As with any intellectual property, the software belongs to the individual or group that owns it—either because they are the original developers of the software or because they purchased ownership of the software from its creator. Software licenses establish the legal framework that governs how that software can be used by those who purchase access to it. By clearly defining the terms of use, licenses provide advantages to everyone involved.

Benefits for software creators/owners

Software licenses safeguard owners’ interests by:

While all software licenses serve the same primary purpose—defining the legally accepted use of a particular software—not all licenses establish the same rules. Certain licenses impose strict limitations and specify harsh legal penalties for misuse, while others provide more flexibility, allowing users to alter or redistribute the software with minimal restrictions. At the same time, some software licenses may overlap or combine elements from different license types.

That said, the most prominent categories of software licenses are:

Proprietary licenses

Proprietary licenses are restrictive licenses that grant users limited rights to use the software under specific conditions set by the owner. Users cannot modify, distribute, or reverse-engineer the software without explicit permission. Typically, proprietary software is sold or licensed for a fee, with restrictions on how many installations or copies can be made.

Common subcategories of proprietary licenses include:

• Single-user / single-device licenses
  These limit the installation or use of the software to one user or one device. This is common in personal software purchases. 
• Enterprise licenses 
  Enterprise licenses are typically used by organizations and allow for software deployment across multiple users or devices within a company. They often come with support and update agreements, and the cost depends on the number of licenses or seats purchased. 

FOSS licenses 

Free and open-source software (FOSS) licenses allow users to freely use, modify, and share the software. Unlike proprietary licenses, FOSS licenses grant users access to the source code, enabling them to alter or improve the software as long as they comply with the terms of the license, which may include redistribution under the same license.

There are multiple variations within this category, often depending on how freely modifications or redistribution can occur:

• Permissive licenses
  Permissive licenses are among the most flexible types of FOSS licenses. They allow users to modify, use, and distribute the software with very few restrictions. Modified versions can be distributed under any license, including proprietary ones. This makes permissive licenses popular for businesses that want to incorporate open-source code into their proprietary software.
• Copyleft licenses
  These licenses are a stricter subset of FOSS licenses. They require that any modified versions of the software must be distributed under the same license as the original. Under a copyleft license, developers who use or modify the code must make their changes available to others under the same terms, ensuring that the software remains free and open. The most well-known example of a copyleft license is the GNU General Public License (GPL). 
• LGPL licenses
  The Lesser General Public License (LGPL) is a variation of the GPL, specifically designed to be more lenient. It allows developers to use and integrate LGPL-licensed libraries into proprietary software without the entire project needing to be open-source. Any modifications made to the LGPL-licensed library itself must be shared under the LGPL. 

Public domain licenses

Software in the public domain is not subject to copyright and can be freely used, modified, and distributed by anyone without any restrictions. While some software is released directly into the public domain, this is rare. Instead, many public domain software licenses, like the Creative Commons Zero (CC0), are designed to relinquish all rights so the software becomes fully open to anyone. 

Although they offer users similar flexibility to some FOSS licenses, the major difference is that public domain software is not subject to copyright—anyone can do what they want with the software without any restrictions or obligations. By contrast, FOSS licenses still apply copyright but grant users the right to freely use, modify, and distribute the software under specific conditions. FOSS licenses typically impose certain obligations, such as attribution or sharing modifications under the same license.

In addition to different software licenses, there are various licensing models that define how software pricing and distribution is used. These models determine how customers pay for access to software, the duration of use, and what services are included (such as user support or ongoing updates). Selecting the right licensing model depends on several factors, including how the software owner believes it will be used and the level of flexibility it will require.

Some of the most common licensing models are: 

Freemium license model

The freemium license model offers a basic version of the software for free while reserving advanced features and capabilities for paying customers. This approach is popular for attracting a wide user base quickly. By allowing users to access a free version, companies can highlight their software’s value and potentially convert a portion of free users into paying customers. However, this model requires a well-defined balance between what is offered for free and what incentivizes users to upgrade. 

Subscription software license model 

The subscription software license model allows customers to pay on a recurring basis, often annually or monthly, for continued access to the software. This model usually includes software updates and support throughout the subscription period, providing a continuous revenue stream for the provider while keeping the software relevant for the user. Subscription models also lower the initial cost for customers, which can make enterprise-level software more accessible.

Perpetual software license model 

A perpetual software license provides a one-time purchase that grants the customer permanent access to a specific version of the software. Once purchased, the user can continue to use the software indefinitely without the need for renewal fees. This model is straightforward for both the customer and the provider, and many users prefer the simplicity of owning the software outright. However, perpetual licenses typically do not include updates or ongoing support, which can leave users with outdated software over time.

