3 min read

The Basics of Software Licenses for Procurement  

I have been noticing lately that there have been several discussions inside the Procurement Foundry that were focused on navigating software renewals and gaining a better understanding of the basics of software licensing for procurement. In fact, there were so many conversations circling around this topic that I figured it would be a good idea to write an article covering some of the main, most important points. 

Understanding the Basics of Software Licenses for Procurement  

If you’re a procurement practitioner looking to renew a software agreement, it’s most likely something you are not looking forward to. You may even be dreading it entirely. This is because it is a known fact that understanding software licenses, particularly in IT procurement, can be pretty difficult. 

So, let’s start with the basics, broken down in layman’s terms with the help of good old Wikipedia: What the software license does is provide the user with the legal right to utilize the software in the licensed environment (whatever the license specifically states that it covers). If the software license is categorized as what is known as a free software license, the user may also be allowed additional rights, such as the ability to legally make copies.  

Let’s now take a closer look at proprietary software, which is also known as non-free software or closed-source software. This basically is used to describe computer software whose publisher or another entity has reserved at least some of the licensing rights. This reservation of rights allows them to use, modify, share modifications, or even share the software.  

The exact opposite of open-source or the above-mentioned free software, non-free software also is the category that patent rights falls under. As for freeware, as its name suggests, it can be used at no cost, such as, for example, free trial or what is called “freemium” software. Finally, with open-source software, which comes with a free software license included, users have the rights to alter and redistribute the software, without having to pay a single cent. 

What are Common Pricing Models? 

Software pricing models come in a vast array of options, many accompanied by sometimes hidden or surprise added fees that make the task of attempting to pick the right one daunting. In fact, data from a GetApp survey posted on getapp.com showed that among the most common worries businesses had weighing on them when looking for software was the fear of spending too much money, with 44% reporting pricing as being one of their main concerns when selecting software for their business.  

But it doesn’t have to be so scary, or overwhelming! Listed below are the most common pricing models broken down into simple, bite-size synopses: 

  • Named user pricing model: When a company wants all employees to have access to software at all times, they will choose this model, which requires that each user have a specific login (which will be supplied). 
  • Concurrent user pricing model: This model is chosen when businesses purchase a set number of licenses that can be used by an unlimited number of users. But there’s a catch: only the set number can be logged-in and using the software at the same time. 
  • Subscription pricing: This model is based on a time scheduled, rolling payment that is typically offered per month, but may also be offered on a yearly basis. 
  • Package-based pricing models: This model is when SaaS vendors present around 3-6 options, with one plan highlighted (usually indicated as the best value or most popular option), but it’s usually the plan that’s most profitable to the vendor. 
  • Consumption-based pricing models: a pay-as-you-go model that can be especially beneficial to companies that experience constant fluctuation in demand. 

Hidden Costs in Software Licensing  

As mentioned earlier, hidden costs cropping up is always a situation that companies dread. In order to help you stay mindful and navigate your way among these proverbial landmines, we have listed a few of the major hidden cost headaches here:  

  • Data migration: While it is possible to transfer data in-house, it can be a tedious process and many companies prefer to pay a vendor to take care of this task. 
  • Hardware and IT: This necessary duo comes at a pretty penny for on-premise software buyers that require their own servers. 
  • Maintenance and upgrades: Eventually, your software will need to be updated or periodically maintained at various times, which is why it is important to ask your vendor upfront if they charge extra fees for updates, patches, upgrade, and more. 
  • Training: While most software comes with web-based training included in the price, some vendors will charge for in-person training.  

Clearly, there is much to consider when choosing what is best for you, and hopefully this rundown of the basics of software licenses will help you narrow down your options to select what suits you best. Should you need further help, including staying abreast with the current trends and everything software-related, we at Procurement Foundry are always here to assist you. 

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