Understanding Software License Management: A Guide for Software Vendors

Published on: August 10, 2022
LicenseSpring Guide
Table of Contents:

You're a software vendor that clocked in many thousands of man-hours in the development of your web app, SaaS, platform, or other software application and you are now looking for ways to share your work with the world!

If, like many, you are confused about what a license manager is and does, you're not alone!

Marketing material in the software industry tends to be unfortunately riddled with jargon, as it's sometimes difficult to understand what is being said.

My goal in this post is to help demystify what a software license manager is and can be, and how it fits in your process of distributing your software to its intended audience.

What Is Software License Management (SLM)?

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, tracking, and optimizing software licenses 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.

Software License Management Key Components

Key components of the Software License Management system may include:

  • License Inventory: Creating and maintaining a centralized database or system that records all software licenses owned by the organization.
  • License Compliance: Ensuring that software usage aligns with the terms and conditions specified in the licensing agreements and that the organization is not under-licensed or over-licensed.
  • License Tracking and Usage Monitoring: Keeping track of software installations, usage data, and license activations to identify potential compliance issues and optimize license usage.
  • Software Auditing: Conduct periodic software audits to verify compliance and identify any discrepancies or non-compliance with license agreements.
  • License Optimization: Identifying opportunities to optimize license utilization, such as reclaiming unused licenses or consolidating licenses for more efficient distribution.
  • Vendor Management: Managing relationships with software vendors, negotiating licensing agreements, and staying informed about license changes and updates.
  • Software Procurement: Efficiently acquiring new software licenses, considering the organization's needs, and avoiding unnecessary costs.
  • License Renewals and Maintenance: Tracking license expirations and handling renewals and maintenance to ensure continuous compliance.
  • Reporting and Analysis: Generating reports and analyzing license data to provide insights for decision-making and cost-saving opportunities.

Benefits of Software License Management

Software License Management solutions offer numerous benefits to organizations of all sizes.

Some of the key advantages include:

  • Cost Optimization: By effectively managing software licenses, organizations can avoid over-licensing or under-licensing situations, reducing unnecessary expenses and optimizing their software spending.
  • License Compliance: Software License Management ensures that organizations remain compliant with software vendors' licensing agreements and legal requirements, minimizing the risk of non-compliance penalties and legal disputes.
  • Risk Mitigation: Properly managing software licenses helps mitigate security and financial risks associated with using unauthorized or unlicensed software.
  • Efficient Resource Allocation: License management allows organizations to allocate software resources more efficiently, ensuring that licenses are distributed to those who genuinely need them.
  • Insightful Reporting: License management tools provide valuable insights into software usage, license utilization, and compliance status through detailed reporting and analytics, facilitating informed decision-making.
  • Increased Productivity: Streamlined license management processes lead to less time spent on administrative tasks, allowing IT teams to focus on more strategic initiatives, which can increase overall productivity.
  • Better Vendor Management: With an organized approach to license management, organizations can negotiate better terms and conditions with software vendors, leading to cost savings and improved relationships.
  • Software Asset Optimization: License management allows organizations to track and optimize software assets, ensuring that they align with business needs and priorities.
  • Easy License Audits: Being well-prepared for license audits reduces the stress and time involved in the auditing process, ensuring a smooth and compliant experience.
  • Control over Software Usage: License management enables organizations to control software usage and ensure that employees use authorized and approved software, reducing the risk of security breaches.
  • Scalability: As organizations grow, license management can easily scale to accommodate increasing software needs and license requirements.
  • Enhanced User Experience: License management tools can provide self-service portals for end-users, allowing them to manage their licenses efficiently, leading to a positive user experience.

Software License Management Best Practices

Best practices of software license management to follow:

  1. Centralize License Information: Maintain a centralized database or system to track and manage all software licenses, including license details, entitlements, and expiration dates.
  2. Regular Audits: Conduct periodic software audits to verify compliance, identify discrepancies, and ensure that licenses are being used appropriately.
  3. Automate License Tracking: Utilize license management tools and automation to track license usage, activations, and renewals accurately.
  4. Stay Informed about License Changes: Keep up-to-date with software vendor licensing policies, updates, and changes to ensure continued compliance.
  5. Educate Employees: Educate employees about software licensing policies and the importance of adhering to licensing agreements.
  6. Implement Self-Service: Provide a self-service portal for users to request, track, and manage their software licenses, reducing administrative overhead.
  7. Vendor Management: Establish strong relationships with software vendors to negotiate favorable licensing terms and understand vendor-specific licensing nuances.
  8. Document License Agreements: Keep detailed records of all license agreements and ensure they are easily accessible for reference and audits.
  9. Optimize License Utilization: Regularly review license utilization to identify opportunities for optimization, such as consolidating licenses or reclaiming unused licenses.
  10. Monitor Software Usage: Utilize monitoring tools to track software usage patterns and identify potential license violations or unauthorized installations.
  11. Standardize Software Procurement: Implement a standardized process for software procurement to ensure all licenses are acquired and managed consistently.
  12. Implement License Reconciliation: Periodically reconcile software installations with purchased licenses to identify any discrepancies or gaps.
  13. Enforce Security Measures: Implement security measures to prevent unauthorized software usage and protect against software piracy.
  14. Train IT Staff: Provide training to IT staff on license management best practices and tools to ensure effective implementation.
  15. Plan for Software Upgrades: Consider the impact of software upgrades on existing licenses and plan accordingly to avoid compliance issues.

What Is a License Manager?

Finding a definitive answer to this can be challenging because people often refer to two distinct systems when discussing software license managers.

To prevent confusion, we find it beneficial to present the two common definitions of what people generally mean by a license manager:

Software Asset Manager (SAM)

When you look up software license manager on Google or software license management tool review sites, most ads and top search results point to services offered by large enterprise companies (usually with deep pockets and oversized marketing budgets), and there are tons of companies to choose from!

