The task of controlling your software and choosing the best type of licensing agreement for it can be quite challenging. Quite apart from the obvious necessity to protect your software asset from piracy and theft, choosing the right type of license as well as using a software escrow service can sometimes make an enormous difference to how successful it is when it comes to marketing your software application. It’s worth remembering that it’s not normally the software as such which is sold, rather a license to use it.
There are many forms of software licensing and some typical categories include:
- Single user License – typically only installed on a single computer or device.
- Per Computer – a separate license is required for each computer or device the software is used on.
- Per User – permits a single user to use the software on multiple devices, for example: at home and work.
- Multi-User License – commonly used when the software is installed on multiple systems or networks.
- Site License – used when all devices using the software are located on one site, for example: a school or corporation.
- Enterprise Site License – used when the software is installed on various devices at different locations, but all belonging to one company. Typical for branch networks or satellite offices.
Choosing the right licensing agreement will depend not only on your software architecture but also your potential customers and your proposed marketing plan for the software. While many desktop applications offer free reduced function packages, with an upgrade option to a full function licensed version, it may not be the most successful strategy for your particular software application. If your software forms part of the embedded market, then a royalty based licensing agreement may work well, especially if the application is highly specialized and the number of end users is limited.
It is important to look at the types of licenses currently being used in your proposed market and if they can be improved upon, as well as if existing customers in that market feel that the licensing agreement is fair.
How software escrow can help
Software escrow acts as an insurance policy for the end user as the task of maintaining and updating custom software is critical for the end user and they will wish to ensure that they will have access to it should the developer become unable to fulfil this role.
Software escrow normally involves three parties: the licensor, the licensee and the escrow agent who acts as a custodian of the source code. Software escrow agreements are normally managed by dedicated escrow agents who specialize in this field.
The software escrow agreement normally stipulates under which conditions the source code will be released to the licensee. These conditions typically cover the event of bankruptcy or failure to comply with contractual obligations by the licensor as detailed in the software license. A software escrow agreement may also cater for ensuring updated versions of the code at predetermined intervals are supplied, and possibly various other safeguards such as verification of the source code by the escrow agent.
Benefits of software escrow
End users can benefit because it can avoids potentially prohibitive costs of sourcing alternative custom software. It allows access to the original source code and the ability to bring it in-house under direct control if necessary. There is no gambling on the reliability of the code developer and their ability to maintain and support it. It’s basically an insurance policy and an essential element of risk management for any company.
Software developers can benefit from such software escrow agreements because it means they keep control of the essential code and avoid the possibility of an end user attempting to take charge of software management or support. It also adds value to the code as a software asset and gives peace of mind to potential buyers, who otherwise would not be interested in an uninsured software agreement.