Pay-per-use license model 

The pay-per-use license model charges users based on how much they use the software, often tracking specific usage metrics like time spent, number of transactions, or volume of data processed. This model is particularly common in cloud-based services and offers flexibility for customers who only need occasional access to the software. It allows organizations to tailor their spending to actual usage, which can be more cost-efficient than working in a subscription model. 

Consumptive software license model

Similar to the pay-per-use model, the consumptive software license model is based on usage, but it typically involves ongoing, variable fees that are tied to how much the customer benefits from the software. This model is typically used for services like infrastructure-as-a-service (IaaS) where usage may scale up or down over time. Although this more directly connects price to value, the variable nature of the consumptive model can complicate budgeting, as it requires close tracking and management of usage data. 

As previously stated, software licenses define exactly how, when, and by whom software and applications may be used. More specifically, software licenses define and outline the following: 

• Number of eligible users of the software 
• Dates and usage duration 
• Copyright infringement details 
• Contractual obligations of software provider 
• Problem mediation processes 
• Distribution permissions and limitations 
• Use rights, including modification and copying

Managing software licenses is a critical aspect of maintaining legal compliance and optimizing software use within an organization. On the other hand, failing to properly manage software licenses can lead to serious financial, legal, and operational consequences for organizations. The following are some of the most significant dangers associated with poor software license management: 

• Audit failures
  Inadequate license tracking increases the risk of failing software audits, which can result in hefty fines and legal penalties if end-user license agreements (EULAs) are violated. Both internal and external audits require clear documentation and compliance, and mismanagement can leave organizations vulnerable. 
• True-up costs
  Companies may face unexpected ‘true-up’ costs when software usage exceeds the number of licenses purchased. This often leads to expensive, unplanned expenditures as businesses are forced to pay for overages. 
• Increased software expenses
  Without visibility into license usage, organizations often overspend by purchasing more licenses than needed or renewing unused ones. 
• Operational disruptions
  When licenses are incorrectly allocated or organizations fail to track their expiration dates it can cause software downtimes or other operational interruptions. 
• Compliance issues and legal risks
  Overusing or under-licensing software can violate contractual terms, leading to legal action, fines, and damaged vendor relationships. 
• Underutilized software
  Purchasing software that goes unused drains resources. Poor tracking can result in businesses keeping licenses they don’t need, contributing to inefficiency and financial loss. 
• Data security risks
  When licenses are not properly managed, especially during employee turnover, former employees or unauthorized users may retain access to company systems. This oversight can create serious security vulnerabilities, exposing sensitive data. 
• Challenging procurement processes
  Without a robust license management system, IT teams struggle to monitor software needs, leading to inefficient purchasing decisions and shadow IT practices (where unauthorized software is used without any oversight).

In a perfect world, businesses would always be able to trust their customers to be fair and responsible in using their intellectual property. But while most customers have no intention of misusing proprietary software, undefined permissions, copyrights, and authorizations can lead to intentional or accidental infringement. Software licenses serve as a reliable safety net, protecting business and end users from dangers and legal penalties. 

More specifically, software license agreements provide the following advantages: 

Prevent software abuse

Unrestricted by software licenses, there is very little preventing users from copying, modifying, or even reselling proprietary software. Proper licensing ensures that the software is being used correctly, and that fair payment is going to the developer. 

Retain software ownership 

Software licenses allow organizations to ‘rent out’ software to their users, rather than selling it outright. The software creator retains ownership, and can dictate usage and distribution, and can license the same software to multiple users. 

Define liability 

Liability is a complex issue in software usage. Software licenses define liability and responsibilities, protecting users and vendors and ensuring fair liability in the event of an emergent legal issue. 

Disclaim warranties 

Sometimes users have expectations that cannot be fully met by the software they employ. In these cases, software licenses can provide disclaimers on warranties, further establishing responsibility and protecting organizations when problems occur. 

Terminate use when necessary 

Although it’s never good business to terminate or suspend user access without good reason, it is always a good idea to retain the right to do so. Including a clause in the software license that gives the organization the right to revoke licenses prevents time-consuming and potential-expensive disputes from erupting and provides more complete control over the proprietary software. 

Software licenses are vital to ensure that modern software vendors and their customers are protected and that proprietary software is being used correctly and in line with established practices. Unfortunately, navigating license complexity and building air-tight license management practices can be extremely difficult. ServiceNow Software Asset Management provides the solution and empowers organizations to: 

• Enhance oversight and minimize waste 
• Optimize IT spending and find savings 
• Reduce financial and litigation risks with license compliance 

Running on a single architecture platform, Software Asset Management provides powerful visualization tools for managing, prioritizing, and acting on compliance and cost issues. Additionally, detailed, yet easy-to-use dashboards allow for simple license compliance review, monitoring, and optimization.

Protect your business from compliance risks, while also improving outcomes and cutting spending. ServiceNow Software Asset Management makes it all possible.