ISVs have long relied on product keys (otherwise known as software license keys) to ensure that their software is only being used by those entitled to do so. Oftentimes, these product keys are also used to control use of specific features, based on the agreement the end user has with the ISV. Despite the value these product keys hold, they pose a number of challenges for both ISVs and end users.
This question recently appeared on Quora, and I thought it would benefit our readers to hear the answer.
“What is standard practice for when companies want to “switch seats” in a SaaS licensing context? I run an early-stage SaaS company and we sell on a per-seat basis. Occasionally I’ll get a request to switch a seat from one user to another. Sometimes this is because someone left a company and in other cases it’s because a user isn’t very active and they want to switch to someone who will be more active. What is standard practice here for this? Obviously we’d prefer that a new seat license be purchased rather than transferring a license but we also want to try to be flexible given that we’re a start-up”
This question reaches outside of the SaaS domain and applies to many per-user or named-user license models in the traditional on-premise environments.
In my last blog entry (Show Me The Money, Part 1) we looked at a number of factors that play into software revenue recognition when a vendor (ISV) introduces electronic license enforcement into their product lines. Part 1 focused on the principles and mechanics behind giving customers access to the software upon order execution so that the ISV may recognize revenue. Part 1 concluded by bringing another key element into the revenue recognition equation: time. Time can affect revenue recognition in a number of ways: