Types of Software Licenses for IT and Procurement Teams


A software license is a legal contract between a software vendor and a business—wishing to use the software. 

A software license defines terms, restrictions, and guidelines for both parties, particularly regarding the manner in which the licensee may use the software, how they will determine the usage cost and the extent to which the licensee may copy, modify or distribute the software. 

Software code is a specific series of instructions that directs the operations of a computer in accordance with a specific underlying process. Although the underlying technique, if tied to a novel invention, is patentable, in contrast, software codes themselves do not fall under the purview of patent law but rather under the purview of copyright.

The developer, who is the author of the code or a company that has legal rights to the code, has the authority to prevent others from copying the code through copyright. 

When a company or developer licenses its software application to end-users, it licenses the copyright.

Licensing is a preferred method to protect software IP by authorizing users to legally use the software.

A software license serves as both a contract and a key. It is a contract that establishes a software intellectual property agreement between the vendor and the user regarding how the software will be used. As a key, it permits the user to access the software and use it in accordance with the conditions of the software intellectual property agreement. 

If software codes are not protected by licensing, they can be easily duplicated, used, or distributed to unauthorized devices or users. 

Licensing helps protect software IP by issuing obligations to users that allow them to use the software in an authorized manner. Each license helps control the use of the software use, ensuring that every use complies with the contract.

Non-compliance with software licenses is a risky affair; it would not only take your rights away from using the software but there are also heavy penalties involved too.

Different types of software apps come with different types of licenses. While some software only has a single license attached to them, others are tied to multiple licenses. 

Hence, it is essential to have an understanding of different license types so you do not risk non-compliance. Additionally, knowledge of license types can help you make smarter decisions while negotiating software licensing terms and keep you in compliance with software contracts. 

There are three major categories of software licenses:

There are 3 major categories of Software licenses
  • Public Domain

  • Open Source

  • Proprietary 

Public Domain License

Public Domain License

Software in the public domain has no ownership and can be freely shared, modified, distributed, commercialized, and relicensed by the end-user with essentially zero restrictions. 

Public domain licenses fall outside the scope of copyright, the reason being copyright has expired, or it wasn't eligible for copyright protection in the first place, or it was deliberately made free.

Open Source Licenses

Open source license allows you to use, edit, modify and share an application's source code without obtaining permission from the developer, but it imposes certain restrictions. 

People often confuse open source as free to be used at one’s will, but it is not.

The types of open source licenses different software comes with — can get tricky. The originator of the open-source software owns the copyright, so it is obligatory for users to follow the terms mentioned in the open source license — the originator has released the software.

Non-compliance to open source licenses can cost companies millions of dollars in legal battles. 

Different types of licenses fall under this category, and they all vary in their legal requirements. So it's wise to know what each of these is trying to enforce. 

Types of Open Source Licenses

1. Permissive

A permissive open source license is similar to a public domain license, except it may impose additional restrictions on the end user’s ability to alter or distribute the software after it has been purchased.

Software developers benefit from permissive licensing because it allows them to keep ownership of their intellectual property and some control over how their software is used while also continuing to support the idea of open-source and even offering their product for free.

The permissive license allows users to do a lot with these licenses. They can use software with a permissive license, and on top of that code, they can even build proprietary code and make it a closed-source software, but the condition is-  you need to give credit to the author/ originator of the code.

Usually, there is also a warranty disclaimer that says the originator/ author is not responsible for changes made by the predecessor.

Let's have a look at some of the famous permissive open source licenses and what they intend to enforce:

Apache License 2.0: Apache License 2.0 allows users to do whatever they want with the software as long as they include the proper notices on files they change. It includes a patent license granted by the code's contributors, which states that each contributor grants a perpetual, no-cost, irrevocable patent license to use the software. If the users try to sue anyone over patents connected to the software, they will lose the patent licenses that everyone else has previously granted to them.

MIT License: MIT license is a concise permissive software license agreement. It states that you are free to do whatever you want with the software/source code as long as the original copyright and license notice are included in every copy. This license is available in numerous variants like Expat, which is common among javascript and python developers.

ISC License: It is again a concise and permissive open source license that lets you do whatever you want as long as you credit the original author and include the original copyright. ISC license is functionally similar to the MIT/Expat and the simplified BSD licenses.

2. Strong Copyleft aka Restrictive

This type of license is linked to the "free software movement." It grants the end-user four freedoms. Users can use and inspect the source code to make changes to the software. They can also share and distribute the modified software, but only under the same license that came with the original work. This is to make sure that the end-user will be able to do what the creator has intended.

