Diff between selling a product vs a license

[Spacerat]

As a software developer/vendor what are the diffs between selling a customer a product and selling him a license.

And what typically would one state your warranties being as. In uncharted territory here...

 

[Thor]

/subscribes

 

[Arthur]

Selling the product means ownership passes from seller to buyer. The seller loses all rights and title including copyright and transfers those to the buyer.

Selling a licence means the owner retains all rights and title (ownership) including copyright, and the licensee acquires the right to use the product according to the terms and conditions set in the licence agreement (eg number of machines, period). It is akin to a royalty agreement, where the copyright holder retains ownership in the IP and the "buyer" simply acquires a right to use in return for paying a consideration to the copyright holder/owner.

Almost all software vendors publish their EULA (end user licence agreement) online, so you can easily get many examples to check.

Note that charging money for a licence is optional. It is entirely possible to retain copyright and to have a royalty-free licence agreement, such as the popular Creative Commons one.

Warranties: Most licence agreements expressly limit liability and exclude any warranty, ie the software is licensed "as is" with no express or implied guarantee that it will work in the licensee's environment.

 

[Spacerat]

Selling the product means ownership passes from seller to buyer. The seller loses all rights and title including copyright and transfers those to the buyer.

Selling a licence means the owner retains all rights and title (ownership) including copyright, and the licensee acquires the right to use the product according to the terms and conditions set in the licence agreement (eg number of machines, period). It is akin to a royalty agreement, where the copyright holder retains ownership in the IP and the "buyer" simply acquires a right to use in return for paying a consideration to the copyright holder/owner.

Almost all software vendors publish their EULA (end user licence agreement) online, so you can easily get many examples to check.

Note that charging money for a licence is optional. It is entirely possible to retain copyright and to have a royalty-free licence agreement, such as the popular Creative Commons one.

Great explanation thanks. So in the end for software implementation you really sell a licence whether to the company as a whole or to users if that is your model. For software you don't really sell the product.

The question is how does the customer see it on the balance sheet? Is the licence as asset?

Also what is your opinion on allowing transfer of licences from one party to the next.

 

[halfmoonforever]

Great explanation thanks. So in the end for software implementation you really sell a licence whether to the company as a whole or to users if that is your model. For software you don't really sell the product.

The question is how does the customer see it on the balance sheet? Is the licence as asset?

Also what is your opinion on allowing transfer of licences from one party to the next.

The licenses a company owns are seen as assets. Think of it in terms of buying a licence for Windows 10. You own that license and it's an asset to the company to have one.

Transferring licenses from one party to the next might become difficult to manage. If the company is bought by another company, license transfer will happen on their books, unless, for some reason, the company t/a name changes and would need to reflect on all licensing. If your software has a licensing server (ex Microsoft), that would need to be updated, so the company being bought would need to contact you for a name change, and if the license is a renewal each year, would obviously need to be invoiced in the new company's name etc. However, I think this is pretty much optional, as I've seen companies being absorbed several times, and then just pay the invoice regardless of who it was made out to for the license renewal, but it's up to them how they want to handle the transfer and how involved your licensing model is.

 

[Spacerat]

The licenses a company owns are seen as assets. Think of it in terms of buying a licence for Windows 10. You own that license and it's an asset to the company to have one.

Transferring licenses from one party to the next might become difficult to manage. If the company is bought by another company, license transfer will happen on their books, unless, for some reason, the company t/a name changes and would need to reflect on all licensing. If your software has a licensing server (ex Microsoft), that would need to be updated, so the company being bought would need to contact you for a name change, and if the license is a renewal each year, would obviously need to be invoiced in the new company's name etc. However, I think this is pretty much optional, as I've seen companies being absorbed several times, and then just pay the invoice regardless of who it was made out to for the license renewal, but it's up to them how they want to handle the transfer and how involved your licensing model is.

Makes sense thanks. Yes my customer has been bought out by a large international group and they are wanting a platform for their other divisions as well. I am pitching for the whole shebang.

 

[halfmoonforever]

Makes sense thanks. Yes my customer has been bought out by a large international group and they are wanting a platform for their other divisions as well. I am pitching for the whole shebang.

Good luck!

 

[Spacerat]

Good luck!

 

[zippy]

The licenses a company owns are seen as assets. Think of it in terms of buying a licence for Windows 10. You own that license and it's an asset to the company to have one.

Transferring licenses from one party to the next might become difficult to manage. If the company is bought by another company, license transfer will happen on their books, unless, for some reason, the company t/a name changes and would need to reflect on all licensing. If your software has a licensing server (ex Microsoft), that would need to be updated, so the company being bought would need to contact you for a name change, and if the license is a renewal each year, would obviously need to be invoiced in the new company's name etc. However, I think this is pretty much optional, as I've seen companies being absorbed several times, and then just pay the invoice regardless of who it was made out to for the license renewal, but it's up to them how they want to handle the transfer and how involved your licensing model is.

I doubt that its an asset that carries any value on the company's books, therefore its not really an asset, but an expense.

 

[Spacerat]

I doubt that its an asset that carries any value on the company's books, therefore its not really an asset, but an expense.

The license is regarded as an asset that is depreciated over a period. Because it is paid out of CAPEX and usually budgeted for under CAPEX. Subscriptions, support and maintenance come out of OPEX and thus is not on balance sheet. That is seen as expense

 

[zippy]

The license is regarded as an asset that is depreciated over a period. Because it is paid out of CAPEX and usually budgeted for under CAPEX. Subscriptions, support and maintenance come out of OPEX and thus is not on balance sheet. That is seen as expense

These licences must be for periods of longer than 1 year then ?