses.
• Ability to manage Evaluation Licenses: The option to provide trial licenses to potential customers, allowing them to explore the software before making a purchase decision.
• Module Management: The ability to activate or deactivate specific features or modules based on the customer's purchased license, enabling easy upselling and license customization.
• Customer Portal or Self-Service: A user-friendly portal that allows customers to view and manage their licenses, request license changes, and access relevant documentation.
• Integration and API Support: Compatibility with other business systems and APIs to enable seamless integration with CRM, ERP, or billing platforms for streamlined license management.
• License Revocation: The ability to revoke licenses from non-compliant or unauthorized users, ensuring your software is not misused.
• Security and Anti-Piracy Measures: Implement measures to protect against unauthorized copying or distribution of your software. While Copy Protection, Piracy detection, and code obfuscation can be whole specializations on their own, having some rudimentary capabilities (like any clock tampering, signatures and verifications, and control of transfers of software licenses from one device to another) are very nice to haves.
• Multi-Platform Support: Compatibility with various operating systems and platforms to cater to a wide range of customers.
• Scalability and Performance: The software should be capable of handling a growing number of licenses and users without compromising performance.
• Customer Support and Notifications: Timely notifications and support for customers regarding license renewals, expirations, and changes.

Further Reading:

• Software License Agreements: https://licensespring.com/blog/guide/software-license-agreement-basics/
• Software Intellectual Property Protection: https://licensespring.com/blog/guide/software-intellectual-property-protection/
• Software License Types: https://licensespring.com/software-licensing/software-licensing/
• Triumph of the Nerds, a fantastic documentary about the race toward developing and commercializing the personal computer ecosystem which interviews many of the pioneers of the time, covers a lot of the groundwork that was laid in terms of software licensing, whether it was open or closed source.