What is Software Licensing?

By Carrie Schmelkin, TMCnet Web Editor

Independent software vendors are becoming more innovative than ever when it comes to the applications that they develop. Accordingly, the need to protect this intellectual property is increasing exponentially and properly monetizing investments now requires an all-encompassing and flexible software licensing solution.

Software licensing relies on a legal instrument to determine how software can be used and redistributed. A typical software licensing solution grants an end user permission to use one or more copies of the software in a way that would otherwise be defined as copyright infringement.

Software licenses can come in a variety of forms. Some software comes with a license when it is purchased by a consumer off the shelf. Others receive an original equipment manufacturer (OEM) license when the software is packaged with hardware. Software licenses generally fit into one of two categories: propriety licenses and free and open source licenses.

Proprietary licenses are for computer software that is licensed under the exclusive legal right of the copyright holder. When it comes to proprietary licensing, a main concern is and always has been piracy. Since software applications are so easy to copy, developers have to take proper steps to ensure they protect their products from illegal copying as well as illegal downloading.

Free and open source software licensing is for software that is a bit more flexible, as it grants users the right to use, study and change the design. 

With the market rapidly evolving, software licensing has become increasingly complex. While software vendors work to remain competitive and be leading innovators, they often grapple with how to make sure they are fairly compensated and that they retain all of their customers. According to Business Software Alliance and IDC (News - Alert) research conducted in 2009, 41 percent of software installed is illegal, costing software producers nearly $54 billion annually in lost revenue.

Software licensing is critical for application producers for a number of reasons: it helps their customers to stay in compliance; it provides flexibility in monetizing products based on configurations; it enables new licensing models such as Software as a Service (SaaS (News - Alert)); and it improves revenue recognition.