Software License Management

What is software license management and how it helps cut your costs.

Image illustrated the benift:  Complete picture of software inventory

Whether we are ready or not, the digital transformation is here. Every company is a digital company now, and businesses rely on software to carry out their daily tasks. According to Statista, spending on enterprise software has the highest growth rate within the industry and is projected to grow further, including as a result of increased remote work.

Software is governed by software licenses, which are legal instruments that grant and restrict your right to use the software. Software license violations cause a breach of copyright law. Staying software compliant is not just the right thing to do. It helps avoid software audits that could cost you your reputation and a lot of money spent on hefty legal fines.

However, the focus on ensuring license compliance may result in acquiring more software than is necessary. Also, there is a common practice to purchase extra licenses just in case, to avoid possible difficulties if a shortfall occurs. Overprovisioning on software can become a significant yet invisible cost. Reports revealed that 30% of software was unused, 38% if including “rarely used,” with the average cost of unused software about $259 per desktop during the four-year research period.

How to find a balance between under-licensing and over-licensing? This is where software license management comes into play.

What is software license management?

Software license management (SLM, or sometimes SWLM) includes processes and tools to monitor and maintain all software licenses your company owns. SLM is a part of Software Asset Management that helps you take control and reduce your overall software costs.

Are we ready for a software audit? What are our license types, how many do we have, and when are the expiration dates? Do we need to purchase licenses for new employees, or we have some in reserve? Do we have unused licenses, and is it safe to cancel some subscriptions? — these are the questions that software license management helps you answer.

Types of software licenses you pay for

Software license management starts with a clear understanding of license terms. Let’s see typical types of software licenses that you should be aware of. We’ll skip free and open-source software license types and consider some types of proprietary software licenses, which are paid.

Pay terms: perpetual vs. subscription licensing

Perpetual software licenses are licenses for which you pay only once, and then you can use the software indefinitely. Subscription software licenses are paid on a monthly or annual basis, and you can use the software during the subscription period.

At first glance, perpetual licensing may seem to reduce software lifetime ownership cost, but it would require additional maintenance fees for upgrades and technical support. Subscription-based licensing models typically provide better service because they cover customer service, software maintenance, and upgrades.

Software as a Service (SaaS)

Like with subscription software, you pay the SaaS vendor a subscription every month, quarter, or year. However, you don’t own SaaS products; you rent the use of them. SaaS products are hosted by the vendor or a third party, like Amazon Web Services (AWS) or Microsoft Azure.

A SaaS subscription typically includes support, upgrades, and maintenance, with the ability to get additional services when you pay for a premium version.

User access: named users vs. concurrent users

Software vendors employ user access licensing to base their licensing fees on the number of users within your organization who will have access to the product.

Named user licensing is a pay-per-license model. It assigns each license to one particular user with a login name and password. Employees cannot share named user licenses. The number of named user licenses is limited; however, licenses can be permanently transferred between team members when needed.

Concurrent user licensing is a pay-per-use model. It limits the total number of users who can access the product at a given time, but do not care about their names. Staff members can share concurrent user licenses, and, commonly, the number of registered users exceeds the number of available licenses. If your employees access a software product at different times, the concurrent user model can significantly save your costs compared to the named user one.

Site licensing

Site licensing grants access to software to all users at a particular site (facility) or across an enterprise. Some site licenses allow an unlimited number of users to connect. Others support the concurrent licensing model, and the total number of simultaneously connected users is limited.

Per-user vs. per-device licensing

Some software vendors restrict access to their software to specific individuals, who can use it on multiple devices as long as they confirm their identity. Other vendors choose to license their software on a per-device basis. Per-device licenses are useful when you have more than one employee working on the same computer.

Per-core, per-socket, or per-CPU licensing

Vendors of enterprise software for virtual and cloud environments price their licenses on a per-core or per-socket basis, with the industry trend toward per-core licensing since multi-core processors entered the market. However, some virtualization vendors, such as VMware, stuck to the per-socket (or per-CPU) licensing model. Per-socket licensing allows you to leverage more dense processors and have more work done without increasing your license costs. Other vendors, such as Microsoft, have shifted to per-core licensing.