In general, copyleft licenses don't stop people from making commercial software. They do, however, stop people from making proprietary software, which is different. Permissively licensed code can be used in copyleft projects, but not the other way around. If your software goal is aligned with the free software movement, then copyleft should be your top choice for licensing.

Mentioning below some of the famous strong copyleft licenses:

GNU General Public License v2.0 (GPL 2.0): GPL 2.0 permits you to copy, distribute, and alter the software as long as you maintain a history of changes/dates in the source files. Modifications to any software that includes GPL-licensed code (via a compiler) must likewise be made available under the GPL, along with build and installation instructions.

GNU Affero General Public License (AGPL): AGPL license is different from the other GNU licenses in that it was made for network apps. You can distribute updated versions as long as you keep a record of the changes and the date they were made. Any derivative works must be licensed under the AGPL like they are with GNU licensing. It has the same restrictions and freedoms as the GPLv3, but it also adds an extra clause that requires the distribution of source code with web publication. The AGPL is the GPL for websites and services (SaaS) because they are never distributed in the conventional sense.

3. Weak Copyleft

Allows end-users to alter the program and incorporate the modified version into a proprietary software product that they can license on their own terms.

Some of the commonly used weak copyleft licenses are:

LGPL 3.0 ( GNU Lesser General Public License v3):LGPL license is primarily intended for use by libraries. LGPL permits you to copy, distribute, and modify the software, as long as the modifications are described and licensed for free under the LGPL license. Only derivative works (including updates and anything statically linked to the library) can be released under the LGPL; however, applications that use the library are not required to be redistributed under the LGPL.

Eclipse Public License 1.0 (EPL 1.0): EPL is comparable to the GNU General Public License (GPL), but it permits you to link code under the license to proprietary applications developed and used by the Eclipse Foundation. In addition, you may license binaries under a proprietary license, so long as the source code is made accessible under the EPL.

3- Clause BSD License: The BSD 3-clause license gives you nearly limitless freedom with the software, as long as you include the BSD copyright and license notice in the work you distribute.

Mozilla Public License v2.0 (MPL 2.0): MPL 2.0 is a simple license that mandates you to make the source code for any of your improvements available under the MPL license; however, you can combine MPL software with proprietary code as long as the MPL code is kept in separate files from the proprietary code. You are permitted to distribute binaries under a proprietary license as long as the source code is made accessible under the MPL license.

CDDL 1.0 ( Common Development and Distribution License 1.0): CDDL 1.0 is comparable to MPL and EPL. Binaries can be distributed under a proprietary license as long as the original and updated CDDL source code is made accessible.

Proprietary Licenses

Proprietary software is the company's intellectual property. Proprietary software licensing takes away the freedom that is granted by open source licenses. 

The source code of proprietary software is hidden and belongs only to the company that has developed the application. The source code is privately owned and controlled. 

Copyright is used by proprietary software owners to deny its users the right to duplicate, edit, or distribute copies of the software. A proprietary license model is the best way for companies to protect their software in the long run and gives companies total control over their software, from its code to its features to its use. 

Proprietary software requires users to agree to an end-user license agreement called EULA, which is basically the terms and conditions for using the software. These terms are binding between the user and the company, and making any changes is forbidden.

EULA defines the relationship between the licensor (vendor) and licensee (user). It consists of terms related to the installation and use of the software. 

When it comes to SaaS, EULA often includes the following licensing terms:

  • Charges per user on a monthly or annual basis 

  • The duration of the contract 

  • Conditions of termination

  • Recovery of charges if the agreement is canceled in the middle

  • Terms of white labeling, i.e., if the licensee wishes to resell the product after rebranding 

Now let’s have a look at different types of proprietary licenses that are most commonly used by companies:

Types of Proprietary licenses 

1. Perpetual Software License 

A perpetual license is one in which the user only pays a one-time charge in a lump sum and then gains the right to use the copy of the software indefinitely. 

Additionally, the user may have to hire a resource to manage the software, which may include obtaining servers, fixing errors or bugs, etc.

When you buy a perpetual license, you can use it for as long as you want, but it's only practicable in theory. As the software becomes outdated, you need to seek annual maintenance- support, and upgrades, to keep up with the ever-changing technology and business needs, and that comes with an additional cost. 

2. Subscription-based Software License

Subscription-based licensing has become considerably more frequent as a result of the shift toward SaaS solutions and cloud-based applications.

In a subscription-based licensing model, customers pay a monthly subscription fee to access the software. It provides you the flexibility to scale the service up or down, depending on your requirements. 

There are various advantages to using a subscription license. Payments are spaced out evenly throughout the course of your usage of the service, and because the upfront expenses are often nominal, practically any organization can take advantage of subscription-based software. In addition, the vendor is responsible for all software updates and maintenance, allowing you to focus on running your business instead.

