Business | Licensing

User based licensing models – Are they done for?

Words by Martin Kelman
User based licensing models – Are they done for?

User based licensing models are something we’re all probably aware of. Whether that’s picking up new seats for a platform you use a lot at work, or looking both ways before you log into the account you and a colleague share.

They make sense in a lot of cases and for a lot of services, but with the evolution of the ‘something as a service’ model, we’re seeing it lose traction in some areas. Why is that? Let’s take a look.

What is a licensing model?

A licensing model is the structure set out by a service provider that governs how much customers pay to make use of a service. This could be based on the number of users, the features that can be accessed, the total ‘uses’ of a service over a set period of time, or any other metric.

A licensing model might be charged on a monthly, quarterly or yearly basis. However a company charges for the license to use their service is that company’s licensing model.

What are the benefits of a user based licensing model?

Depending on the service, charging per user can make things very simple. For example, by charging per user you’re not restricting the platforms on which each user can log in.

Perhaps you have a service that you’d like to use in the office on your desktop, at home on your laptop, and on-site using a mobile device. If you’re being charged as a single user, that doesn’t come at any extra cost.

It’s also very easy to track from a business perspective. If you have one person in a particular team that needs access to a certain platform, you can buy them a user license and that’s basically your work done. You can pop the PCM cost into the monthly budget and forget about it.

What are the negatives of a user based licensing model?

The key drawback for user based licensing models is a lack of scalability. You want a service that scales as your company grows, not one that you become reliant on and which eventually becomes a financial burden.

Imagine you have a piece of software or a service that you think the whole company can benefit from. Maybe you’re a startup and the first subscription level of your desired service covers ten users.

That’s perfect, you might think. You’ve only got eight employees right now which means you’ve got enough user accounts for each employee and two spare for the future.

Jump forward twelve months and you’ve had a fantastic year. So good in fact that you’ve taken on a couple of new marketers, three new developers and a brand new business development expert.

Great news for the company, no doubt about that. But this software you’ve grown used to, that helped you achieve your great year, is now three accounts short.

You check back to see what the next upgrade is and it’s a package that includes 50 accounts! That’s way more than you need and way more than you can afford.

So, do you hot desk the accounts? Do you find an alternative? Do you scrap using the service, despite it being so helpful? Suddenly you’ve got a system you’re reliant on that hasn’t scaled with your business.

What’s the alternative to a user-based licensing model?

Metered licensing is a very popular alternative to user based licensing these days. With this option, you charge by how much a service is used, rather than by how many people are using it. The metrics that dictate ‘how much’ a service is being used depend on the company.

Some companies might charge for the amount of hours a service is used in a month. That could be a pre-set amount or an amount that’s tracked or ‘metered’ and billed for at the end of a month. Similar to how mobile phones can be pay-as-you-go or on contract.

Cloud storage solutions charge by the amount of data stored on their servers. You pay a monthly fee for a certain allotment of digital space and once you reach that limit you either need to remove data or upgrade to a larger package.

This is very similar to physical storage companies, where you can buy floor space and fill it how you want, paying by the meter squared space per month.

Other companies might charge for the unique service they offer. Anyone who works with SEO should be aware that some companies can ‘scrape’ or ‘crawl’ websites for you, giving you important data about that website, it’s performance in search engines and points for improvement.

Companies like this could build their licensing model based on a certain number of reports per month, a certain level of data intricacy or the complexity of their instructions.

What are the benefits of not choosing a user based licensing model?

The main benefit of an alternative licensing model is scalability. If a service is great and helps you grow, you don’t want to be priced out of using that service because it’s been too successful!

Ideally you want the costs associated with using that service to remain in line with benefits you’re seeing from using it.

Charging by a metric that can scale as a company grows means a customer can really get the most out of that service. They can use it to its fullest extent and use it even more as it helps their own customer base grow.

This helps both the service provider and the service user by making long term usage of a platform beneficial and fruitful partnerships a possibility.

Here at Atlas, we have two licensing models depending on which of our services you make use of. One is based on the number of processes published and the other on the amount of data handled by our services.

For more information, you can check out our pricing page and see how we break that down. Once you’re ready to give us a go, hit the button below to start your 30 day free trial of Atlas Play now.