This article discusses the Top 3 Software Licensing Models – subscription license, perpetual license and consumptive license.

Software customers and publishers negotiate pricing based on both the perceived value of the application and how the application will be used.  The software licensing model defines how the product will be used.  Let’s define the top 3 software licensing models.

Perpetual license – a non-expiring license to use an application. The customer has no obligation to pay for support or update services.

Advantages: Simple to deploy and manage. Customers may be able to expense the purchase as capital.

Potential downside: Difficult to securely handle machine upgrades and software redeployment. Publisher is locked into the old license policy for years.  Customers may end up using very old software versions to save money if they elect to forego maintenance.  This in turn could lead to poor publisher reputation when software becomes outdated. For the customer, perpetual licenses require larger initial outlay.  For the publisher, perpetual licenses require a steady stream of new license sales to maintain revenues. Pressure to discount is high.

Subscription license – a renewable license, usually annual, including software support and updates during the coverage period. The license is automatically terminated unless it is renewed.

Advantages: Encourages steady, predictable revenue flow to publisher. Lower initial cost for the user, faster approval cycle. Allows for short-term rentals. License policy can be changed at renewal time. Limits license exposure to overuse when machines are decommissioned or upgraded. Customers are able to annually expense the budgeted license renewal fees. Less price discounting pressure. Encourages on-going client-vendor relationship.

Potential downside: Increased license management overhead. Requires accurate record keeping to manage license life cycle.

Consumptive license – This license has a periodic fee based on usage. Payment can be before or after use. Example cases: overdrafts, utility-pricing based on time or work done, etc.

Advantages: Maximum license and pricing flexibility. Price most closely related to value. Encourages steady revenue flow to publisher. Lowest initial cost for the customer. The customer is never denied a license.  License policy can be changed at any time. Customers may be able to expense the license fees as they occur, perhaps monthly. Least price discounting pressure. Encourages on-going client-vendor relationship.

Potential downside: Requires most license management overhead. Reliable license usage reports must be created periodically, and mid-cycle to check against budget. Licensing must be integrated into CRM or accounts receivable systems. Customers may have issues with privacy.

This Article Describes Cloud-Based License Management and in particular several problems solved by this approach.

Traditional floating licensing requires a license server installation on the end customer’s network. Although this deployment strategy is still the most common, you can improve the situation by moving the license servers into the cloud. Let’s look at the issues where Cloud-Based License Management can be of some considerable help.

The crux of the matter is that when you deliver licenses to your customer, you lose control. When you manage your customer’s licenses in the cloud, then you retain control. It’s that simple.

Some of the advantages of delivering licenses in the cloud are…

Customer Preference – Some customers don’t want to set up a license server. They feel this is the vendor’s responsibility. Most small customers don’t have in-house IT support. Licensing in the cloud eliminates the need to install and maintain the license server locally.

Reduce Support Time – Installing a license server can sometimes cause problems. Licensing in the cloud eliminates this task altogether.

Instant Revenue – The publisher can recognize revenue immediately. No more waiting around for the customer to track down the hostid of the server.

Use Anywhere – Your customer can run your software anywhere: on virtual machines, in classrooms, labs, at off-site training, and at trade shows, etc.

License Rehosting – Traditional floating licensing makes it difficult to securely rehost a customer’s license server when it fails or when it is decommissioned.  This is not an issue with licensing in the cloud.

Suspend/Reinstate Licenses – Traditional floating licensing also made it difficult to terminate or suspend licenses. With the license server in the cloud, you can easily deal with non-payment or lapsed subscriptions.

Modify license inventories – With cloud-based license management, it is easy to change license counts up or down, and handle version upgrades.

Usage-based licensing – Pricing software based on usage relies on accurate records. In traditional license server deployments, license usage data is collected at the customer site, making it difficult to collect. With cloud-based license management, the report log containing the usage data is on the cloud, not at your customer’s facility.

Always up-to-date – Your cloud-licensed customers take advantage of upgrades to the server software immediately when released. Backward compatibility of the client-side ensures this.

Failover Servers – Maximize license server up-time with automatic failover server setup, at multiple datacenters.

