Software license management: Types, benefits, & five best practices to know

Contract Management

Everything you need to know about managing your company's library of SaaS licenses and cutting costs using a centralized software license management solution.

Vendr | Managing your software licenses
Written by
Vendr Team
Published on
July 13, 2023
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There’s a good chance every business uses at least one SaaS software platform. And, if you’re like the majority, you probably have several SaaS contracts in operation right now.

For businesses working with many different applications, it’s easy to lose track of it all. A proper software license management system is critical to establishing control and getting the full picture of software spending.

To remedy possible overspending, this guide walks you through the definition of software license management, the types of licenses managed, and the benefits that proper software license management practices afford businesses.

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What is software license management?

Software license management, or SLM, is the process of tracking, organizing, controlling, and managing software usage across an organization. SLM is usually a branch within software asset management, and its functions revolve around cutting license costs and monitoring software usage. The SLM process is beneficial for both software developers and sellers.

For example, a dependable SLM system reminds you about an upcoming software license’s renewal data or the over or underuse of the software features you licensed. With complete clarity of company-wide software utilization, IT teams can better manage their future software investments and cut current software costs.

You see several aspects that need managing once you break down a software license into its components. To illustrate, a software license generally includes sections like:

  • Usage terms and conditions
  • Usage limitations
  • Restrictions
  • Disclaimers
  • Protections

Types of software licenses

Companies use five software license models for various software applications and business arrangements.

Public domain license

When software is in the public domain, anyone can use or modify it without restrictions. These licenses operate on a permissive basis, allowing for the adoption of the software into projects or applications as desired.

Using software with a public domain license is doable because copyright laws don’t protect it. However, it’s important to note that the definition of “public domain” can change by jurisdiction. These licenses are rare—they’re the exception, not the rule.

Lesser General Public License

With a Lesser General Public License (LGPL), developers can link to open-source libraries within their software. They can license the resulting code under any other license type, including proprietary.

With an LGPL, if you copy any part of the library into the code or change it, the original LGPL’s terms also apply to the developed code.

Copyleft

A Copyleft license, sometimes called a reciprocal license, is more restrictive and less commercially friendly than other license types, though that doesn’t mean it's entirely locked down. Under Copyleft terms, developers can modify the licensed code, combine it with proprietary code, and distribute any new product based on it.

Here’s the catch—these licenses need source code distribution for every new project. So the license of a proprietary piece of software, including a GPL-licensed code (General Public License—a form of free, copyleft license for software), needs distribution of proprietary source code. But exposing the source code to competitors or users isn’t something companies like to sign up for—so companies try to avoid using software with these licenses.

Permissive

Permissive or attribution-style licenses have the fewest restrictions on modification and distribution. They are one of the most commonly used license types.

It’s important to note that there are variants in preserving license notices, copyright guidelines, or trademark requirements.

Proprietary or commercial

Commercial or proprietary licenses are the most restrictive of all license types. These licenses are mainly used for commercial software where the copyright holder has variable conditions for granting any rights.

With a proprietary or commercial license, the software is ineligible for distribution or modification. The goal is to protect the software's creator's interests to ensure their work isn’t used without proper authorization.

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Features of software license management system

As mentioned, most solutions to a disparate workflow are resolved in a software license management system. Its cloud features are convenient, and it cuts out time-consuming processes while minimizing the errors that come with manual processes.

If you want to implement a software license management solution, here are a few key features to look for:

Interestingly, software solution pricing varies, with the most common model charging per user (sometimes called per seat) pricing. Other regularly used pricing plans include:

Benefits of software asset management

Proper software license management offers the following benefits.

Reduced costs and increased profits

With a software license management system, you can better understand the license and its use within your organization.

You can also discover if unused licenses exist or are being misused. This saves you from wasting resources, which reduces costs and increases profits.

Improved budgeting

With proper software license management, costs are easier to forecast and predict.

You can reduce costs by better controlling the number of licenses you pay for, and you can plan your budgetary needs by aligning software purchasing with your overall business strategy. This creates better decision-making than anticipating future software needs without using any historical data.

