software licensing

One of the biggest, and sometimes costliest mistakes that we see businesses make today is failing to consider the cost of software licensing when purchasing new hardware or software for completing business tasks.  These days licensing costs, for many, are a cost of doing business.  But what is software licensing and how does it affect my business?

First, it’s important to understand that when you purchase a piece of software, you don’t own the software: you are purchasing a license to use the software.  Most software requires a license key to be installed in order for the software to function correctly.  Other software only requires you to hold a paper copy of the license that you could produce in an audit.  Regardless of how licensing is set up from a software vendor, it is important to make sure that you are compliant with the licensing terms set forth in the software you are using.

Second, it’s important to not overlook all the software licensing requirements when purchasing software.  Some software packages, especially ERP or other business management systems, require database software that usually has additional software licensing requirements that must be met.  I personally know of several companies that did not take this into account when they were implementing an ERP system and the project ran significantly over budget because of the cost of properly licensing the database software.

There are a couple of different licensing models that you need to be aware of:


Perpetual licenses are licenses that you purchase, and you own for the life of the product.  Perpetual licenses often have a high cost to purchase initially and then don’t have any additional cost unless you are paying for support. This model of license is starting to die off as more software vendors are moving more to subscription-based licensing.  Windows operating system licensing (Windows 7/10, Server 2012/2016) are good examples of perpetual licensing.


Subscription based licensing offers a lower cost of entry and a consistent monthly or yearly charge that can be budgeted out.  Also, support is often included in the cost of a subscription.  You often see subscription-based licensing based on the number of seats that you use and can be adjusted up or down on the fly depending on your current needs.  Office 365 would be a great example of this.

Using home versions for business

Using a home version of software (for example, an Office 365 Home subscription) for business use is against the terms of the licensing agreement.  I have seen several businesses try to use this software and while some get away with it, if the business is ever audited the auditors will find this and can potentially fine the business.

Audits and legal action

I’ve mentioned software audits a couple of times.  Many major software vendors have teams inside their legal departments that do nothing but audit customers for software licensing violations.  Most of the time, if you cooperate with the auditors and they find violations, all that is required is that you purchase the necessary licensing to become compliant.  No fines or penalties are assessed.

If a company does not cooperate with the auditors, the software vendor has the right to obtain a court order and legally force your company to undergo a software audit.  These are typically extreme cases where a software vendor has evidence that software piracy is running rampant in a company.  What gives a software vendor the right to perform an audit?  The terms and conditions or end user license agreement that you agree to when you install or purchase software contains terms that allow the vendor the right to audit your usage of the software at your cost.  If a vendor must go through these lengths to complete a software audit, you can bet that fines on top of purchasing licenses for the software as well as legal fees will be the result of this method.

It is important that you consider software licensing costs when you are planning changes to your business.  Often, spending a little money on the front end of a project to hire a professional to look at everything for potential licensing issues, or other software/hardware issues can save you a lot of money in the long run.  If it can’t save you money, it can help you better budget for the project. We have run into this issue quite often where customers could have saved money in the long run had they just called us when they started looking at new solutions.

If you have questions about software licensing, or any other IT needs, call your on-demand IT partner, SandStorm IT, at (901) 475-0275.