Business Brief:  Software Licensing

September 25 2009

To make sense of software license options, we’ll discuss the three most common: original equipment manufacturer (OEM), retail, and “open.”

OEM (Original Equipment Manufacturer)

When you buy a new machine from a major vendor (HP, Dell, IBM), you often can bundle in standard software at a deep discount, typically about 60% off the retail price.

For home users or very small businesses, these manufacturer-brokered licenses are a great deal. But for business users, there are two drawbacks. First, support is through the hardware vendor rather than the software company and is of variable quality. Second, the software is licensed to the machine, not to you, and can't be transferred. If you scrap the machine, the license goes with it.


Most of us are familiar with this model. You buy a license and get to install a specified number of copies of the software, either from a CD or via Web download. If you want to move the software from one machine to another, you simply uninstall and reinstall. If an upgrade to the program is released, usually you can buy it at less than the price of a new copy.

Buying retail is simple, which is always attractive. But, it has disadvantages:

  • Getting support can be a challenge.
  • Paying for upgrades (again, and again, and again) gets expensive.
  • Since each machine has its own copy, it’s easy to end up with different versions running on different systems.
  • Keeping track of upgrades (and upgrades to upgrades) becomes a costly hassle.

Open Licensing

For business customers needing five or more licenses, Microsoft offers this special license category; other vendors have their own versions. “Open” licensing is the software version of leasing a car: instead of buying a software package outright, you enter a “lease” with Microsoft to use it with a zero-dollar buy-out.

Open licensing offers more options for payment than retail or OEM. Businesses can pay up front, spread payments over the period of the contract, or simply “subscribe” to access without actually buying.

Open licensing (especially with software assurance — see below) offers multiple advantages in the business environment:

  • You can upgrade/downgrade at will to keep all your machines on the same version platform (saving management dollars and simplifying use).
  • Tracking and renewal of licenses are greatly simplified.
  • It’s scalable: Once you purchase five licenses, you can add more in any quantity.
  • Open-license programs typically include enhanced support, training, and other goodies you don't get with retail licenses.

What’s the downside? Some business owners suffer sticker-shock when they first see the price tag — the initial ante can run as much as twice retail. Prices drop substantially, however, when you renew the agreement, reducing costs over the long haul, and labor costs are drastically lowered. This makes benefits of open licensing hard to ignore for the business environment.