Software License Management: A Guide for Software Vendors

Published on: August 10, 2022
Software License Management
Table of Contents:

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?

Depending on the context and the vantage point, the meaning of software license management usually refers to 2 different things:

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 as basic as a predefined list of keys that gets uploaded into an e-commerce platform, to a fully-fledged platform that can handle provisioning, dispatching (by email or other means), collecting analytics and usage, providing piracy detection, and that is fully integrated to other services. Licensing management software is often needed for most of these processes. A comprehensive software asset management tool can help manage software licenses, offer advanced automation, ensure maximum software investments, and integrate with existing IT infrastructure. Some of the primary activities involved in software license management for vendors include:

  • Provisioning of software licenses
  • Delivery of the licenses to the users (or resellers and distributors)
  • Tasks related to enforcing authorized usage, such as validation and revocation of software licenses
  • Tracking software inventory: having a comprehensive and easy-to-retrieve record 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
  • Monitoring software usage: seeing how users utilize the deployed software.
  • Integrating software license management to other systems, like CRM, ERP, support ticketing, crash reporting, or e-commerce tools. A software asset management tool can help in this integration, streamlining a whole sleuth of activities within the software vendor.

For Organizations Utilizing Licenses (Users of the Software):

Software license management 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.

The primary goal of software license management is to manage software licenses, achieve cost optimization, minimize legal and financial risks, and enhance overall software asset management efficiency.

This is accomplished by maintaining a comprehensive inventory of software licenses, monitoring software usage, and ensuring that the organization only uses authorized and properly licensed software.

SLM is a Subset of SAM

From the perspective of software procurement or user software, the term software licensing management is 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 are usually a subset of SAM. For large companies, there are usually dedicated Software Asset Management Professionals, and a whole plethora of tools and services to optimize the utilization of software and ensure compliance with license agreements.

Entitlements vs. Licenses

Entitlements represent the rights granted to a user or organization to access and use a software product. These rights may include the ability to install the software on multiple devices, receive updates and support, and access specific features or modules. Entitlements are often associated with purchase agreements or subscription plans.

Licenses, on the other hand, are legal agreements that govern the terms and conditions of software usage. They specify the scope of usage rights granted to the licensee (user) by the licensor (vendor). Licenses define parameters such as the number of authorized users or installations, usage restrictions, renewal terms, and compliance requirements. While entitlements outline the user's permissions, licenses enforce these permissions within a legal framework.

Why Should You Care About Software Licensing Management Anyway?

There are a few reasons why organizations should care about how they manage their licenses.

Why Software Vendors Care:

Vendors that are bad at software license management have high overhead bogging down their operations. Inversely, companies that are good at managing software licenses have many streamlined processes in place, reducing menial overhead on all, from product delivery, and customer support, to gaining insights through utilization, and improved revenue retention.

  • Increase software monetization opportunities: Licenses are almost always the primary form of revenue. Software License management is therefore one of the most important activities when it comes to the monetization of the software being licensed. A proper software asset management tool will enable an ISV to easily try new business models (eg: pay per use vs subscriptions) and ensure maximum software investments.
  • 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, and licensing 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.
  • Product development insights: The very best software license management tools also track license software usage, and help the product management team learn what users are doing with the application.
  • Reviewing license compliance with terms within software license agreements.

Why Software Users Care:

When procurement commits to software purchasing more expensive software licenses, or a higher volume of software licenses. In these circumstances, it is important to manage licenses well for several reasons:

  • Keep track of (un)used licenses: One of the most rudimentary tasks 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 can be given to new employees, or stop paying for their seats.
  • Remaining compliant 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.
  • 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. One example that I can think of is where an ISV sold licenses to sophisticated simulation software, whereby they allowed a limited number of simulations to run (so a Consumption-based licensing model). The customer, a large automotive manufacturer, wanted to know who, and in what department was conducting simulations, for many reasons. First was to know how to allocate the budget proportionally to different departments within the firm, as well as to ensure they were getting value out of the simulation software.
  • 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, and 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. The software was almost exclusively custom-built, for a 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 in 1969. 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 brought many innovations, as software could be delivered without a physical copy, while license validation and usage verification could also be handled online. Cloud computing started to take off in the 2000s, when users did not even have to care about the hardware running the software 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 forth 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 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 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. Utilizing a software asset management tool, such as license manager by license dashboard, helps manage software licenses, offers advanced automation, ensures maximum software investments, and integrates seamlessly with existing IT infrastructure.

Reduced Overhead:

Depending on the volume of licenses being managed, automating certain tasks such as issuing licenses 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, the user does not usually think much about their software license except at the moment of purchase or renewal, or if there is something wrong with their license. In general, software license management is one of the primary sources of support requests, regardless of software quality, about management of software licenses. 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 significant factor in software piracy. People are more likely to pirate if acquiring and using digital goods legitimately is more difficult than using a torrent site. Having a streamlined process to easily bind licenses to devices and handle various edge cases will reduce the incentive for legitimate users to seek pirated copies while simultaneously decreasing unauthorized use.

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. Failure to modernize software monetization strategies can, and has killed countless 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. A modern software asset management tool like License Manager by License Dashboard 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 is 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 outdated a 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. Of course, 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 :)

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.

