Business leaders are constantly performing cost-benefit analysis. After all, everyone wants to find solutions that provide maximum advantages at a reasonable cost.
This is especially true when it comes to technology, which is essential to business, but often requires significant financial investment.
Like many business leaders, you may be looking for solutions that provide the tools you need in the most cost-effective way.
In this article, we’ll explore the advantages and disadvantages of licensing technology.
At Kelser, we work with companies just like yours to provide options for technology resources. But, unlike other IT service providers, we focus on providing the information you need to make the right technology decisions for your organization, rather than trying to convince you to work with us.
After reading this article, you’ll have all the information you need to understand the pros and cons of licensing technology services.
What Is A Technology Licensing Agreement?
In some ways, a technology licensing agreement is similar to a vehicle lease. With technology licensing, you pay an annual or monthly fee in return for the use of specific technology. Technology licensing agreements also may include ongoing maintenance and upkeep.
As with all licensing agreements, the contract gives you and your users permission to use someone else’s property under certain conditions.
Every agreement is different, so make sure you understand what’s included and what’s not included. When licensing technology, you typically pay for a certain number of “seats” or user licenses.
What Kinds Of Technology Can Be Licensed?
Licenses are available for IT services like network (or “infrastructure”) hardware and software.
1. Hardware
Hardware licenses grant permission for organizations to use features enabled in the hardware component. Such features may be enabled by the activation of functionality via a license code or by associated software that enables interaction with the hardware features.
2. Software License
A software license typically gives a certain number of people permission to use an installed copy of a specific piece of software. Such license codes may enable usage by an individual or multiple users.
Licensing Vs. Buying
Back in the day, individuals and businesses would purchase software and install it on their device.
When a new version of the software was released, you could choose to upgrade to the new version or continue using the old version. License codes associated with this licensing model are referred to as perpetual licenses. Today, this licensing model is still available but rare.
Nowadays, when you purchase a new device for personal use, you typically purchase licenses for the software installed on the device. And, business licenses typically cover a certain number of “seats” or users for a given fee.
Advantages Of Licensing Technology
Although users typically have a choice about licensing or purchasing technology, licensing does offer some advantages.
1. Flexibility
Technology licensing agreements often provide the opportunity to easily increase the number of licenses covered by your agreement.
Conversely, when renewing technology licenses, there is the opportunity to decrease the number of licenses covered by your agreement. This ensures you aren't paying for licenses that you no longer are using; yielding cost savings for your organization.
This flexibility makes it easier to adjust your costs based on your current requirements whether based on the number of employee or device counts.
2. Reliable Cost Structure
Licensing technology provides a flexible cost structure which can make budgeting for your technology needs easier and more predictable. It also eliminates the need to expend large sums upfront to access technology.
3. Updates
A licensing agreement typically provides no-cost upgrades within the same version of the licensed software, keeping the software up-to-date and patched against emerging threats, and adding features the software publisher adds to the application or service.
Related article: Why Do I Need To Patch & Update Business Software & Operating Systems?
4. Maintenance and Support
Your licensing agreement may offer the opportunity to purchase maintenance and warranty services.
These services may be expensive up front, but often end up paying for themselves as they commit the provider to certain reactionary services within a specific amount of time, minimizing your downtime in the case of a failure.
5. Versioning
License codes are also used by publishers to enable access to built-in features of the applications or services. So, you may install one version of an application and provide access to different feature sets by using license codes to enable various feature sets within the application.
What Are The Disadvantages Of Licensing Technology?
There’s no such thing as a free lunch, right? Here are some of the downsides to licensing technology.
1. Oversight
Licensing is not a “set it and forget it” arrangement.
Businesses need to stay on top of their agreements because many will lock you out if you don’t renew.
In other words, if you don’t renew the license on time, you will not be able to use the software. This can lead to downtime, which most businesses can’t afford.
2. Connectivity
Traditionally, software was purchased and activated with a perpetual license key and was then enabled forever in all circumstances. The licensing model typically requires the application to “call home” within a defined timeframe to maintain activation and functionality.
Thus, an asset that hosts applications under a licensing model may have to maintain internet access to maintain application functionality.
3. Overall Cost
As is the case with most things you don’t purchase outright, the long-term cost is likely more expensive than the good old days when you purchased and then owned the software. Software companies are in business to make money and this business model obviously is to their advantage.
What’s The Bottom Line?
After reading this article, you understand what a technology licensing agreement is, what kinds of technology can be licensed, and the differences between licensing and buying technology.
You have a full understanding of the pros of licensing technology (flexibility, reliable cost structure, updates, maintenance and support, and versioning). You also understand the disadvantages of licensing technology (oversight, connectivity, and overall cost).
The information you’ve learned will make you an educated consumer of technology resources.
If you have an internal IT team, they can help you decide on the best approach for your organization. If you don’t have an internal IT team or they don’t have a full understanding of your options, you may choose to partner with an external IT support services organization to help.
At Kelser, we offer a full suite of managed IT support services for a variety of businesses ranging from manufacturing to healthcare, finance to education, marketing to legal and more.
As part of our comprehensive and proactive managed IT services, we provide expert advice and counsel about the best technology solutions to meet the unique needs of our partners.
Read this article to learn more about managed IT support services: How Much Does Managed IT Cost? What’s Usually Included?
People often ask us if their business is too small for managed IT support. If you are wondering about that, read this article: Is My Business Too Small For Managed IT Support?
If you are ready to begin a conversation about your technology pain points and explore whether we are a good fit to work together, click the button below to set up a phone call with a member of our team.
If you aren't ready to start the conversation, click on the link below for a free tool you can use to determine if managed IT support services might be a good fit for you. This self-guided checklist will help you:
✔️Evaluate your current IT infrastructure and processes
✔️Identify your current IT gaps versus what your business needs
✔️Ensure that your organization has the technology it needs to be successful
