How Does Cloud Licensing Work for Your Environment?

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How Does Cloud Licensing Work for Your Environment?

One of the first obstacles you’ll face when moving to the cloud is the bewildering array of licensing options available.

While working your way through the legal and financial terms can be painful, it can also help you select the right vendor and save your small business a lot of money.

To give yourself a head start on understanding cloud licensing, use this introductory guide to learn how software licensing, and Cloud licensing in particular, works.

The Perpetual License

Back in the day, there was the perpetual license. Your software came on a physical disc and you were allowed to use it forever based on the terms of the End User License Agreement (EULA).

Think of the EULA as the rule book for a piece of software, It told you things like on how many machines you could install the software, for how long you were eligible for free upgrades, and how little liability the company was willing to take if something went wrong when while you used their software.

The perpetual license is still alive and well today however, as more software vendors move their offerings to the cloud, it’s becoming less relevant.

The Site License

As the use of software grew, a company often required a license for more than one person. For example, installing Microsoft Word installed on each computer required a new kind of license called the site, or sometime volume, license.

A site license worked very similarly to a perpetual license except it applies to everyone in the office. The biggest difference was that as the number of people using the software at one site grew, the price per user dropped. This was, and still is, called a volume discount.

The Seat License or Named User License

Before the advent of the Cloud, there was a sort of in-between phase where software lived on local servers and could be accessed by a number of people. A business would pay to use the software by “seat”. In other words, the number of seats they purchased were the number of licenses they had for that software, or the number of people who were allowed to use the software.

Here Comes the Cloud

With the rise of cloud computing, software licensing began to change mostly due to the very nature of working online and to drive adoption of products on a daily basis. While the seat license model is slowly transition (mostly due to volume discounts), many companies are actively moving towards Cloud licensing to capture new market share.

Subscription Licenses

Thanks to the Cloud, customers began to expect the ability to pay month-to-month and cancel at any time if they were not happy with their experience. These expectations led to the recurring types of licensing models.

Month-to-month and annual subscription licenses are standard fare in the Cloud. Paying these regular fees enables you to use the software or service for the next month or year respectively.


  • Paying month-to-month give your small business the flexibility it needs to change vendors or stop using the Cloud for a particular service altogether. This is a significant advantage over the older types of licenses where you paid a higher one-time fee up front.
  • That said, paying for an annual license can lead to significant cost saving as many vendors heavily discount the price-per-month if you do so.
  • Many vendors allow you to start with a month-by-month license and then move to a pro-rated annual license if you decide to do so.

Examples are:

  • Office365 is user based subscription model to setup and manage your secure Office for your business
  • Meylah mobile ready store is subscription based solution to run your online business. The solution caters to freemium pricing model to premium pricing model ($20/month)
  • is a great solution for creating creative content. Canva makes design simple for everyone. Create designs for Web or print: blog graphics, presentations, Facebook covers, flyers, posters, invitations and so much more.

Pay-As-You-Go Licenses

Technical advances have enabled vendors to track usage of their software and services accurately, opening the door for a different type of license: pay-as-you-go.

Pay-as-You-Go is just that: you pay for how much of the system you use. This use can be measured in many ways including the:

  • Number of processes run on the vendor’s server;
  • Amount of disk space your business uses; and
  • Size of your database and/or number of database queries.


  • This licensing model enables your small business to scale with growth without buying infrastructure or hardware. As you grow, you use the software or hardware more however, because you’re growing, you can afford it.
  • Vendors often use this licensing model to create very specific offerings such as Module A and B, but not C. This is advantageous to your small business as you’re only paying for what you need to use.
  • Pay-as-you-go licensing enable vendors to track usage across devices, removing the hassle, for both the customer and the vendor, of trying to license the software on each device separately.


  • Microsoft Azure is an open, flexible, enterprise-grade cloud computing platform and services. They provide virtual machines, SQL databases, Active directories and many more to run your applications online.
  • Rackspace Inc. is a managed cloud computing company and enables “Fanatical Support” offering to focus on cloud service and support.

Pay-by-Instance Licenses

The final type of license applies more to Cloud services such as IaaS and PaaS.

In this scenario, you pay for each server or server instance that the vendor spins up for you.


  • This licensing model has many of the same advantages as the pay-as-you-go license because you’re only paying for what you need and/or use.
  • This is a very cost effective license model for small businesses that want to spin up and instance to try something or run a proof of concept and then spin it down once they’re done.


  • Private Cloud for hosting your applications for your company
  • Power BI installation for your business to create dashboards and reports
  • Custom application for internal use


While cloud licensing may seem confusing at first, it helps if you break it down into the types of licenses discussed above. That way, you can weigh the pros and cons of each option more clearly.

One last warning: no matter what type of license you select, make sure you read all the fine print to avoid surprises down the road. If you are confused with cloud licensing and need assistance, signup to recieve 1:1 free cloud licensing consultation ($500 value) for your business.

Cloud Photo via Shutterstock

This article, “How Does Cloud Licensing Work for Your Environment?” was first published on Small Business Trends


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