You almost never own software; you lease the right to use it. You may have perpetual (permanent) rights to use it, but that’s not the same as ownership. Your rights are limited to uses spelled out in the contract, and it’s these uses where most complexities arise in negotiations and related financial discussions.
Software publishers offer a wide range of licensing plans from la carte menus of options to a single choice. Consequently, you must know your needs in order to ask the right questions and to make the most informed licensing choices.
A good approach is to plan on usage changes and have contractual mechanisms that are flexible; otherwise, you’ll end up repurchasing software or re-licensing it, as the vendor dictates—both likely to be expensive propositions. During contract negotiations, create a spreadsheet model to use as a guide and input forecasts of current and future costs based on different licensing scenarios, such as an increase or decrease in number of employees, expansion overseas or switching to a different software vendor. For example, if you purchase a perpetual license for 1,000 users and your company grows to 2,000 users 10 years later, you won’t automatically have usage rights for the additional 1,000 employees unless your contract is flexible. The second 1,000 would be a separate transaction or an opportunity to negotiate a new deal for 2,000 users.
Know your needs
Term vs. perpetual: Know how long you need a license
Typically, SLAs feature either a perpetual or term license. Perpetual means you can use a version of the software under your licensing terms forever, without having to pay additional fees as long as you comply with the license terms.
Perpetual licenses are always preferred, but if a limited term is required, the best practice is to include the option to terminate the agreement and renegotiate terms (a smart safeguard in case prices go down) and a right to renew at predetermined rates and on the same terms.
Term licenses expire after a period of time. Application service providers (ASPs) and software-as-a-service (SaaS) arrangements are term licenses.
The choice between license types hinges on economic and software asset management factors. Pay close attention to renewal language and future pricing considerations. If the agreement automatically renews, require written notice prior to renewal with sufficient time to permit you to terminate.
Know who will use the software, where and how
Scope of use is the term referring to where and how the software will be used, and by whom. Scope of use can dramatically affect pricing. For example, home and office use may be more expensive than office use only. Unlimited use by a large number of people is sure to be more expensive than shared (concurrent) use by a fixed number or users. Software scope of use is generally tied to a measurable maximum—the purchaser’s number of users, employees, location, CPUs, power of CPUs or for a defined set of uses. The metric, or method of measuring software use, should be easily calculable and verifiable. Also be sure to calculate in your total the needs of users, such as outsourcers, consultants, temporary hires, overseas locations, remote or home use, not just your local personnel.
Low-cost, limited scopeof-use licenses can save money initially, but they come with heightened administrative burdens of monitoring and reporting. In the long run, the convenience of more expensive enterprise-wide usage rights, which require little or no administrative management, could be worth it.
Software applications that span companies and encompass hundreds or thousands of end users (e.g., e-commerce, IT service catalog or request applications) present more complex access situations. These should be detailed explicitly in the contract.