Post Use Billing – an alternative to Subscription or Permanent License Grants

There are situations where it is impossible to anticipate the level of usage of a software package before it is actually used.  In cases like this, a fixed number of permanent licenses or subscriptions may not satisfy your customer’s needs.  Many ISVs and their customers prefer a licensing option which allows the software to be used in excess of some predetermined limit, and then invoiced after-the-fact for the actual usage which exceeds this limit. This type of license model has been referred to as Pay-Per-Use, or Metered or Post Use Billing.

Of course, your life is full of real-world examples of post use billing: your water bill, your electric bill, etc.  Why not adopt this common model to software as well?

RLM supports most flavors of this license model with a combination of metered licenses and an authenticated usage report log.

RLM supports metered, or pay-per-use licenses, with the METER keyword in the license line. When you create a METERed license, the license server maintains a number of meters each with an individual count. When your application runs, the license server decrements the meter after each successful license checkout, and (optionally) periodically while the application continues running.  To utilize this effectively, the license server needs to be under your control, ie. not installed on your customer’s network.  RLMCloud is perfect for this, since you control the servers and hence the meters.

Alternately, you can issue more floating licenses than your customer has purchased, then use the report log to determine usage in excess of the purchased licenses.  At the end of the month, for example, you would invoice your customer for the excess usage.   This is possible because RLM’s usage report logs are authenticated  so that you can verify that they haven’t been modified.  Even better, if the license servers are under your control in RLMCloud, you have continuous access to the report logs.

By using a Post Use Billing license model in addition to your normal permanent or subscription licenses, you can help your customers utilize your software more effectively as well as increase your revenues.

Using License Management as a Pricing Tool

Do you want to maximize revenue while pricing your software in ways that make sense to your customers? A software license manager, such as the Reprise License Manager (RLM), is an indispensable pricing tool that can help you to design and enforce pricing models that are right for your customers, while giving you the flexibility to quickly adapt to new sales opportunities.

A License Manager Gives you Flexibility and Control
When a license manager is properly integrated into your software, it is able to interpret and enforce virtually an unlimited number of licensing and pricing schemes. You implement your licensing polices primarily by:

• specifying parameters in your licenses, and
• deciding how to handle unsuccessful license requests (to deny or permit use).

These two levers allow you to customize your license policies by product, customer type, location, etc.  You don’t need to maintain unique software builds for each case because licensing is mostly controlled by the license manager.  This also means that you are poised to quickly revise your policies to react to new business opportunities that crop up – without having to re-release your software.

What should I license?

First, you have to decide what to license. Usually applications are licensed as a whole using a single license, but in some cases you may want to license additional extra cost features. This helps to keep the price of your basic product low, while collecting extra revenue from the customers who value the advanced functionality. You may want to take this concept a step further to create multi-product “bundles” that correspond to common user types, or even support a tiered pricing model with “Basic”, “Advanced” and “Pro” versions to add greater pricing depth.

Which types of licenses?
Determining the right licensing model requires an understanding of how your customers use your products.  If your application is dedicated to a specialized niche purpose, you can use a named-user or node-locked license.  On the other hand, if the product is meant to be widely shared or used collaboratively, you might want to use floating or concurrent licenses.  If you support both types of licenses, then you can usually charge a price premium for the floating license, since it provides more value to your customer.  Price premiums can range from as little as 10-20 percent to a factor of three or more, depending on the type of software and how it is used. In general, it’s best to offer multiple license types because it helps you to deepen your account penetration by reaching more user types.

What is a “user?”
Defining the term “user” may sound like a strange exercise, but its meaning may have a profound effect on the scope of your licenses.  Getting it right means that your customers will use your software precisely as intended.  Question: should the same user on the same machine consume only one license of your software regardless of the number of copies he uses concurrently? Also, should a floating license that is used for only a short duration be allowed to return to the license pool immediately, or should the license manager force a delay to encourage the sale of more licenses.  As you can see, defining a “user” accurately is extremely important.  When defined properly in both your software license agreements and within your technical implementation you avoid confusion with customers about the scope of your licenses.

