Management

Licensing, Subscriptions and EULAs: Be sure your company is best served by its software contracts

9 Aug, 2005 By: Robert Green


An article I wrote recently for Cadalyst that dealt with the current state of CAD software licensing generated a surprising amount of e-mail.  It seems software licensing is not only on the minds of CAD managers, but also that there’s a good bit of misinformation out there. I’d like to examine some licensing topics that will amplify and extend that print article.  <<read more>> If you haven’t had a chance to read the original article, you should do so now so you'll have the proper context for this followup.

Defining Some Terms

In the interest of standardizing our discussion of software licensing, let’s define a few key terms that we’ll refer to later.

Software license. An agreement with the software developer that allows you to use its software.  Licenses spell out specific legal rights for both parties. 

EULA (end-user license agreement). This is the actual contractual agreement that spells out the rights of the customer and software publisher and is a legally binding document.

 

Asset. A piece of property that you own that has monetary value to you should you wish to sell it or borrow money against it. 

Ownership. Having control of an asset with no liability or restrictions on your ability to sell or transfer the asset to another person.

Periodic upgrade. When a software company offers a periodic upgrade to its software, it usually extends to existing customers a discounted upgrade pricing, but the customer is under no obligation to upgrade.

Subscription upgrade. Typically defined in one-year intervals, a subscription merely ensures that the customer receives the latest version of the software title.  There is usually no guarantee of what the customer will receive or when, although for most subscription-based programs, software developers deliver timely upgrades.

Upgrade expiration. A policy that sets forth terms under which your license for software usage may no longer be upgraded, essentially forcing you to repurchase the license at full price. 

Ownership?

When you think of owning something, you assume that you have the freedom to do as you’d like with that asset, right?  If you buy a house or a car, you’ll have to make payments to the bank, but as long as you make your payments on time, you’re free to sell that item.  In this ownership model, you think of the item you purchase as an asset because it is yours and you can always recover some or all of your investment in the asset by selling it to someone else. 

Now, pull out your software licenses (or EULAs), read them carefully and tell me if you actually own your software.  If you read the fine print, you’ll see that you’re authorized to use the software, but you’re almost certainly not allowed to sell or transfer your software to any other person without the express written consent of the software publisher.  Any attempt to circumvent the contract language will likely meet with legal action.

The conclusion you come to rather rapidly is that you don't own your software, you merely rent it. Think about this for a moment and realize how true it is.

Upgrade Models

So if you don’t actually own your software, what sort of strategy should you employ for upgrading it?  Well, the fact is that your software developer essentially makes the decision for you based on its policies.  I’ll cite a few examples here and draw some conclusions as I go.

Microsoft operating systems. In the case of operating systems, the license is typically purchased with a new machine. However, you can purchase any operating system license independently.  Once the license is installed on your workstation, you’ll have access to an update feature that delivers security updates, patches, browser fixes and so forth at no extra charge.  As much as people like to complain about Microsoft, can you name any other software company that offers product updates for free as long as you own it?

Microsoft Office applications. Microsoft's popular Windows-based applications, such as Excel and Word, are sold in product suite bundles.  Approximately annually, Microsoft releases updates to these popular tools.  You may elect to upgrade at any time, you are not compelled to purchase a subscription and, to date anyway, Microsoft has never employed an upgrade expiration clause in its licensing.  Simply upgrade when the new product features are worthwhile to you.

Antivirus utilities. These types of software packages typically cost $50 or so and include a one-year upgrade service at the time of purchase.  Like Microsoft's operating system platforms, an automatic Internet upgrade utility is typically installed to keep the application in sync.  At the end of the year, you may continue to run the software as it is.  Or you can reupgrade your service agreement.  Renewing your service agreement typically costs about 50% to 60% of the original license price, which is a pittance to keep your computer secure.

CAD applications. Most CAD applications now use an upgrade model where incentives motivate the customer to purchase an annual subscription contract.  By incentives, I mean that pricing policies and upgrade expiration policies combine to make not purchasing a subscription more expensive than purchasing one. 

Conclusions for Businesses

Given all this information, I draw a few conclusions that seem to be validated in the marketplace.

  • Because businesses don’t actually own their software, they can’t treat it as an asset, thus it has no tangible value to the company.

  • Because businesses can’t use software as an asset, they have no incentive to invest money in the software unless new versions of the software provide them with substantial increases in productivity.

  • If a business sees no huge increases in software productivity, it typically won’t upgrade unless forced to do so via pricing or upgrade expiration policies.

All these conclusions taken together paint a picture of software being viewed as a rented asset not much different than renting a car or a photocopier.  So now you can see the logic behind your upper management’s lack of enthusiasm about spending a lot of money on software contracts, right?

I encourage you to read through your software EULA licenses and investigate the upgrade policies of your software vendors.  It’s your duty as a CAD manager to make sure that your company is best served by the software and services you choose to spend money on, and understanding your licensing and upgrade options is a key financial component of your technology strategy.

Wrapping Up

In the next two issues of the CAD Manager’s Newsletter I’ll kick off my annual CAD Manager’s Survey for 2005.  This year’s survey will analyze many more factors than in past years and will allow more filtering of results based on factors such as geography, educational background, managerial authority and, of course, salary.

So please be on the lookout for the next CAD Manager’s Newsletter so we can make this survey the most comprehensive one yet.


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