Licensed to Compute:  A rundown of software licensing options

July 12 2007

Software is like a car: you need a license to drive it. Licensing options can be a confusing area for businesses. Here, we'll discuss the three most common licensing models: Original Equipment Manufacturer (OEM), retail, and subscription-based.


Major equipment vendors (Dell, Gateway, etc.) offer this type of deeply-discounted software license as an added goodie when you buy a new machine. For example, if you order a new Dell workstation, you would be eligible to purchase the operating system and office-suite software at OEM rates, which tend to run about 60% off the regular retail price. While this sounds like a deal, OEM licenses have two main drawbacks. First, support is usually provided by the seller of the OEM package rather than by the software vendor, meaning you've got an extra layer of bureaucracy to wade through. Secondly, the software package is licensed to the machine, not to you, and can't be transferred. It's like having the driver's license go with the car rather than the driver. If you scrap the machine, the license goes with it.

These drawbacks render OEM licenses less desirable in the typical business computing environment. They're still a good fit, however, in very small business environments and home-user systems.


Most of us are familiar with this model. You buy the software (in a shiny box at the office warehouse, or online), and you own the license accordingly. If you want to move the software from one machine to another, you simply uninstall and reinstall. The disadvantages to retail licensing are (1) it tends to be expensive and to have a limited support-option lifecycle, and (2) the version you purchase is what you get. If there are major upgrades, you are not eligible for them. From the systems-maintenance point of view, there's the additional headache of version-tracking if upgrades upon upgrades are used. Different workstations are likely to have different versions of the software running.


Subscription licensing is based on a "lease" model where you pay a (typically) yearly fee to use the software. Any upgrades that are introduced during that time frame are included. You can also "downgrade" if needed, meaning you can use an older version if that is what your particular environment requires. Most of the subscription-based models are set up so that you end up owning the last available version of the software when the subscription expires, unless you renew and extend the program, which is usually advisable.

The subscription model conveys several key advantages to the typical business environment, and they increase with company size: It makes it easy to keep all systems on the same software version regardless of when you bought the machines. Keeping track of your licenses is simple. You get the enhanced support options that vendors offer to subscription licensees.

The main disadvantage is "out-of-the-box" pricing, which can give business owners initial sticker-shock. Doing the math, however, brings the cost back into the competitive realm, especially if you look at total cost of ownership. Renewing these subscription-based licenses is typically much less than the initial entry price, and over time this brings costs down while saving on systems maintenance costs. For the most small/medium-sized businesses, the benefits of the subscription model of licensing for all internal systems (including servers and workstations) are undeniable.