Should licenses expire?
Obviously, if you settle on using a subscription licensing scheme, you’ll want your licenses to reflect the paid license period, but even if you sell perpetual licenses, you may want to limit the duration of the license (start and end dates) so that licenses require periodic refreshment in the field. This can come in handy when you make wholesale changes to your pricing/licensing model at some point in the future (including switching license management vendors) – knowing that at a certain date, all old licenses will eventually expire.

Should licenses match a specific product version?
Although version numbers in licenses can restrict which application version can run, most publishers prefer allowing older versions of software to consume newer licenses, but not the reverse. Some publishers creatively use license version numbers to manage support contract periods.  For instance, a license that specifies a version of “2018.0101” would support any version of the application released before January 1, 2018. New licenses (with new “version dates”) are issued only to customers who renew their maintenance. Used in combination with a license expiration date, a license could permit permanent access to the latest version released during the user’s most recent paid maintenance period – without the license itself ever expiring.

“Post-use” licensing model
Another new source of revenue might be aimed at those customers who would rather pay for your software based on their actual measured usage. Again, a license manager is the perfect pricing tool for this because it can capture the details of the customer’s usage history allowing you to build accurate invoices weekly, monthly, or quarterly.  You could use a “post-use” model on a customer by customer basis, maintaining it as a revenue-positive alternative to your traditional licensing models used for the majority of your customers.  Perhaps you could sell a base level count of floating licenses to a customer, then use “post-use” billing to handle peak over-usage situations.  This creates extra revenue for the publisher and allows the customer to continue working during unusually busy times.

We’ve only scratched the surface here, so if you would like to discuss how license management can address your particular requirements in more detail, please contact us.

Count unique users of your application with the Shared Floating License.

We’ve discussed the floating license in a previous blog post.  A floating license allows a specified number of independent instances of your application to run anywhere on your customer’s network so long as that number does not exceed the predefined limit specified in the license.  But what if you want to allow each user to run multiple instances of your product, while still limiting the number of users who can access the product at the same time?  The Shared Floating License works well in this situation.

With a shared floating license, separate program invocations from the same user (or the same user on the same host) consume only a single license.

To implement a shared floating license in RLM, specify a license server with the SERVER line, and set the count field of the license to a positive integer.  The license itself has no associated hostid, meaning that it will run anywhere. The license should also have a “share=” attribute, and the value is any combination of the letters “u”, “h”, and “i”.

With a shared floating license, you have a good bit of control over the actual sharing of the license.  You can share the license across invocations of your product that have the same:

• username
• hostname
• isv-defined string

or any combination of those 3 parameters.  So, for example, you can share a license requests from the same user on the same host by specifying the share= parameter of the license as “share=uh“.

In addition, you can limit the amount of sharing that is allowed.  For example, if you want to allow up to 5 invocations from the same user to share one license, but the 6th invocation to consume an additional license, specify “share=u:5“.

Shared Floating Licenses work well for interactive applications where the user will naturally bring up multiple copies to get a job done.  In this case, consuming a single license for multiple invocations seems like a natural and fair way to license your product.

Named User Licenses – Let your License Manager build user lists dynamically

Floating licenses are the most versatile of the license types. When available, anyone on the network with access to the license server can get a license to run. This is tremendously powerful for the software user, but there are times when software publishers want to sell the convenience of floating licenses while enforcing a more restricted license model. Named user licenses do just this by restricting access to users who are on a list.

Business Benefits
The benefit of named user licenses to the software user community is that their regular software users will not have to contend with other users for licenses. The licenses are in effect dedicated to the group of named users.  These licenses may also be less expensive than floating licenses. The publisher, on the other hand, benefits because he can sell named user licenses, perhaps at a lower cost, that better match the spirit of his license agreement.  If he chooses, the publisher can still sell unrestricted floating licenses, but at a premium to the named user type.

Names can be Dynamically Assigned
In Reprise Software’s RLM, named user licenses allow publishers to require that user names be included on a list in order to use the licenses. The list can be assigned by the system administrator, or RLM can create the list “on the fly.” The number of users in the list can be less than, equal to, or greater than the number of licenses available – all at the publisher’s option. Once a user is added to the list, he can be deleted, but once deleted, he must remain off the list for a minimum number of hours (24 hours by default). This prevents the manipulation of the system in an effort to defeat the named user license policy.

