Software Licensing – If You Can’t Prove It, You Don’t Own It – Part 1 – The Basics

Fair warning, this is quite possibly the most complicated topic we’ve tackled to date.  As always, we’ve tried our best to break it down.

There is a side to software that most businesses don’t often encounter, and that is the audit.  They sometimes don’t use that term – for example, you may receive a communication notifying you that you have been selected for “License Baseline Certification.”  Just like the IRS, most software companies reserve the right to come in and audit how you are using their software.  They do this to ensure you are following their rules for software usage.  While this activity is mostly targeted at Fortune 500s, it still happens quite often to smaller businesses as well.  In fact, the software companies often offer some financial incentive, or bounty, to people who turn in companies that aren’t using their software correctly as this can generate a lot of revenue for the software vendor.  The fines from the vendors can range up to $100,000, or more, per infraction.  Each user, or device (computer, printer, phone, etc.), on your network could be an infraction, so it can add up quickly, as you can imagine.

Most of the major software companies out there, such as Microsoft, Adobe, Oracle, IBM and SAP, do software audits.  Odds are high you have at least one, if not more, products from these vendors on every computer in your business!

In this post, we ignore specifics that would only apply to large enterprises with multiple datacenters spread over multiple time-zones.  We are really focused on the 2- to 250-computer business in this conversation.

Software Licensing – the Basic Basics

Software can be licensed in a dizzying variety of ways, but most licensing falls into two main categories:

  1. Software you Buy
    When you buy the software it generally has a higher upfront cost, but you have the right to use it perpetually (which may not mean forever).  Generally speaking, to get major updates for the software, you either have to pay a maintenance fee or buy the software again with the new version.  This used to be the only way to buy software.  Buying Windows is an example of this license category.
  1. Software you Rent, aka Software-As-A-Service, aka SAS, aka SAAS
    This model is a continuing subscription (monthly, yearly, etc.) which includes access to the software with updates as they become available, including new major versions.  If you stop paying for the software, you can’t use it anymore.  Office 365 is an example of this.  Software companies generally prefer this method as it leads to a continuous revenue stream.

Now that you have some knowledge about the basics of software licensing, let’s look at some of the specifics.  From here on out we will be mainly speaking about Microsoft licensing (and only for the products that are likely be found in a small or medium sized business), since Microsoft licensing causes quite a bit of confusion for a large number of people.  What makes this even more “fun” (read confusing) is that you can even get contradictory information from Microsoft!  So below is our best understanding of what appears to be an intentionally complicated and slightly ambiguous topic:

Software Licensing Specific to Microsoft

Microsoft has three main ways you can buy (as opposed to rent) their software

  1. Original Equipment Manufacturer (OEM) Licensing
    OEM licensing comes already installed when you get the computer.  This is the most common way to acquire Windows.
  1. Retail Licensing
    Retail licensing is used for software you buy in a physical or online store. You don’t generally do this for Windows (although it can be done), but it is a common way to purchase Office, for example.
  1. Volume Licensing
    This model is generally only available through a Microsoft Partner (such as Sawyer Solutions). Volume licensing is the licensing method that gives you the most rights to the software and also offers a number of options on how the software is purchased.

OEM Licensing

OEM licensing is tied to the computer that the software came pre-installed on (and is thus the cheapest option).  So, if your computer dies and you have to buy a new one you can’t take the OEM licenses from the old computer and put them on a new computer.  Incidentally, even upgrading your hardware enough can actually trigger the software to force you to purchase a new version of itself.

Retail Licensing

Software bought under a retail license can, generally, be installed on a new computer if the old computer is no longer in use.  I say generally because in Office 2013+ Microsoft actually removed that right basically making Office 2013+ retail no different from the OEM version.  This is part of a push on Microsoft’s part to get their customers to use either volume licensing or their Software-As-A-Service offering, Office 365.

Volume Licensing

Volume licensing is even more “fun” (read convoluted) because there are a variety of levels depending on organization type, as well as a variety of payment options, and even a variety of ways to count licenses.  There are price levels varying from academic institutions (almost free), non-profits, government (getting more expensive) and commercial.  Within these commercial levels, there are price breaks depending on how much you buy at once or per year.

Once you find your organization’s level, then you determine how you actually want to purchase and use the licenses.  Do you want to

  • Buy it outright (Open License or Open Value),
  • Spread payments over three years (Open Value)
  • Treat it as Software-As-A-Service (Open Value Subscription) and pay a smaller amount every year?

Once you decide on how you are going to license, you need to decide if you are going to add Software Assurance to any of the things you are buying, so let’s talk about that next.

Software Assurance (To add something else into the mix!)

Software Assurance, or SA, is this interesting idea from Microsoft.  It is an add-on to a license to grant you extra benefits for the software you are buying, but it is only available when purchasing through Volume Licensing.  To really crank up the “fun factor” here, the benefits granted by SA vary, depending on what software you are buying.  SA is included for three years in the Open Value pricing, can be bought separately for Open License purchases, but only lasts for two years in that case.   SA expires, even if you bought your software and can use it perpetually.  You can generally renew your SA at the end of the term, but it may depend on if the product has been upgraded or replaced.

SA Benefits

While some benefits are software specific, you usually get the following with SA, regardless of which product you are adding it on to:

  • Better support
  • Ability to spread the payments over three years
  • Rights to new versions, so that if a new version of the software comes out during the time period you have SA, you can upgrade if desired
  • Reduced-price upgrades through Step up Licensing to a more expensive edition of the software (i.e. going from Pro to Enterprise)
  • License mobility to use your licenses in a shared, hosted (cloud) environment

If you are licensing a server, such as Windows Server 2012 R2, then SA grants you the right to test your backups without having to purchase another license.  This means if you DON’T have SA then you do need to buy more licenses if you want to test that your backups worked.

Proving That You Are Licensed Correctly

Let’s say you’ve been careful and are actually licensed correctly.  You still have to be able to prove it.  Hang on to all documentation that relates to your licensing.  So, if you bought Office from Dell when you bought your laptop, that means keeping that little piece of paper with the license key on it.  It is really important you don’t lose any of it.  If you buy your products volume licensed, then the licenses are tied to an email address.  We recommend using a group address like “Licensing@[YourDomain].com” so that you don’t accidently lose access if an individual leaves the company.  If you can’t prove you are licensed, then you aren’t.

Whew!  I Wasn’t Sure I Was Going to Make It

Ok, did you catch all that?  Great!  If you are only buying Office or Windows 10 then you should now have a pretty good grasp on licensing as it relates to those products.  However, if you’re buying some else, like Windows Server you are just getting started.  We’ll go over everything else you need to know for that product line in the next post. Time to buckle up.

 

Confused or concerned?  Have some questions about your licensing?  Sawyer Solutions is here to answer any questions that you may have.  Contact us.

 

If you haven’t had enough yet you can go read part 2!

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  1. Software Licensing – If You Can’t Prove It, You Don’t Own It – Part 2 – Windows Server | Sawyer Solutions - […] Part 1 we covered the basics of licensing and specifically how it relates to Microsoft.  This post we […]

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