Choosing the Right Software License Management Solution

There are a few key considerations when comparing software license management solutions. One important aspect is choosing the right software asset management tool. These tools, like license manager by license dashboard, help manage software licenses, offer advanced automation, ensure maximum software investments, and integrate with existing IT infrastructure. While every vendor might put different weight for different criteria, here are some of the more important attributes to look out for:

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 tell us 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 to sharing this information with you? Can you trust them with all of your customer data such as license usage?

Complexity 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 into other systems like the CRM, ERP, support tool, or recurring billing system?

Ease of Use for 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, and having an intuitive platform is very valuable.

Richness of Relevant Functionality:

A software asset management tool offers 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 license issued. Others will charge based on the feature set and usage. It's important to understand the cost structure of the software license management system to determine if it fits within your business model.

Support & Documentation:

A key aspect of serious vendors offering software licensing management tools is their willingness to collaborate with you. This includes providing support during implementation, accepting and implementing new feature requests, and offering clear, easy-to-use documentation.

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 of a software asset management tool:

  • License Tracking: The ability to monitor and keep a detailed record of all software licenses, including the number of licenses issued, expiration dates, 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 have.
  • 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.

Other Tools:

In addition to LicenseSpring, several other software license management tools are available in the market, each offering unique features and capabilities. Some notable options include:

Flexera

  • Headquarters: Itasca, Illinois
  • Country: United States
  • CEO: Jim Ryan
  • Years in Business: Founded in 1988
  • Product Overview: FlexNet is a licensing solution offered by Flexera that provides flexible licensing models, license enforcement, and usage tracking.

10Duke

  • Headquarters: London
  • Country: United Kingdom
  • CEO: Neil McHugh
  • Years in Business: Founded in 2010
  • Product Overview: 10Duke provides flexible and scalable software licensing solutions designed to meet the needs of modern businesses. Their platform, Zentitle, enables software vendors to implement various licensing models, manage entitlements, and protect their intellectual property.

Nalpeiron

  • Headquarters: San Jose, California
  • Country: United States
  • CEO: Tim Barker
  • Years in Business: Founded in 2006
  • Product Overview: Nalpeiron offers cloud-based licensing solutions for software vendors, enabling them to manage licenses, track usage, and enforce licensing policies. Their platform provides real-time analytics and reporting to help vendors optimize software monetization strategies.

Reprise

  • Headquarters: San Jose, California
  • Country: United States
  • CEO: Matt Christiano
  • Years in Business: Founded in 2006
  • Product Overview: Reprise provides flexible and scalable license management solutions for software vendors. Their flagship product, Reprise License Manager (RLM), supports various licensing models and offers advanced features for license enforcement and usage tracking.

Thales

  • Headquarters: Paris
  • Country: France
  • CEO: Philippe Keryer
  • Years in Business: Founded in 2000 (as Gemalto, acquired by Thales in 2019)
  • Product Overview: Thales offers software monetization and protection solutions, helping software vendors safeguard their intellectual property and maximize revenue. Their portfolio includes tools for license management, software protection, and anti-piracy measures.

Wibu-Systems

  • Headquarters: Karlsruhe
  • Country: Germany
  • CEO: Oliver Winzenried
  • Years in Business: Founded in 1989
  • Product Overview: Wibu-Systems specializes in software licensing and protection solutions for industrial applications. Their flagship product, CodeMeter, offers secure license storage, enforcement, and distribution, enabling vendors to protect their software against piracy and unauthorized use.

SLASCONE

  • Headquarters: Vienna
  • Country: Austria
  • CEO: Andreas Dangl
  • Years in Business: Founded in 2019
  • Product Overview: SLASCONE provides cloud-based software licensing solutions, empowering vendors to manage licenses, entitlements, and compliance efficiently. Their platform offers features for license enforcement, usage tracking, and customer insights.

License4J

  • Headquarters: Prague
  • Country: Czech Republic
  • CEO: Petr Dvorak
  • Years in Business: Founded in 2008
  • Product Overview: License4J offers Java-based licensing solutions for software vendors, supporting various licensing models and providing tools for license generation, management, and enforcement.

netLicensing

  • Headquarters: Munich
  • Country: Germany
  • CEO: N/A
  • Years in Business: Founded in 2015
  • Product Overview: netLicensing provides cloud-based licensing solutions for software vendors, offering features for license creation, management, and monetization. Their platform supports flexible licensing models and provides APIs for easy integration with existing systems.

Keyzy

  • Headquarters: Austin, Texas
  • Country: United States
  • CEO: N/A
  • Years in Business: Founded in 2020
  • Product Overview: Keyzy.io offers a simple and scalable solution for software licensing and entitlement management. Their platform allows vendors to generate and manage licenses, track usage, and enforce licensing policies effectively.

Keygen

  • Headquarters: San Francisco, California
  • Country: United States
  • CEO: N/A
  • Years in Business: Founded in 2019
  • Product Overview: Keygen provides a developer-focused platform for software licensing and distribution. Their tools enable developers to create, manage, and sell licenses for their software products seamlessly.

Further Reading:

Edmon Moren Headshot
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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