If the number of named users is smaller than the number of licenses, then this small group will share the larger pool (assumes that it’s feasible for a single user to consume more than one license at a time).  If the number of named users is greater than the number of licenses, then the larger pool of named users will contend for the available licenses.

The “How To”

To deploy a named user license, the publisher does not need to modify his RLM-enabled application at all; it’s controlled in the license certificate itself.  To create a named user license the named user keyword is simply added to a standard floating license certificate, in one of the three following ways:

named_user – to require the same # of users as there are licenses
or
named_user=n – to require a maximum of n users to be named
or
named_user=”n min_hours” – to require a maximum of n users to be named, and to specify the minimum number of hours before the deleted user name can be re-added back to the list.

Managing the List
As was mentioned earlier, the license server can construct the list of users automatically as license checkouts occur, or the list can be entered via the RLM web interface by the end-user administrator. If entered manually, either individual user names or GROUP names (as defined in the server options file) can be used.

Named user licenses utilize the INCLUDE functionality of the license server, and do not need a fully populated list of users before the licenses can be used. In fact, no users need to be specified since the license server will add users who do not appear on the list if the current list size is less than the number of allowed named users.

The Floating License – The most common license model

Last time we discussed the nodelocked and nodelocked counted licenses, which are license grants that allows your software to be used on a particular computer, and on that computer only.  A far more common license is the floating license.  The floating license is what made license managers famous, and it is supported by all major license managers. A floating license allows a specified number of independent instances of your application to run anywhere on your customer’s network so long as that number does not exceed the predefined limit specified in the license.

The floating license was originally made popular when we developed FLEXlm at GLOBEtrotter Software; in particular, Sun Microsystems’ use of floating licenses for their compilers made most software developers aware of the power of this license model. 

As we discussed in our blog post describing the nodelocked license, having several license models in your price book allows you, as a publisher, to price differently depending on your customer’s situation, which allows you to capture the optimal amount of revenue for a particular customer.  Nodelocked uncounted licenses may be appropriate for some of your products, while floating licenses are more appropriate for others.  A mixture of floating and nodelocked licenses can help maximize revenues depending on your customer’s situation.

If your application is meant to be used collaboratively, you might want to use floating licenses.  If you support both nodelocked and floating licenses, then you can usually charge a price premium for the floating license because its usage terms are less restrictive.  Price premiums can range from as little as few tens of percent to a factor of three or more, depending on the usage profile of the software and how it is shared. In general, it’s best to offer multiple license types because it helps you to expand your account penetration by reaching more users.

To implement floating licenses in RLM, specify a license server with the SERVER line, and set the count field of the license to a positive integer.  The license itself has no associated hostid, meaning that it will run anywhere. The license server (specified by the SERVER and ISV lines) keeps track of the number of instances in use.  A floating license always requires a license server, so it is the next step up in complexity from nodelocked licenses.   RLM-Embedded does not support floating licenses.

Next time:  token-based licenses.

Creating Software Trials without the Internet

Most software vendors offer trial copies of their software to potential customers for short-term evaluations.  The trial may run in full or reduced-functionality mode, but only for a short time, 30 days or so.  Sometimes, they want to create software trials without the Internet being available.

Ideally, the evaluation/trial starts when the user is ready, not when he/she first requests the evaluation.  While it’s possible to use an on-line activation system to implement the “start when I’m ready” functionality, that of course requires an Internet connection.

Commonly, vendors use an Internet activation system such as Reprise’s Activation Pro to authorize trials. This works well when the customer has an Internet connection, but what do you do when there is no Internet connection? For instance, what happens if the user is flying at 35,000 feet, or simply has no Internet connection?

RLM offers a capability called “detached demo” to handle this case. Through RLM, your application creates a short-term license that authorizes your product to run for ‘n’ days… without an Internet connection. After the demo period ends, RLM ensures that the user can’t reinstall the demo on the same machine. It allows one demo period only.

The benefits to this approach are clear – when the user is ready to test your software, he gets access for the full n-day period, even when disconnected from the Internet. This experience creates higher customer satisfaction, reducing the common claim: (“I couldn’t find the time to test, can you please send me a new eval key?”) and should result in a increased sales.