Cloud and licensing

Cloud computing has the potential to revolutionise how growing businesses operate. For smaller and medium sized organisations, it’s a fast way of accessing software tailored to their needs, without a major upfront investment, meaning greater financial flexibility. The only thing you may need to consider is advice on options available, and how to get the right licence for your business needs. In this article, we explore how cloud affects software licenses and what you need to consider when acquiring and deploying cloud-based software.

When approaching cloud computing for the first time, it’s important to adopt a different mindset to the one you have when considering on-premise IT. However, some straight forward guidance can help ensure that you reap the rewards of cloud computing.

There are effectively three types of cloud computing – software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS). The amount of effort it takes your organization to manage its IT, versus what the provider or vendor manages, depends on the type or combination you take.

Your provider has full control over the applications, but you will be able to configure how it is set up to suit your needs. One of the key benefits is that files are saved in the cloud rather than on individual computers, meaning applications can be accessed through any internet-enabled device, there are no hardware costs, and updates are automatic.

Cloud applications or SaaS

Cloud platforms or PaaS

Cloud infrastructure or IaaS

While traditional software would generally be purchased outright and then installed on a device, SaaS is a subscription-based model, where the software is hosted in the cloud and accessed via the internet. The likes of Office 365, Google Apps, Salesforce and Cisco WebEx are all SaaS.

Generally speaking, SaaS solutions are available either through a browser or, in some cases, a dedicated application.

Your provider has full control over the applications, but you will be able to configure how it is set up to suit your needs. One of the key benefits is that files are saved in the cloud rather than on individual computers, meaning  applications can be accessed through any internet-enabled device, there are no hardware costs, and updates are automatic.

If you want to build applications and services over the internet, PaaS is for you. For example, if you’re a software developer, PaaS gives you a platform to build apps that can be sold ‘off the shelf’ or over the internet. Web developers can access the perfect environment to develop, test and host websites. If you develop your own internal software, you can also use PaaS to create dev-test environments. AWS Elastic Beanstalk, Windows Azure, Heroku,, Google App Engine and Apache Stratos are PaaS solutions. With IaaS, a cloud provider hosts the parts of the infrastructure that are present in an on-premise data centre, cutting out the costs and complexity of buying and managing physical servers and other infrastructure. It also lets you pick and choose the resources you need.

In this set up, the service provider manages the infrastructure, while you install, configure and manage your own software. Examples of service providers delivering IaaS include  Amazon EC2, Windows Azure, Google Compute Engine, and IBM Cloud.

Traditional software

  • A one-time upfront payment
  • A perpetual license
  • Usually hosted on the company premises

Cloud software

  • Subscription-based
  • Use of the software for the term of the subscription
  • Usually hosted off-site by a service provider

A big difference between a cloud service and a traditional software package is that traditional software packages must be paid for upfront, while cloud services are available by subscription. This means that you pay monthly, quarterly or annually, for a specific time. You can use the software for as long as your subscription is valid. This is different to a traditional software licence where the use of the purchased software is usually perpetual.

This is part of the appeal for small businesses – no major upfront investment means greater financial flexibility, while still accessing the software needed.

Another difference between traditional licences and a cloud service is where the software is hosted. Whereas in  the case of traditional licences the software is usually hosted by the company that uses the software, with cloud services, the software is hosted by an offsite service provider. Again, that means not needing to have the supporting hardware in place, freeing up space and investment to be diverted into other areas of the business.

How the cloud can help you get the most out of your licences

There is potential for cloud computing to reduce the risk of using unlicensed software. With traditional software, companies might often not be aware that they have unlicensed software, or that they had not been clear that they were using licensed software on a device which was not part of the agreement. If a vendor uncovers this during a software audit, it could cost the business huge sums of money.

When it comes to cloud, you might be able to avoid that. In the case of Office 365, for example, Microsoft hosts the software on its own servers making it easy for the company to see users without having to do an audit– as long as there is an agreement in place to do this. However, other Microsoft products can reside on Amazon Web Services; considering that most businesses will be using an array of different cloud services, it’s still important to have absolute clarity on what you’re using, and where it resides. Not only does that help you keep compliant, it also means you’ll know exactly what you’re using, and what can be dispensed with.

Setting up a SaaS agreement

When it comes to setting up a SaaS agreement, there are a couple of things to bear in mind. You don’t need a maintenance clause because the vendor is already obliged to maintain the software. However, you do need a service level agreement (SLA) so that you’re aware of the time-frames for fixing any issues and for the minimum performance standards on areas such as speed and latency. A crucial component is with data management and security, as your data will now be sitting on a vendor’s servers rather than your own. You must set out what the vendor is obliged to do in terms of managing that data and keeping it secure. This also includes having back-ups and a disaster recovery solution in place.

It’s also important to know exactly what additional costs there could be – including new features, more support, third-party services, training, integrations, customisations and scalability. The term of the contract (even though it is on a subscription model) and the terms of renewal are also important. Having a subscription should mean you have the flexibility to move to other services quickly if circumstances or your requirements change, but if you do have a lengthy contract, it’s worth having an out clause in case you need to get out of it.

If you do decide to get out of the contract, or not renew a subscription, you need to have an agreement in place that covers exporting your critical business data from one vendor to another. The customer should always retain ownership of their data and know how to get it back – even in cases where the cloud provider has gone bust. With GDPR, this is a legal requirement.

Once you’ve established a relationship with a SaaS provider, it’s important to focus on the purchasing, implementation and management of the software application (and the related licences).


Our cloud licensing top tips

  • Make sure you know what’s your responsibility, and what the vendors need to do – never assume it’s all on them
  • Set up an agreement which contains the following:
    • A service level agreement (SLA) with knowledge on data management and security as a core component
    • Detail on back-ups and a disaster recovery solution in place
    • A clear understanding of all costs, both confirmed and potential
    • Detail on what you can do in the event of terminating a contract