Software Licensing

In this two part series on software licensing, we shall examine strategies of key software players and how to select the right policy. Just like bankers, insurance companies and investment companies, soft- ware firms nowadays have begun to adopt a multi-pronged strategy to license their products. Perhaps this is a result of increasing com- petition. For example, when Microsoft

Among software vendors, Microsoft has emerged as the company with a large number of licensing policies. We begin our quest using Microsoft as our first case study.

Product classification 



Before licensing strategies are fixed for a product, the software in question is classified into one of three categories: servers, systems and applications. Servers include the server platform and server-based applications such as enterprise collaboration and messaging. Application software covers office products, while system software is the desktop OS range. So, Win XP would come under 'system', Office XP 2003 would be an 'application' and Ex- change Server2003 would be 'server' software,

respectively. 

Per device or per user?



After this, they are assigned one of the two licensing modes- per device or per user. All system software is licensed per device. This effectively fixes the software you buy to that particular device

that you are buying it for. This is specifically true for OEM software (such as a bundled Win XP Home)

that should not be used with any other PC or laptop.

Application software is further classified by Microsoft into two categories: developer and non-developer. Developer applications are ones such as Visual Studio. Office

XP will be a non-developer application. Developer applications are licensed per user, enabling them to

be installed and used on multiple systems. So, if you have five developers and ten machines, you need to buy only five licenses and legally use your software on all ten machines- or even twenty if you add

more machines later. Non-developer applications are licensed per device, requiring you to purchase

as many licenses as you need computers to run them on. 

Special case: server software



Unlike system or application software that is only accessed from that machine, server software is designed to be used across a network. So, in such cases, you also need an additional type of license, Called CAL (Client Access License).However,when you first purchase a copy of server software, you get a limited number of CALs along with it. Server software may sometimes also be licensed on a per CPU basis, enabling them to be used freely on a network, without needing to buy more licenses as the number of clients/users increase.

This also makes it easy for CTOs and CIOs of enterprises to audit the usage of their software better. The per CPU model is best suited for use in an extranet or Internet deployment scenario, where the number of accessing users may be very large or beyond one's con- trol. No CALs are required in such a case, although the server-soft- ware operators may be required to buy and use extranet connectors to enable such use (as in the case of Content Management Server and BizTalk Server).

Volume licensing



An interesting and often misunderstood type of licensing is volume licensing. Let's dwell a while on this.

Microsoft takes into consideration three basic factors for grant of a volume license. One is the size of the organization, then comes the nature of the purchase itself and, lastly, how you plan to use it. Each of these is defined on a case-to- case basis by its designated licensing executives. Volume licenses are granted automatically when you have more than five PCs in an organization. This mode has three sub-categories: Open, Select and Enterprise Agreement (see the graphic). We shall now examine each of these briefly. 

Open licenses 



The customer has to order a minimum of five licenses, under any retail scheme. The basic Windows OS is not eligible for open licensing, although you can choose to upgrade it under this mode. You cannot purchase the first license of your OS under Open. Across the hoard, Open licenses give you between three and 18 percent savings over FPP purchases. Also, to rationalize between price gains and losses, depending on the price of the software (Exchange obviously costs a lot more than Win XP), a system of price-points is taken.

Select Licenses



The customer gets a license- based price discount purely on his forecasted purchases. At a mini- mum, Microsoft demands that you forecast a purchase worth 1500 price-points per pool (application, server or system) of software over a period of five years. At the end of each year, the forecasted purchases are compared with the actual and the contract may be terminated if below-par numbers are found. Li- censes already in effect however continue to hold good, but no new purchases are honored under the old agreement.

Enterprise agreement



This is basically like insurance, where you and Microsoft sign a le- gal agreement that covers every machine in your organization. Un- der the Enterprise agreement, every PC in your organization is covered for a period of three years from the date of commencement.

 In addition, every employee receives a free copy of software for use at home and that license will hold true as long as the Enterprise agreement is valid. Payments are treated just like insurance premiums and payable at the end of every year in systematic installments. If additional PCs are purchased, they are automatically brought under the net and the premium adjusted to reflect the new number.

Software assurance 



Consider this an investment in time. Software assurance works on the insurance (or AMC) model. You pay a small premium and in return the vendor makes sure all your systems remain up to date with the latest software for the entire duration of the assurance period. Usually, the monetary implications of an assurance agreement are a percentage of the licenses you have purchased. On average, this works out to 25 to 29 percent of the total licenses for every year. So, if you have five PCs, each with a copy of Win XP Professional running, you have in effect paid Rs 5,000 for two licenses each. Twenty five percent of this is Rs 1,250,and paying this annually will ensure you get Long- horn and whatever comes after that for free, for life. Of course, this is only available for enterprise customers. Customers also benefit from free software copies for training purposes and they can also post- order licenses depending on actual purchases, saving a lot of money.

Transaction and commitment-based licensing. Lower the purchase volume, lower are the commitment levels

Other Licensing Types



Not all software publishers follow this kind of a model and their policies are based on their own business sense and needs. For some it is the need to peacefully co- exist, for others it is to ensure easy auditability and management of licensed assets. The Open Community has brought forth a slew of modes like GPL, LGPL, SGPL, etc., making it sound complex. In the concluding part of this series next month, we shall look at what some other major software giants have to offer and also discuss up and coming models such as open source and community licenses.

Sujay V. Sarma



with inputs from



Deepak Shagrithaya. Microsoft