Software Licensing in the Cloud – New Models Add Flexibility to Licensing

By Vincent Brasseur

Cloud computing is all the rage these days, but what exactly is cloud computing? According to the draft definition from the National Institute for Standards and Technology (NIST), “ Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

For software applications, the cloud enables the Software as a Service (SaaS) delivery model where the application is hosted on the cloud provider’s infrastructure and delivered via the Internet to your web browser. Serving up applications and slices of compute capacity as needed, on-demand, provides revolutionary capabilities and significant cost reduction potential, but there are also software licensing and license management implications.


Driven by vendors such as Amazon, software license models in the cloud are often pay-as-you-go or subscription based licenses. The best known example is—licensed according to the number of users on a subscription basis. This model works well for a full integrated service, or when replacing an existing (on-premise) software solution. It does not really work when moving an existing third party application to the cloud, unless the organization can use its on-premise licenses in the cloud. As the number of cloud service providers has expanded, major ISVs have created new licensing models or adjusted existing ones to provide additional licensing flexibility.

New License Models

Microsoft has created dedicated software license models for cloud service providers based on processor license (PL) or Subscriber Access License (SAL) based on the number of end users connected. Both of these are licensed on a monthly basis to service providers. Microsoft is also a cloud service provider, with payment for online services (Exchange OnLine, SharePoint OnLine, Office Live Meeting, etc.) based on the number of users per month. IBM offers a long term billing plan or an hourly pay-as-you-go billing plan. Developers can use all of its products in the cloud for a small monthly fee. Red Hat’s license fee for Rackspace cloud servers starts at $20 a month. The major benefits for enterprises are flexibility and potentially, lower software costs: you pay according to what you use.

One of the issues for organizations willing to move their core applications to the cloud is the existing investment in software licensing. Oracle and IBM allow organizations to move their existing licenses to the cloud with the Bring Your Own Software and License (BYOSL) program offered through the Amazon Elastic Compute Cloud (Amazon EC2). On March 30th 2011, Microsoft made the “license mobility” announcement extending product use rights for applications purchased under volume license agreements with Software Assurance. This offer is limited to the following products: SQL Server, SharePoint Server, Exchange Server, Dynamic CRM, Lync Server (previously known as Office Communications Server) and Systems Center Servers. Starting July 1st 2011, organizations will be able to deploy applications hosted by cloud service providers using their own Microsoft licenses.

Criteria for Choosing a Model

Three factors should be considered when multiple licensing models are available in the cloud:

  • The number of users accessing the software.
  • The number of the processors on the device hosting the application.
  • Product use rights tied to virtualization or specific vendor rules for cloud computing environments. Oracle, for instance, has its own set of rules

As for Client Access Licenses, Named User Plus and processor licenses, the user based licenses are more cost effective when there are a few users and the processor based model is better for many users. Optimized management of both on-premise and in-the-cloud software licenses requires software asset management (SAM) processes and tools that track and apply license entitlements automatically.

With these different licensing offerings, the major ISVs will help drive more and more organizations to the cloud. Gartner projects that the percentage of organizations with the majority of their IT infrastructure in the cloud, or via SaaS will rise from 3% today to 43% in four years. Traditional license models are now available in the cloud through licenses already owned by enterprises—it enables them to leverage their software investment. The pay-as-you-go and subscription models are attractive for new services, infrastructure-as-a-service (IaaS), and other public cloud based offerings. It offers the flexibility needed by both vendors and end customers, minimizing risks and providing benefits such as access to the latest versions of software products.

1 “The NIST Definition of Cloud Computing (Draft),” Special Publication 800-145, January, 2011.

2 Amazon Elastic Compute Cloud,

3 “Microsoft Shares Licensing Updates at Microsoft Hosting Summit,” March 30, 2011,

4 “Licensing Oracle Software in the Cloud Computing Environment,”

5 “Gartner: Most CIOs have their heads in the clouds”, Joe Wilcox, betanews, January, 2011,

About the Author

Vincent Brasseur is the Director, Product Management for Flexera Software, LLC.