A Quick Introduction to Software Licensing for Businesses

In the contemporary workplace, it is inevitable that you’ll have to use a range of software tools to optimize your business operations. And if you do, chances are you’ll have to deal with software licensing in one way or another. Software licensing is essential since it dictates the guidelines for usage and redistribution of a piece of software. Without understanding how licenses work, you could be charged for breaching copyright law.

It is also important for the developers since it ensures that their property intellectual rights are protected. In addition, licenses are put in place to ensure that you don’t use the software for malicious purposes such as hacking, for instance. In this article, we’re going to address some of the fundamentals of software licensing.

Determines if the Product Meets Your Needs

However long and complicated software licenses may seem, it is vital that you read and understand the entire document. This will enable you to ascertain if the product’s terms of use and functionality will work for you as a user.

For instance, if the software license stipulates that the software is a single-user – meaning that it can only be installed on one of your workstations and not used in a network – and you needed software that could serve your whole organization, then the product might not be best suited for you.

Furthermore, the software may have restrictions on the type of user that can use the software. For instance, the software may be specified for non-commercial users. Others are meant for home users. Using such software in your business could eventually expose you to legal measures.

Therefore, understanding the software licenses of the software products you use in your business can help you avoid breaking the terms of use of the products. This will ensure that you steer clear of legal battles that could be very expensive and lead to loss of credibility.

Licensing Protects Intellectual Property

One of the most important functions of software licensing is to protect the developer. First and foremost, licenses ensure that buyers use the software according to terms of use and set parameters for resale and distribution. If customers are aware of the terms of use of the software and the consequences of breaking these terms, they are likely to use the software appropriately.

For instance, software products that are meant for home users will sell at a substantially cheaper price than those developed for use in a commercial setting. The logic behind this idea is simple; commercial users make a profit using the product while home users don’t.

Therefore, if a commercial user decides to use a home-based solution in their office, the developer ends up with the short hand of the stick. Software licenses are primarily here to protect developers from exploitation.  By using a software escrow service, developers can further protect their intellectual property from reproduction.

Types of Software Licenses

Software vendors use many types of software licenses. The most common for out-of-shelf software products is the end-user license agreement. This is a contract between the developer of the software or the developer’s representatives with the users of the product. The license stipulates the rights and terms of use that come with the purchase of the product.

SaaS, short for software as a service, provides another type of license. Most of the time, the license on SaaS products is valid for a specified period and ends when the user’s subscription expires. Therefore, users may be required to renew their licenses every month or at the end of every year.

This type of licensing is becoming more and more popular since you pay only for what you need. Also, SaaS licenses tend to be very flexible when it comes to scaling and multiple users. SaaS allows you to easily expand your license’s terms of use as your business grows.

Finally, some software licenses may allow what is called white labeling. This is where the developer of a certain piece of software allows another company to rebrand and resell the software as their own. This type of license is becoming increasingly popular as it allows new developing companies to save on costs and get their name out there without having to pay expensive development fees.

Choosing the Right Software License

If you’re a business in need of software, how do you know the best software license for you? Generally, the license best suited for you will depend on your business’s specific needs. Ask yourself: What is the number of employees that need to use the software? What type of business are you; for profit, NGO or not-for-profit?

For instance, if you think the software will be used by more than one user, it is best to get a multi-user license. This may end up being cheaper and more efficient than buying multiple copies. In addition, buying multiuser software may come with better information sharing and communication tools.

It is also crucial that you pay attention to phrases that may point to restrictions on the usage of the product. Make sure you understand all aspects of the license and identify hidden costs that may increase the costs of usage of the product. For instance, you may be required to pay an annual fee for maintenance and upgrades. Make sure you understand these costs before purchasing the product.

It is also critical to analyze the system requirement for the product to run optimally. At times, you may have to invest in more powerful hardware or increase things such as memory for instance. This comes with additional costs that you’ll eventually have to take into consideration


Software licensing dictates the usage and rights associated with certain pieces of software. Licensing is important for both the developers and the users of the software. It ensures that users understand how and if a piece software can be distributed. For developers, it ensures that their intellectual property rights are protected and plays a capital role in regulating the industry and encouraging innovation.