Understanding Software Licensing Models

01

Perpetual licences

A perpetual licence is a one time purchase that grants the right to use a specific version of the software indefinitely. This was the dominant model for desktop software for many years. The main advantage is predictability: once bought, the software keeps working without further payment. The main drawback is that updates, especially major new versions, are often sold separately, and older versions may eventually lose vendor support entirely.

When evaluating a perpetual licence, it is worth asking how long the vendor typically supports a given version, and what the cost is to upgrade to the next major release.

02

Subscription licences

Subscription licensing, often described as software as a service, charges a recurring fee, usually monthly or annually, in exchange for continued access. This model has become common for everything from office productivity suites to specialised business tools. Subscriptions typically include ongoing updates and support as part of the fee, which removes the separate upgrade cost seen with perpetual licences.

The trade off is that the total cost over several years can exceed the cost of an equivalent perpetual licence, and access generally stops if payments lapse. For software that is central to daily operations, it is worth working out the multi year cost of a subscription rather than judging it only by the monthly figure.

03

Open source licences

Open source licences grant the right to view, modify and in many cases redistribute the underlying source code, subject to the specific terms of the licence used. Common open source licences include the GNU General Public License, the MIT License and the Apache License, each with different rules about how modified versions may be distributed.

Open source software is often free to use, though some projects offer paid support contracts or hosted versions alongside the free code. The licence itself does not guarantee ongoing maintenance, which depends on the health of the community or company behind the project.

04

Per user, per device and site licences

Many commercial licences, whether perpetual or subscription based, are further divided by how usage is counted.

• Per user licences allow a named individual to use the software, often across multiple devices.
• Per device licences tie the right to use the software to a specific machine, regardless of who is using it.
• Site licences cover an entire location or organisation up to an agreed number of installations, often at a reduced per unit cost.

Choosing the wrong counting method for your situation can lead to paying for more licences than you need, or running afoul of the terms if usage grows faster than expected.

05

Compliance and audits

Larger software vendors sometimes conduct licence compliance audits, checking that the number of installations matches the number of licences purchased. Keeping accurate records of purchases, installations and user assignments reduces the risk of unexpected costs during such a review. This is particularly relevant for businesses using software across multiple offices or departments, where tracking can become difficult without a clear system.

06

Reading a licence agreement

Licence agreements are often long, but a few sections are worth reading closely: the scope of permitted use, any restrictions on transferring the licence to another user or company, the termination conditions, and any clauses about data ownership if the software stores your information remotely. Taking the time to read these sections before signing can prevent disputes later, particularly for software that will be used for several years.