SaaS (Software as a Service) licensing changed the software market by giving vendors a path beyond one-time sales. Instead of selling software as a static product, vendors could deliver it as an ongoing service. They could create recurring revenue, deliver continuous value, and expand customer relationships over time.
Today, recurring revenue and SaaS licensing has become the dominant deployment, but in the age of AI, major turning points lie ahead.
According to IDC’s Software Monetization Watch, a Thales-sponsored study of software and intelligent device vendors across six countries, 73% of software vendors support subscription or term-based licensing.
At the same time, nearly half of vendors still support perpetual licensing alongside recurring models. This shows that legacy licensing rarely disappears all at once. It stays in place because customers, contracts, and internal systems are often not ready for a full break.
Software Monetization Watch
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The bigger signal is what comes next. According to the same study, seventy-six percent of vendors say AI is forcing them to rethink their licensing strategy. As AI changes how software value is created and consumed, the traditional seat-based model becomes less sufficient. Vendors need more flexible ways to meter usage, package access, and align pricing with value.
For anyone building a licensing infrastructure, the takeaway is clear: support the recurring revenue models that already dominate, while preparing for the more dynamic monetization models AI will demand.
Whether you’re evaluating SaaS licensing for a new product, licensing SaaS products across an existing portfolio, or planning for usage-based monetization, this guide covers the licensing models, technologies, and operational practices that drive successful software monetization.
What Is SaaS Licensing?
SaaS licensing is a model in which software is centrally hosted by the vendor, accessed via subscription, and typically billed monthly or annually. Unlike on premises software, the vendor manages hosting, updates, security, and uptime, while customers simply access the service through a browser or app.
A SaaS license is a formal agreement between the software developer and the customer that governs the terms of that access. A SaaS license defines:
- Which services the customer can access
- How long the customer can use the product
- How many users have authorized access
- What features are available according to the tier purchased
- Other permissions
- In practical terms, the SaaS license connects the commercial agreement to what the customer can actually access inside the product.
Benefits of SaaS Licensing
The advantages of SaaS licensing are compelling for both vendors and customers:
- Predictable recurring revenue: Vendors benefit from a steady, reliable income stream. Annual Recurring Revenue (ARR) has become a key indicator of business health and resilience.
- Accessibility: Users can access SaaS applications from any device — laptops, smartphones, or tablets — at any time.
- Automatic updates: Software improvements are delivered instantly to all customers without manual intervention, ensuring customers always have access to the latest features.
- Lower barrier to entry: Reduced upfront costs make it easier for customers to commit, increasing sales conversion rates and expanding the addressable market.
- Analytics and usage insights: Because the software runs in the cloud, vendors gain visibility into how customers actually use their products. Usage data is increasingly critical for monetization strategies, with a key finding from the same IDC white paper, 85% of software vendors rating usage data as highly important for upselling and cross-selling, while 95% saying it critical for billing accuracy.
- Flexibility: Customers can upgrade, downgrade, or adjust their subscription as their needs evolve, while the SaaS license can be updated to reflect the new access rights.
- Smooth deployment: IT teams don’t have to manage massive on-premises servers and focus on supporting the software.
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Core Challenges of SaaS Licensing
Despite its advantages, SaaS licensing presents several challenges:
- Customer migration: Moving existing perpetual license customers to a subscription model can face resistance, particularly from buyers who feel they already "own" the software.
- Back-office integration: Licensing systems must connect seamlessly with CRM, ERP, and billing platforms so that when an order is placed, the customer's access is quick and seamless.
- Entitlement management at scale: As product catalogs grow, tracking who has access to what — across customers, tiers, and geographies — becomes a significant operational challenge.
- Inflexible licensing infrastructure: 43% of software vendors report challenges caused by inflexible licensing that do not meet their business needs. Without an agile licensing platform, every pricing or packaging change can require significant engineering effort.
- Lack of monetization agility: Modern software companies rarely struggle with creating new pricing ideas. The challenge is operationalizing them. The Software Monetization Watch found that “62% of software vendors plan to grow by monetizing their offerings” yet a persistent the automation, entitlement management, and usage tracking infrastructure required to execute those changes efficiently.
- Revenue leakage: 90% of software vendors say revenue is directly impacted by licensing agreement violations. Without proper license enforcement, customers may inadvertently or deliberately overuse software beyond their contracted terms.
SaaS Licensing vs. Perpetual Licensing and the Need to Support Flexible Models
Before SaaS became the dominant delivery model, software was typically sold under a perpetual license: a one-time purchase granting the right to use the software indefinitely. Customers installed it on their own hardware, often paying annual maintenance fees for upgrades and support.
The market currently supports a wide array of models. SaaS is the dominant software delivery and monetization model, but SaaS did not just replace perpetual licensing.
Many software vendors now operate in mixed environments, supporting multiple deployment models at once. According to IDC’s Software Monetization Watch, 62% of vendors still support on-premises deployments, 44% support embedded deployments, and 48% support private cloud environments. Some of these deployments are still sold under perpetual terms, but a growing share are sold as subscriptions even when the software itself is deployed on-premises — decoupling how software is delivered from how it's monetized.
This is exactly where rigid licensing models start to break down, especially for vendors licensing SaaS products alongside on-premises, embedded, and hybrid software. A vendor locked into a single enforcement approach can't easily support a customer who wants on-premises deployment with subscription billing, or a perpetual license with optional cloud-based feature add-ons. As deployment environments diversify, licensing infrastructure needs to flex with them without requiring a different system for each one.
