Four Models of Software Licensing and Their Importance to Your Revenue

January 22, 2021

Story

Beyond the importance of securing your software lies the imperative function to license your application.

This ensures safe distribution and maintenance to your end-users, in addition to creating stable and increased revenue opportunities to you. Below are the three key models of licensing your application, the pros, and cons to each as well as use-cases where each licensing option may stand-out more than the others.

What is licensing?

Software licensing is a contract between the end-user and the creator/owner of the software application in which you are granted access to. Without this contract, your use and or access to this licensed application would then be deemed illegal through copyright laws and regulations. Items in this agreement will likely state the certain conditions of what you are and are not able to do with the application which can include but is not limited to:

• Costs – usually stated in other general locations

• Subscription periods

• Usage Counters

• Number of users that are enabled access to application

• Ability to inspect or adjust source code

• Terms of modifying and or distribution of application

At its core, software licensing is the offering of your application to end-users for certain time periods, usage amounts, and or simply for perpetuity in regard to which the application can only be used under certain conditions.

Perpetual Licensing

• What it is:

  • Perpetual licensing is the one-time purchase of an application. This form of licensing is sold once to the end-user and is not dependent on a time or usage basis as the purchaser has access to that program indefinitely. Large technology corporations in the early 2000’s utilized this method as it made it easy for end-users to make a purchase. It also gave customers satisfaction that they would be able to have access to the software indefinitely. However, as technology is rapidly changing and updating daily, many tech corporations moved to subscription-based licensing so that they could offer better support, updates, and lower prices.

• Examples:

  • Microsoft Office, Adobe Creative cloud and even Apple began the first part of the 21^st century using perpetual licensing and all with great success.

• Benefits To you:

  • Lower costs associated with maintenance and support

  • Large upfront purchase costs

• Benefits to end-user:

  • • Satisfaction of a one-time payment

    • Indefinite use

    • In general, use to the entire suite of products being offered.

Summary of Perpetual Licensing

As an end-user, those are items that are hard to beat and provide a lot of satisfaction as payments aren’t looming over them. They aren’t worried if they are going to have to renew and/or update their usage. For a longtime, being able to purchase a product for a onetime fee to grant me indefinite access was played a major role in my buying behavior.

Consumption or Usage-based Licensing

As the name implies, usage-based licensing is enabling a predetermined number of credits or tokens, for instance, which are consumed during each use of the application. This form of licensing is not the most popular in the technology world. However, it does generate immense end-user satisfaction as they are only paying as they need to use the application and are getting the greatest bang for their buck.

• Examples:

  • An example of usage-based licensing would simply be fitness app that gives the end-user access to 10 personal workout sessions. Each session then consumes 1 credit and once all used up, they can either purchase more at a discounted price and or wait until the next billing period.

• Benefits To you:

  • Generating a recurring revenue stream for the life of each customer.

  • Enable more direct customer support

  • Increase Security

• Benefits to end-user:

  • Great bang for buck and a personalized experience

  • Receive timely support and software bug fixes quickly and efficiently

  • Avoid unnecessary cyber threats

Subscription or Time-based Licensing

• Examples:

  • Time-based or subscription licensing is very popular in the streaming world, enabling the end-users access to your platform or application for a predetermined cost and timeline.

• Benefits To you:

  • Multiple revenue collection points for each consumer.

  • Increases customer retention

  • Increase ease to adapt or grow your market

• Benefits to end-user:

  • Decreased costs

  • Receive reliable and efficient support

  • Receive software patches updates and easily upgrade your suite

  • Unique user experience

Module or Feature-based Licensing

This form of licensing is utilized by taking one all-inclusive product and breaking it down into multiple products.  Feature based licensing enables rapid market expansion, increased revenue collection points through product tiers and innovative product offerings.

• Examples:

  • For example, you are selling a fitness application, rather than selling it all in one, you decide to implement feature-based licensing. In doing-so, you are now offering three features to your customers: counting calories, tracking workouts, tracking and monitoring heart rate. With this, you are enabling you end-users to purchase the features they need and or a combination of them all at discounted pricing and have generated three revenue collection points rather than just one.

• Benefits To you:

  • Generating a recurring revenue stream for the life of each customer.

  • Generate a user experience that is unique to each customer.

  • Prevent IT and Cyber Security threats that can harm your application

• Benefits to end-user:

  • Receive reliable and efficient support

  • Lower start-up costs

  • Easy to maintain and upgrade to other features when needed.

Summary of Feature-based Licensing

A conclusion explaining why simply licensing your software is important due to the added value and security but also include why time-based, usage-based or feature based provide additional revenue, increased customer satisfaction as well as increased security to your application.