What CIOs need to know about licensing models
Struggling with ballooning licensing costs? Try evaluating the metrics you buy licences under - new options are always emerging.
Published on 21st May 2025
CIOs looking to propel digital transformation face a daunting task. They need to harness the power of data analytics and artificial intelligence. They need to empower their employees and serve their customers with the best software tools, compute resources, data infrastructure, and more.
Yet to achieve this, CIOs need to navigate a ballooning budget and technology partners who might be hiking prices without giving you more features. A recent Forrester report found that nearly 80% of US organisations reported increases in software costs over the past year. Moreover, 4 in 5 tech leaders said they anticipated their organisation’s adoption of generative AI will increase software costs. Prices are going up.
Instead of cutting the technology offered, CIOs should explore changing their software licensing to improve their bottom line. Though the board might not get excited about licensing changes, they should. Complex agreements, the wrong licensing models cost an organisation dearly — both financially and technologically.
At the enterprise level, new types of models are emerging that could improve a company’s bottom line, including one that mimics a library system. They’re challenging the traditional per-seat model and could be the future of software licensing.
Traditional Per-Seat Software Licensing for the Right Tools
The per seat model, or named user licensing, has its benefits. For instance, when you have a limited set of people who need specific tools, or where there can be individualised attributes or access controls, like an enterprise resource planning system or customer relationship management software.
However, there is risk in extending similar models into other domains like engineering simulation. An engineer and their team solving complex problems and running virtual simulations on computers are using several tools, all for different purposes, stages of design, and use cases. The Office of the CFO isn’t using one spreadsheet app — they’re using CRMs, databases, accounting, and budgeting tools, etc.
And the company’s needs go beyond software. Your organisation needs hardware: cloud resources, high-performance computing (HPC) power, mainframes, and beyond.
For the wrong tools, named user licensing can be like owning a car that’s always left running, or it can cause traffic jams for projects if only one person has access to a specific software.
Token-Based Systems Make It Easier to Track Usage
Consumption licensing models — where everyone draws from a shared, but finite “tank” of resources (“fuel,” such as tokens or credits) — can be an improvement. They house resources under a single licensing framework and allow different user personas to navigate between tools as needed. They also give organisations more insight into costs and usage (since they can see when the tank is getting low). This is a popular cloud licensing model, though the technology is also seeing continued inflation costs.
But the tank for consumption models can run dry very fast. When it’s empty, you have to pay for more fuel. Plus, having that tank isn’t always helpful for controlling costs. What if someone accidentally runs a compute job overnight that uses all your fuel? You can’t get it back — you have to buy more and hope it doesn’t happen again. There’s never a guarantee you won’t overshoot your budget.
Value-Based Models are Interesting, but Subjective
Value-based licensing is a relatively newer software licensing concept aligned with business outcomes. The idea is that the cost of the software is based purely on the benefits to the end customer. These models are well-suited for solutions that can easily quantify business benefits; however, these can be subjective and hard to implement and scale. They can also extend the sales cycle and make every transaction unique (and potentially contentious).
A Library Model Combines Other Emergent Licensing Trends
Growing in popularity is the flexible-hybrid model, which combines consumption-based and value-based licensing with a predetermined capacity commitment that can’t be exceeded.
It’s like a community e-library, wherein a variety of books can be checked out when needed and checked back in when not in use. In this example, the flexible-hybrid model would work by making certain books available to a team to check out. The only determination then is how many books each team member will borrow at once.
With flexible-hybrid models, CIOs can often get the best of everything: software/hardware resources in a single, shared environment, seamless access to tools/resources when and how you need them, and a brake that prevents runaway costs.
Research from ITAM found that more than 76% of organisations considered themselves “over-licensed.” These emerging software licensing models could fix that number. However, we’ll only see it take off if CIOs start critically evaluating their licensing models and asking their vendors for the flexible-hybrid approach. While AI tops the list of many business leaders’ priorities right now, making sure to secure AI tools that everyone can use, and within budget, should be up there, too.