Overview of Common SaaS Licensing Models and SaaS License Types
The most common SaaS licensing models combine different SaaS license types, pricing structures, and usage metrics. The right licensing models for SaaS depend on how customers access the product, how value is measured, and how the vendor wants to grow revenue.
Subscription (Flat-Rate)
A single price for full access to the product, billed monthly or annually.
- Simple to understand and sell
- Predictable revenue stream for the vendor
- May leave money on the table with high-value customers
- May not reflect actual usage or value delivered
Perpetual
A one-time purchase that grants permanent rights to use the product, typically at a specific version, often paired with optional annual maintenance or support fees.
- Large upfront revenue and no ongoing billing dependency
- Appeals to customers who prefer to own software outright or operate in environments wary of recurring costs
- Revenue is front-loaded and harder to forecast year over year
- Weaker incentive for the vendor to keep delivering value post-sale, since renewal isn't required
Per-User / Seat-Based Pricing
Customers pay per named user or active seat; the total cost increases as more seats are added.
- Easy to calculate and scale
- Encourages customer loyalty and long-term commitment
- Licenses can be intentionally or unintentionally shared, creating revenue leaks
- May incentivize customers to limit the number of users to save on costs
- Doesn't account for AI agents performing work without occupying a seat
Usage-Based (Consumption Pricing)
Customers pay based on what they actually consume — API calls, transactions, data volume, etc.
- Aligns cost with value delivered; customers only pay for what they use
- Low barrier to entry; scalable as usage grows
- Unpredictable revenue for the vendor due to fluctuating usage
- Customers may throttle usage to control costs
Feature-Based
Different tiers offer enhanced features or capabilities.
- Enables upsell and expansion; gives users flexibility to choose a plan with the features they need
- Serves multiple market segments from one product
- Can be complex to operationalize a customer's right to access specific features
- Users may not fully understand what features they need and may end up overpaying
Hybrid Pricing Models
A combination of different pricing models and metrics: for example, a base subscription plus usage-based overages, or per-seat pricing with feature-gating.
- Maximum flexibility for complex customer bases; blends time-based, consumption-based, and perpetual licensing
- Captures value across different usage patterns
- More complex to implement and communicate
- Requires sophisticated entitlement infrastructure to operationalize
What Is Licensing as a Service (LaaS)?
Licensing as a Service applies the managed-service model to the licensing infrastructure itself. Licensing as a Service (LaaS) is especially valuable for vendors who want to move away from homegrown licensing. It supports the full spectrum of deployment scenarios, from always-connected SaaS applications to occasionally-connected on-premises software.
With only 26% of software vendors satisfied with their own licensing approach, licensing as a service allows software vendors to consume licensing as a commercial hosted service, rather than building and maintaining their own licensing systems.
LaaS also supports the gradual transition from on-premises to fully cloud-native delivery. Vendors can start with hybrid licensing — connecting existing on-premises software to cloud-based license management — and evolve toward a fully SaaS model over time, with minimal disruption to existing customers.
Today, many organizations are expanding beyond LaaS toward broader Monetization Platforms that combine licensing, entitlement management, provisioning, self-service, usage intelligence, and business system integration within a single platform.
This approach allows software vendors to manage the full customer monetization lifecycle rather than treating licensing as an isolated operational function.
Best Practices for SaaS Licensing
Once the SaaS license model is defined, the harder question is whether the business can actually support it at scale.
For SaaS vendors, that means building licensing infrastructure that can keep pace with new packages, changing contract terms, usage-based models, and hybrid customer requirements without turning every commercial change into an engineering project.
Key capabilities include:
- Align pricing, packaging, and entitlements across product, finance, sales, and operations teams.
- Support pricing and packaging updates without custom development for every change.
- Manage entitlements at a granular level, including users, features, tiers, usage limits, deployment environments, and contract terms.
- Automate provisioning, renewals, expansions, and license changes so customers can access what they purchased without manual intervention.
- Capture usage data that supports billing, renewals, upsell, churn prevention, and future pricing decisions.
- Support hybrid deployment requirements, including SaaS, private cloud, on-premises, and occasionally connected environments.
- Keep the customer experience simple, even as the vendor’s monetization model becomes more sophisticated.
The goal is to avoid rebuilding licensing infrastructure every time the business changes how it sells software. A scalable licensing foundation gives vendors the flexibility to support today’s SaaS models while preparing for subscription, usage-based, AI, and hybrid monetization models as they evolve.
But building that foundation internally is difficult. Licensing now touches product access, entitlement logic, provisioning, usage data, compliance, customer experience, and revenue operations. When these capabilities sit across disconnected tools or manual workflows, even a strong pricing strategy becomes hard to execute.
Sentinel: Thales’ Complete SaaS License and Monetization Solution
Thales Sentinel was built to provide a foundation that supports monetization at scale.
As a unified software monetization platform, Sentinel helps software vendors license, protect, deliver, manage, and monetize software across SaaS, on-premises, embedded, cloud-connected, and hybrid environments.
For vendors with more focused immediate SaaS license needs, Thales also offers flexible options such as Sentinel LDK, giving teams a practical way to start with licensing APIs, enforcement, and protection capabilities, then expand toward broader entitlement management and software monetization as their business grows.
Thales Sentinel is trusted by thousands of companies across industries including Telecom, Cybersecurity, Industrial Automation, MedTech, IoT, LegalTech, CAD, and AI — backed by 30+ years of experience and a global team of 450+ experts.
Whether you're launching a new SaaS offering, modernizing an existing on-premises product, introducing usage-based pricing, protecting AI-powered applications, or managing a complex hybrid software portfolio, Sentinel provides the foundation to license, protect, deliver, and monetize software at scale.
