Topic overview

Software licensing

Software licensing

Software licensing governs how your business can use the software it buys or uses. Every piece of software has a licence agreement which explains what you can and can't do with it.

You usually have to agree to the terms of a software licence either when you install the software, or the first time you use it.

Having the right licences ensures your business is using software legally. You can also save money by only buying the software licences you actually need.

What's in a software licence?

Every piece of software - even free software - has some kind of software licence. They're often lengthy and difficult to read, and usually cover these key points:

  • How many copies of the software you can use. Can you install it on to lots of computers in your business, or just one?
  • What organisations can use the software. Some licences are for charities, students or home users. These are cheaper, but can't be used by businesses.
  • How long you can use the software for. Perpetual software licences last forever. But some licence agreements expire unless you renew them.

A licence agreement may also include information about upgrading or reselling the software (resale is usually prohibited), and any steps you must take to activate the software.

Make sure any licence agreement meets your needs, and that you understand the restrictions and cost implications before agreeing to it.

Why software licensing matters

It's important you match your software licensing to the needs of your business. This will ensure you have the right number of software licences. With too many, you're wasting money - yet with too few, you leave yourself open to prosecution for using software illegally.

The right licence agreement can also make it easier to manage software in your business. For instance, some licences permit you to install software automatically across your computer network rather than needing to install it manually at each computer.

Types of licence agreement

When dealing with standard software, there are three main types of software licence:

  • Single user licences. These allow the software to be used on only one device. Single user licences typically come with boxed software or applications that are preinstalled on a new computer.
  • Volume licences. These allow you to use the software on lots of devices in your company. They normally specify how many devices ? although some 'site-wide' licences allow unlimited use at a single address.
  • General Public Licences. These licenses are used for open source and free software and allow you to share, modify and develop the software program.

If you're dealing with custom software which an IT supplier has developed for you, licensing may be handled differently. Your contract with the development company should specify what you own and how you can use the software.

In this situation, it's wise to ensure you own the software, any underlying computer code and the associated intellectual property outright. If you don't, you're likely to be reliant on that supplier and may find that you are limited in what you can do with the software in the future.

Choosing a software licence

Businesses with fewer than five computers usually find it's easiest to purchase single user licences for the software they need. However, some software publishers offer multi-user licences for a small number of users - if available, this is usually cheaper.

With more than five computers, volume licences are probably more effective. The cost per computer drops the more computers you have, and volume licences offer more options should you want to upgrade your software or allow more people to use it.

If you are using cloud computing services to access software, it is likely you pay on a subscription basis - usually per user per month. This option can offer greater flexibility, is cost effective as you only pay for what you need and is easily scalable.

Where software is provided as a service (SAAS), it is more likely that you will have a service level agreement with the provider rather than a licence.

However, always check the terms of any cloud computing service carefully before committing. You don't inadvertently breach the terms of use.

As software licensing can be a confusing area, it's usually a good idea to seek advice. After all, you don't want to pay for software licences you don't actually need.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.