The last 20 years have been a boom time for those within the technology space with startup going from zero to multi-million business in a couple of years. Observing this trend has led to yet further increase in the volume of these highly time-sensitive software products and Apps.
If you are among the many of people with a great idea and looking at launching a new software product, then one of the things you need to consider is how do you license it to maximize profit and keep value in the business if you’re thinking of selling the company on at some point.
There are several standard licensing schemes for software. Most of them depend on the software’s architecture and the intended market. I have compiled a list of those most commonly encountered. All of these different models have implications for the monetization of your software product.
Licensed per named user
Tied to a particular person. This license is popular for web applications and also for many shrink-wrapped desktop applications.
Licensed per installation/computer
This license allows the installation and usage of one computer. You need multiple licenses if a person is using the software on more than one computer. On the other hand, it is usually allowed that numerous persons use the software as long as they use it on the same computer. A Very traditional licensing structure where software installed directly on end user’s machines.
Licensed per client
Typically used in client/server architectures. You usually need to acquire a license for each client (called Client Access License or CAL in short), and in most cases, the server requires an additional server license. Very useful in situations where you have hundreds or thousands of users.
No license fees at all
Often case when dealing with open-source or freeware software. It is also increasingly popular when selling support for a particular software application is far more profitable than selling the software itself. Although not your model!
Licensed per developer
Not applicable to all products traditionally used in teams of developer they can be broken into small types such as floating license, concurrent users or named user.
The software product can be used by all persons on the same ‘site.’ A site can mean all persons in the same building, the same physical address or all persons in the company. This license scheme is often not used because of possible discounts like many people would think, it is used to make the licensing and license control easier for the purchasing party.
The software is accessed on multiple computers by multiple users. You just have to make sure that only one user uses the license at the same time. A floating license can make sense if you have a costly software product that the users just need from time to time. Floating licenses are usually offered in addition to other licenses and are more expensive in most cases.
Royalties per item sold
This scheme is only appropriate for software products that are part of other software applications or are sold as a part of a package.
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