Software licenses and software keys are often confused and sometimes conflated, but in reality, the two are quite different.

A software license is what grants a customer the right to use a particular product. When a software license is purchased, it generates a tiny file that’s required by the product in order to run. Confusingly, licensing vendors sometimes refer to that file as a “license”, “activation file”, or “token” when, in actual fact, it is none of these. While there’s no hard and fast rule, the more apt term for it would be “key”.

Licenses vs. Keys
If we look at a couple of real-world analogies, it quickly becomes apparent why it’s important to differentiate between licenses and keys.

My Name Is on the Deeds, Do I Own the House?

Let’s say I own my home outright. My name is on the ownership papers or “deeds” for the house, but I lose my keys. Do I still own the house? Of course!

Similarly, if company X buys one software license and then doesn’t generate or take delivery of the product key, does it still own the right to use the software? The answer is still yes. Legally, company X is the license holder; the key is just a small piece of software that “unlocks” the product and allows it to run. The two are not equivalent.

If I Have a Door Key, Do I Own the House?

Of course, the converse is also true: if company X does not purchase a software license but gets hold of an illegal copy of the product key, it would not own the right to use that software. Again, it is the license – and the license alone – that grants a user the right to use the software. Holding a key is not equivalent to owning a license, just as having a door key does not make you the homeowner.

Unfortunately, license enforcement technology vendors only fan the flames of confusion. As we have learned, many vendors incorrectly refer to keys as “licenses” and the like. What’s more, if you think that commercial “license servers” show users how many licenses a server manages, you’d be wrong. Contrary to the name, license servers don’t actually manage licenses, just keys. Vendors should be mindful of the terms they throw around, otherwise these important nuances can get lost.

My advice to ISVs who implement license enforcement is to be completely transparent with customers in this regard and to be knowledgeable about software licensing programs. Go the extra mile to ensure license agreements, documentation, and the software itself reflect the proper terminology. Customers and sales teams alike will thank you for it.

This blog post is part of our Software Monetization 101 series, which examines commonly misunderstood terminology in the software protection, licensing, and entitlement management space.

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