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Tim Colby

By: Tim Colby on April 07, 2023

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IT Software & Hardware Licensing: Why Understanding It Is Important

IT Support

If you have installed software on your home computing device, you have likely scrolled through and approved an end-user license agreement (EULA). This agreement, which you likely didn’t read, explains the terms you have agreed to regarding the license and use of the software. 

In IT there are a multitude of licensing agreements.

In this article, we’ll explore software and hardware licensing and how they work. 

As manager of the service desk at Kelser Corporation, I work with IT licenses every day and have an intimate knowledge of the different types of licensing agreements and how they work. 

I am often asked about technology licensing, so I’m writing this article to provide the information you need to understand technology licensing agreements. After reading this article, you’ll have all of the information you need to make the best licensing decisions for your business. 

Rather than convincing you to work with us, we believe in providing easy-to-understand information you can use to figure out the best technology solutions for your organization. 

The truth is there is not a perfect, one-size-fits-all answer. The best solution depends on your industry, your business goals, your security risk, regulatory and contractual considerations and a host of other factors.

What Is A License Agreement?

This may seem elementary, but just to be sure we are all operating from the same point of reference, the dictionary defines a licensing agreement as: a formal agreement giving a person or organization permission to use or do something.

What Is An End-User License Agreement? 

End-user license agreements (EULAs) are a legal documents outlining the rights that apply to the access, use, and maintenance of software and hardware.

Common Types of IT Licenses 

There are three primary types of IT licenses: subscription, perpetual, and cloud-based. 

Organizations often base their license selection on factors including whether they prefer operating or capital expenses. Subscription and cloud-based licenses are recorded as operating expenses, while perpetual licenses are typically capital expenditures. 

1. Subscription Licenses

Many companies opt for subscription licenses, which allow them to spread costs out rather than pay in full up front. 

With a subscription license, you pay a fee each month (or year) for a certain number of licenses based on the number of employees using the service. In return for the fee, you are given the right to use the product for the duration of the subscription period. 

2. Perpetual Licenses

Perpetual licenses provide indefinite, ongoing usage rights. They usually are based on a one-time, upfront fee. They may or may not include upgrades, maintenance, and support.

3. Cloud-Based Licenses

Many organization rely on cloud-based software licenses. With these types of licenses software is managed and hosted in the cloud

This makes it easy for software vendors to modify software, customize it, and quickly push updates to all of their customers, so that you always are using the latest versions with the most recent security and performance updates. 

What Do IT Licenses Cover?

Some IT licenses cover hardware, others software, and some cover specific services

1. Hardware 

Hardware licenses typically provide options so that organizations can select the features they want to align with their business needs.

2. Software

Licenses for software typically cover the use of the software and support (including patching and updates).

3. Service

While software licenses often cover service, there are also separate service licenses that can be purchased to cover expenses associated with things like monitoring, patching and updates.

Related article: How Can I Keep My IT Data Safe? (5 Tactics To Implement Now) 

Why Does Licensing Matter?

It is important for business leaders like you to understand licensing so that you don’t end up paying for more than you need

For example, in working with customers, I’ve noticed that many organizations don’t stay on top of the number of licenses they are paying to use. 

When an employee leaves, many organizations still pay for that license. When a new employee joins, they add on another license to cover the new employee. That means in effect that they are paying twice; once of the original license and again for the new employee. 

Best practice is to review the number of licenses and users at least annually to ensure that you aren’t paying for more than you need.

While each license is a minimal expense, if you have 20 licenses you are paying for but not using, that unnecessary cost can add up over weeks, months, and years.  

Related article: 5 Things Your IT Budget Must Include (And Why)

What’s The Bottom Line? 

After reading this article, you have a clear understanding of licensing agreements. You understand what they are, the common types of IT licenses (subscription, perpetual, and cloud-based). You understand what they cover (software, hardware, and services). 

Understanding licensing ensures that you get the best solution for your organization. It also can save you money and prevent you from paying for more than you need. 

At this point, you may be wondering which licensing option is best for your organization. Honestly, each option has its advantages and disadvantages. 

If you have an internal IT staff, they can help you decide which approach fits your business. 

No internal IT staff? Wondering about your options for external IT support? Learn the two main options for external IT support.

If you are considering proactive, comprehensive managed IT support services and want to explore your options with a person, click the link below and a member of our team will schedule a time at your convenience to talk about your technology pain points and explore whether we are a good fit to work together.

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Prefer to self-assess and see if managed IT support services could plug your technology gaps? Click the link below for a free self-assessment checklist you can use to:

✔️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

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About Tim Colby

Tim Colby manages Kelser Corporation's service desk. He has over 13 years of managed service experience working mainly in industries such as healthcare, finance, and defense. Tim specializes in server and virtualization infrastructure, audit and compliance readiness, and Microsoft 365 messaging and collaboration services.

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