Network or floating licensing

Network, or floating, licensing models cover all computers on a single specific network—a local area network, an intranet, virtual private network, or the Internet. This type is often used for high-cost business software in enterprises with thousands of employees.

When an authorized user needs to work with the software, they request a license from a central license server. If there is a license available, the server allows the employee to log in. When they finish their work (or when the allowed period expires), the license server reclaims the license, and it becomes available to other authorized users.

Metered or consumption-based licensing

Metered, or consumption-based, licensing models are also known as “pay-per-use.” The vendor charges for the usage of specific features, data, or other software resources. The software itself automatically meters the actual usage of its features or data you pay for.

Some companies like metered licensing because it is flexible and reduces waste. Others dislike metered software because the more your business relies on the software, the more you pay.

What are the benefits of software license management?

Stay compliant and audit-ready

Ensure your software license compliance and avoid software audit failure. SLM reduces financial and legal risks related to software license violations.

Enhance insight

Take control of all software licenses across the company. SLM helps you make sure that every license is accounted for and being used.

Minimize waste

Eliminate software over- and under-licensing and optimize your software spending. SLM helps you reveal unused software licenses, so you can choose not to renew or reallocate excess licenses and minimize waste.

Optimize IT spending and save software license costs

Optimize your software spending and find where you can save. SLM tracks upcoming subscription renewals and expiration dates, giving you additional time for renegotiation agreements and catch up on discounts.

What are the risks of poor software license management?

The greatest risk of poor software license management is a failed software audit. The Business Software Alliance is an industry organization that advocates for legal software use. It was established as a trade group by Microsoft in 1988 to represent commercial software vendors. Since then, the BSA enforces software compliance among businesses around the globe. The BSA regularly conducts software audits to ensure that organizations are compliant with all software licenses. The BSA even encourages employees to report non-compliant software usage within their own organizations, offering them large rewards.

A typical software audit process takes three to six months, eating up significant time and resources. If some license compliance violations are found, your company may be asked to “true-up” your unlicensed software use and purchase licenses for all non-compliant installations at the vendor’s price. And last but not least, your organization may become subject to fines and penalties for copyright violations.

The best practice is to conduct regular internal software audits to identify all vulnerabilities before the BSA or a large software vendor comes in. When your software license management is poor, the risk of a failed software audit is high, causing unexpected penalties and other damages that sometimes could disrupt your business.

What are the best practices for software license management?

Strong software management policy and control

Effective software license management starts with solid policies and transparent rules. Strict guidelines on who can purchase and install software minimize the risk of unauthorized or malicious software installed on employees’ computers.

Software asset management standards and practices

Manage the entire lifecycle of software assets in your company using best practices from industry leaders. Use software asset management (SAM) as a road map to help you turn your current practices into effective and mature processes.

Regular software inventory

Regularly scan your company network and keep information about software installations up to date. The best choice is an automated solution. You may also supplement your automated software discovery with physical audits to exercise greater control over your software assets.

Timely software updates

Don’t make your company dependent on outdated technology and install the latest software updates and patches in time.

Configuration management database (CMDB)

Understand the relationship between your software and hardware assets and know their place in your IT infrastructure and relations to other configuration items.


Monitor software usage and uninstall unused software or cancel unused subscriptions to reduce your total software costs.


Integrate software license management with other business processes in your organization. A good example is employee on-boarding and off-boarding processes, where software can be allocated or reallocated automatically. Another example is when your procurement and purchasing processes cover software assets.


Automation is a great way to streamline processes that would be very difficult to handle manually. The best candidates for automation are software discovery, usage monitoring, license allocation and reallocation, and tracking license compliance.

Measure and analyze

Set software cost-saving targets and track your progress.

How Alloy Software Asset Management can help

Alloy ITSM/ITAM platform includes a Software Asset Management solution that can help you optimize software spending, achieve and maintain software license compliance, and be always ready for software audit challenges.

Our strengths include:


Mike Gates Infrastructure Manager, Ibstock PLC
Alex OliviaVice President Makita, USA


Stephen Mullens Managing Director, SNC Solutions


Jon HowsonIT Operations Manager, SA Water


Graham HiltonManaging Director, Rivertech Limited

Start your trial with Alloy today