Upholding business compliance

A software license management system centralizes all your licenses in one accessible dashboard. Your IT team can say goodbye to disjointed manual processes filled with errors. Business compliance can be adequately upheld as visibility increases. This way, businesses are also steering clear of facing potential legal issues.

Risks of poor software license management

There are plenty of benefits to sound software license management. Unfortunately, many internal teams are still juggling the risks of poor license management. Are you experiencing any of the following in your organization?

Failing to pass random audits

Random software audits, or even internal audits, can happen at any moment to ensure software license compliance. If any violations are found, you are liable for the software cost plus a penalty fee that can stretch into the millions (depending on the software products).

Failing to pass random audits directly results from organizations failing to take a proactive approach to license management. Too often, organizations rely on software vendors to learn the crucial points of their licenses, which can have several negative consequences.

Incurring more expenses than necessary

Another risk of poor software license management is overspending. You can do extensive budgeting at the beginning of every month, quarter, or year, but if you don’t track your licenses, how can you know if your investments are optimally allocated to the right software solutions?

And if your license management workflows are decentralized, you have decreased license visibility, which ultimately means higher software expenses than necessary.

Decreased productivity

Without the right software license management software, the chances of overspending are good. It’s also harder to stay updated on software use if you’re dealing with things like shadow IT (software your organization uses and pays for that the IT department is unaware of).

When you renew a license fee yearly, a portion of the IT budget is bound to be wasted. Some licenses may not need to be renewed, and you could secure a better price if you committed to a longer term.

Without an SLM solution in place as part of a more extensive procurement process, buyer enablement becomes more challenging. IT teams might be missing the critical data to buy better software options.

Best practices for software license management

Let’s discuss five best practices for better software license management.

Collect information related to your software licenses

Create a list of your software licenses, including cloud and desktop applications, and collect them in one central source. Gather data on maintenance contracts and end-user license agreements, purchase costs, and the service fees of each license. This way, you can extract license data that is actionable.

Collecting all this information in one software inventory is no joke—it takes time and effort. Still, you can make it easier with a reliable software license management solution like Vendr.

Make sure you keep a record of everything

To stay in line with every requirement, ensure you know what documentation each vendor requires and match vendors with their respective license agreements. In other words, find a reliable way to keep a record of everything related to your licenses.

One of the most effective ways to do this is by onboarding software with license management features instead of trying to keep old-fashioned paper records. SLM is one of the most efficient ways to keep critical stakeholders know, surface important software license metrics, and execute effective software license tracking.

Track expenses

Create a breakdown of your software expenditures to clarify cost per user and cost as a whole. By running software license and usage reports, your IT team stands a better chance of tracking key expenses and eliminating unnecessary ones.

The good news is, being proactive about tracking licensing expenses now leads to more cost-effective license agreements down the road. Doing this at scale requires software with data and analytics features.

Set timely reminders

As your software stack grows, you can’t possibly keep track of every relevant entitlement at all times. Automate timely reminders for important dates like license subscription renewal, approval, and maintenance times to avoid mismanagement.

Failing to set such reminders can cause you to fall behind on compliance guidelines, software license life cycles, and renewals. This increases your chances of being penalized for non-compliance issues during an audit.

Incorporate software license management into your workflow

Investing in proper software license management should be a business priority. Effective software license management solutions create well-defined processes that ensure everything is managed according to regulations and company policy.

Do more with a software license management solution

As CIOs are tasked with internal growth initiatives that push companies forward, IT teams and their internal operations management results are taking center stage. This is steadily increasing the number of moving parts to consider and control.

Today’s growing organizations need a suite of software management tools that afford them visibility, enable them to optimize resource usage, and let them establish strategies for expansion. Regarding SaaS management, a real-time software license management tool like Vendr is worth integrating into your internal workflows.

Vendr is designed to optimize the software buying process and expertly help businesses manage their license with cost savings at the forefront.

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Vendr Team
Vendr Team
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Vendr's team of SaaS and negotiation experts provide their curated insights into the latest trends in software, tool capabilities, and modern procurement strategies.

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