There are no additional charges with subscription licensing because it includes all maintenance, upgrades, and technical support in the subscription price.

3. Named User Licensing

Named licenses grant permission to use the software or platform to a certain number of people who have registered to use it. Access to the resource is restricted to a predetermined number of chosen people. 

In named user licensing, the number of licenses corresponds to the number of users in a one-to-one relationship. For example, software that is licensed in a firm with three named users can also be utilized by three registered users only if the product is licensed in the company with three named users.

It cannot be shared with other people but can be transferred.

4. Concurrent User Licensing

With concurrent licensing, the vendor allows sharing of user licenses. It gives the liberty to a group of users to use the application. Concurrent licenses allow you to set a maximum number of applications that can be used at the same time. This allows each person to use the resource, but only up to the number of times the limit has been set. With such a limit, it is common for more people to sign up than there are concurrent licenses.

5. Device Licensing

Some software vendors prefer to license their applications on a per-device basis rather than on a per-user basis. 

In this form of software licensing, the user is granted authorization to install and run the software on a specific laptop, computer, or data center device — whichever device is most appropriate for the application's needs.

Device licensing is a cost-effective alternative in situations where multiple employees share a single computer to conduct their respective jobs.

6. Network/ Floating Licensing

A network license allows all users and devices on a certain network to have access to the software. Though an unlimited number of people can use a network license, it can also be used to support a concurrent licensing model that limits the number of people that can use the same application on the same network at the same time.

7. Consumption-based/ Metered licensing

Consumption-based or metered licensing is one in which the software vendor charges licensing fee-based on how frequently users access specific features, data, or other tools inside an application. 

This type of licensing is usually invoiced on a monthly or quarterly basis based on the total amount of time they have spent using the functions. 

Manage SaaS License Easily With Zluri

Businesses today rely on SaaS applications like never before. The growing SaaS dependency demands a system to provide visibility on SaaS licenses. Having this visibility can give a lot of insights into the adequate use of licenses, such as under-used licenses, unused licenses for which you are still paying, and over-used licenses that go against licensing terms.

Licenses, SaaS apps comes with also require proper security and compliance measures in place. Without having clear visibility of your resources, you are incapable of devising a proper solution.

Implementation of Zluri- a SaaS management platform, can help you keep track of not only your SaaS resources- usage and spending, but also attached licenses and their renewals, all while keeping you SaaS compliant.

Book a Demo


Symptoms of an Unoptimized SaaS Stack (+ Solutions)

Shadow IT in the SaaS World - A Complete Guide

SaaS Vendor Management in 2023: The Definitive Guide

SaaS Sprawl - The Ultimate Guide

SaaS Operations - The Complete Guide


Symptoms of an Unoptimized SaaS Stack (+ Solutions)

In this post, we've discussed 7 symptoms of an unoptimized SaaS stack and solutions to optimize the same.

Shadow IT in the SaaS World - A Complete Guide

In this post, you'll learn about shadow IT due to SaaS apps. You'll also learn the most common types of shadow apps categories, shadow IT risks, and shadow IT benefits.

SaaS Vendor Management in 2023: The Definitive Guide

An obese SaaS stack leads to SaaS wastage. It's a disease! It not only causes financial issues but also gives you security and compliance problems. That's why you must keep tight control on your SaaS stack. And it begins with managing your SaaS vendors. 

SaaS Sprawl - The Ultimate Guide

When an organization has a large number of SaaS applications in its SaaS stack, it gives rise to SaaS Sprawl.

SaaS Operations - The Complete Guide

SaaS operations consist of procuring the right set of SaaS apps, managing access to these apps by users/departments, monitoring their usage, and offboarding them properly when they are no longer needed.

Related Blogs

See More

  • Why SaaS Governance is Critical to Reduce Compliance Risk and Save Money: A Data-Backed Study- Featured Shot

    Why SaaS Governance is Critical to Reduce Compliance Risk and Save Money: A Data-Backed Study

    Are you doing enough to manage compliance risk and protect sensitive customer data? Do you inventory the SaaS apps used by your team? Here’s how to win big by optimizing both.

  • What We Learnt Analyzing 150M+ SaaS Usage Transactions- Featured Shot

    What We Learnt Analyzing 150M+ SaaS Usage Transactions

    Zluri recently hit a ground-breaking record of analyzing 200M SaaS usage transactions. The process taught us a lot of valuable lessons that helped us make Zluri better every day.

  • What Makes Zluri the Most Accurate SaaS Management Platform- Featured Shot

    What Makes Zluri the Most Accurate SaaS Management Platform

    Zluri has the largest direct integration number, over 750 applications, and keeps growing every month.