SAM stands for a Software Asset Manager.

A SAM is a professional responsible for managing the entire lifecycle of an organization's software assets.

This role involves overseeing the acquisition, deployment, monitoring, maintenance, and retirement of software applications used within the company.

The primary goal of a Software Asset Manager is to ensure that the organization optimizes its software investments, remains compliant with licensing agreements, and minimizes any risks associated with software usage.

Key responsibilities of a Software Asset Manager may include:

Software License Management:

  • Tracking and managing software licenses to ensure compliance with vendor agreements and legal requirements.
  • This involves monitoring license usage, renewals, and negotiations with software vendors.

Inventory Management:

  • Maintaining an accurate inventory of all software assets used throughout the organization, including licenses, installations, and configurations.

Software Deployment and Procurement:

  • Managing the process of acquiring new software and deploying it to end-users while ensuring proper licensing and usage rights.

Software Compliance and Auditing:

  • Conducting regular audits to assess software usage and compliance with licensing agreements and identifying any potential risks or discrepancies.

Cost Optimization:

  • Identifying opportunities to optimize software spending, such as consolidating licenses or implementing more cost-effective solutions.

Software Policies and Governance:

  • Developing and implementing policies, procedures, and best practices related to software asset management to maintain consistency and control.

Software Retirement:

  • Properly decommissioning and retiring software assets that are no longer needed or supported.

Data Security and Privacy:

  • Ensuring that software assets comply with security and privacy regulations, especially when handling sensitive data.

Risk Management:

  • Identifying and mitigating potential risks associated with software usage, including non-compliance, security vulnerabilities, and improper licensing.

Reporting and Analysis:

  • Generating reports and analyzing them to provide insights into software usage, costs, and compliance status to stakeholders within the organization.

Effective Software Asset Management can lead to significant cost savings, improved operational efficiency, reduced legal and financial risks, and better control over an organization's software environment.

(Disclosure: LicenseSpring is not a SAM, and apart from a mild fascination with Larry Ellison, I have no affiliation with Oracle, the company.)

Software License Management Software (SLMS)

SLMS stands for "Software License Management Software".

This is a term that refers to a suite of software license management tools used by software vendors to manage the distribution and configuration of their software according to the terms of their license agreements.

Software vendors use SLMS for:

License Enforcement:

  • SLMS ensures that the software is used in compliance with the license terms. It can enforce restrictions on the number of installations, users, or devices allowed under a license.

Software Activation:

  • SLMS often includes mechanisms for software activation, where end-users need to validate their license before they can use the software. Activation can be done online or through other methods to prevent unauthorized use.

License Tracking and Auditing:

  • SLMS helps track the usage of software licenses, allowing vendors to monitor and audit how their software is being utilized by end-users.

Software Updates and Upgrades:

  • SLMS can manage software updates and upgrades, ensuring that customers have access to the latest versions of the software within the terms of their license.

License Reporting:

  • SLMS generates reports on license usage, compliance, and other relevant metrics, providing valuable insights for software vendors to make informed decisions.

License Key Management:

  • SLMS handles the generation, distribution, and management of license keys required for activating and using the software.

Anti-Piracy Measures:

  • SLMS may include anti-piracy measures to protect software from unauthorized distribution and use.

By using SLMS, software vendors can protect their intellectual property, ensure software license compliance and proper licensing, and maintain control over the distribution and usage of their software products.

SLMS typically include:

License Server

  • Responsible for license issuance and maintaining a comprehensive record of the licenses granted to individuals or entities for specific products, including entitlement details such as validity periods, activated modules, and the number of devices allowed to share a license.
  • The nature of this license server deliberately remains unspecified, as it could be a Cloud Provider offering (Licensing as a Service, LaaS!) or a self-hosted solution.

A Software Licensing API or Licensing SDK

  • This API is what you use to activate/validate a license, perform license checks, and generally configure the state of your application according to your license agreement for that given end-user.

LicenseSpring is a SLMS. We're also a LaaS (Licensing-as-a-Service).

(Disclosure: OK you got me, I've never heard of an `SLMS` before, I made up the acronym for that one. That said, I defend my initiative to distinguish between a SAM, and a Vendor License Manager, and VLM just doesn't sound right. I told you the industry is riddled with jargon!)

Who needs a Software License Manager?

Not everyone!

In almost every aspect, including usage metrics and compute cycles, open-source software remains the most widely adopted software licensing management model for software intended for external use.

The permissive nature of open-source licensing often obviates the necessity for account monitoring or enforcement tools, as the community is generally diligent in adhering to the licensing terms.

When distributing open-source software authored by oneself, it typically suffices to include the license agreement alongside the code. Here's an exhaustive list of them.

If you are engaged in the development and release of commercial software, you will probably require a mechanism to distribute licenses to your end users.

This entails tasks such as packaging the software with various editions, issuing trial licenses, enabling or disabling specific modules, revoking licenses for non-paying customers, and implementing measures to prevent unauthorized usage of your products.

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.

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.

Flexible Licensing Models:

  • Support for various licensing models, such as per-user, per-device, or subscription-based, to cater to different customer needs and business models.

Software Version Management:

  • Ability to manage different software versions and ensure that users are using the correct version according to their licenses.

Trial and 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.

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.

Which is Better, a Cloud-Based License Manager, or a Self-Hosted one?

I wrote a whole post on the merits of operating your license server vs. using a cloud provider.

Summary: If you prioritize extreme reliability, security, and prefer running your infrastructure, then Self-Hosted is the right choice. However, for most users, a Licensing-as-a-Service (L-a-a-S) option is likely a more straightforward, cost-effective, and superior management solution.

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.