If you have installed software on your home desktop, laptop, or tablet, you have likely scrolled through and approved 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 installed software.
In IT, there are many different licensing agreements.
In this article, we’ll explore software and hardware licensing and how they work. After reading this article, you’ll have all of the information you need to understand technology licensing agreements.
We write articles like this to provide relevant information to help small and medium-sized business owners like you make informed IT decisions for your company—whether you ultimately choose to work with us or not.
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.
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.
End-user license agreements (EULAs) are legal documents created by software developers and publishers that spell out how the software can be installed, used, shared, and modified.
Although EULAs primarily relate to software usage, they can also apply to hardware, especially in cases where the software and hardware are purchased as a bundle or are closely tied together.
There are three primary types of IT licenses: subscription, perpetual, and cloud-based.
Organizations often base their license choice on factors such as whether they prefer to absorb the costs as an operating expense or as a capital expense. For instance, subscription and cloud-based licenses are recorded as operating expenses, while perpetual licenses are typically capital expenditures.
Many companies choose subscription licenses because they allow them to spread costs out over time rather than have to 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 software. In return for the fee, you are given the right to use the product for the length of the subscription period.
Perpetual licenses allow a user the right to use a particular version of software indefinitely. It's important to note that while perpetual licenses allow the use of a specific version of software in perpetuity, it doesn't cover software updates and future releases.
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These types of licenses usually require a one-time, upfront fee. You would need to verify whether or not the fee covers upgrades, maintenance, and support.
Should a software version reach its end of life (EOL), you will likely need to upgrade to the latest version or purchase new devices to replace any existing devices that are incompatible with the new version of the software.
Many organization rely on cloud-based software licenses. With these types of licenses, software is managed and hosted by a cloud service provider (CSP) or the software vendor using a CSP.
This is a popular option for SMBs that want to use Software-as-a-Service (SaaS), allowing their users to access a wide variety of applications remotely over the internet rather than needing to install them locally on their individual devices.
Related Article: Pros And Cons of Software as a Service (SaaS) For Businesses
Cloud-based licenses make it easy for software vendors to modify software and quickly push updates to all of their customers. This way, you can be assured that you're always using the latest version with the most recent security and performance updates.
Some IT licenses cover hardware, others software, and some cover specific services.
Hardware licenses typically provide options so that organizations can select the specific features they want to align with their business needs.
Licenses for software typically cover the use of the software and support (including critical security patches and updates).
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 that are not included in a particular license.
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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, as a managed IT service provider (MSP), we routinely help organizations get a handle on their licenses. One common mistake that we frequently see organizations make is not staying on top of the number of licenses they are paying to use.
When an employee leaves, many organizations continue paying for the license for that user. When a new hire comes on board, they add on another license to cover the new employee. That means that they are effectively paying twice: once for the original user license and again for the new employee.
A best practice is to review the number of licenses and users, at least once a year, to ensure that you aren’t paying for more than what you need.
While each license is a minimal cost, if you're paying for 20 additional licenses that you don't actually need, for instance, then that becomes an unnecessary expense that can add up over weeks, months, and years.
Related article: Managed IT Services: What’s Your True ROI?
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.
If you have little or no internal IT staff and are wondering about your options for external IT support, check out this article Why Are More Small And Medium-Sized Businesses Using Managed IT?
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.
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