Unit 3: Computer Software

Introduction

In the modern business environment, software is an indispensable asset that drives everything from daily operations to strategic decision-making. However, simply using software is not enough; businesses must understand how they are permitted to use it. A software license is a legal instrument governing the use and distribution of software. For a business, understanding software licensing is not just an IT issue—it is a critical aspect of legal compliance, financial management, and risk mitigation. This section explores the different types of software licenses and emphasizes the importance of legal software use across all business functions.

Understanding Software and its Ownership

When a business acquires software, it is not typically buying the software itself. Instead, it is purchasing a license, which grants the right to use the software under specific terms and conditions set by the copyright holder. This is a crucial distinction.

  • Copyright: Software is protected by copyright law, which gives the creator exclusive rights to reproduce, distribute, and modify their work.
  • End-User License Agreement (EULA): This is the legal contract between the software provider and the end-user. Clicking “I Agree” during installation legally binds the user to the terms of the EULA. Violating the EULA can lead to legal action.
  • Software Piracy: The unauthorized copying, distribution, or use of software. This is a significant legal and security risk for any business.

Types of Software Licenses

Software licenses can be broadly categorized based on their cost and the freedoms they grant the user.

1. Proprietary Software (or Commercial Software)

This is software that is owned by an individual or a company. The source code is kept secret, and there are strict restrictions on its use, modification, and distribution.

  • Perpetual License: The user pays a one-time fee to use the software indefinitely. However, major version upgrades often require an additional purchase.
    • Example: Older versions of Microsoft Office (e.g., Office 2016) or Adobe Photoshop.
  • Subscription License (SaaS - Software as a Service): The user pays a recurring fee (monthly or annually) to use the software. This model often includes continuous updates, support, and cloud services.
    • Example: Microsoft 365, Adobe Creative Cloud, Salesforce.
  • Per-User/Per-Seat License: The license is tied to a specific number of users or devices. A company with 50 employees would need to purchase 50 licenses.
    • Example: Most business productivity tools and ERP systems.
  • Volume Licensing: A discounted licensing arrangement for large organizations that need to purchase a large number of licenses. This simplifies license management.
    • Example: A university purchasing a Microsoft Windows license for all its lab computers.

2. Free and Open-Source Software (FOSS)

FOSS grants users the freedom to run, copy, distribute, study, change, and improve the software. The source code is publicly available.

  • “Free” refers to freedom, not price (“free as in speech,” not “free as in beer”).
  • Copyleft Licenses (e.g., GNU GPL): These licenses require that any modified versions of the software must also be distributed as free and open-source. It ensures the software remains open.
    • Example: Linux Operating System, WordPress.
  • Permissive Licenses (e.g., MIT, Apache): These licenses have minimal restrictions on how the software can be used, modified, and redistributed. Businesses can even incorporate them into their own proprietary products.
    • Example: Android (the core OS), Apache Web Server.

3. Freeware

Freeware is software that is available for use at no cost. However, it is still proprietary, and users are not permitted to access or modify the source code.

  • Example: Google Chrome, Adobe Acrobat Reader, Skype.

4. Shareware

Shareware is proprietary software that is provided to users free of charge on a trial basis. After the trial period expires, the user is required to pay to continue using it. The trial may be limited by time, features, or functionality.

  • Example: WinRAR, various data recovery tools.

Business Applications: Why Licensing Matters

Effective software license management is crucial for every department within a business.

Finance

  • Budgeting and Cost Management: The choice between a perpetual (Capital Expenditure - CapEx) and a subscription (Operational Expenditure - OpEx) license has significant financial implications. SaaS models offer predictable monthly costs, which can be easier for budgeting.
  • Compliance and Audit: During a financial audit, companies may need to prove they are using legally licensed software. Fines for non-compliance can be substantial.
  • Asset Management: Licensed software is a company asset. The finance department must track these assets for accounting and depreciation purposes.

Human Resources (HR)

  • Onboarding and Offboarding: HR must ensure that new employees are provided with legally licensed software and that licenses are properly terminated or reassigned when an employee leaves.
  • Policy and Training: HR is responsible for creating and enforcing the company’s IT usage policy, which includes rules against installing unauthorized or pirated software.
  • Headcount Planning: As the company grows, HR’s headcount projections directly inform the IT department’s need to purchase additional software licenses.

Operations

  • Business Continuity: Using licensed, supported software ensures access to security patches, updates, and technical support. Pirated software receives no updates, making systems vulnerable to crashes and cyber-attacks that can halt operations.
  • Supply Chain and ERP: Enterprise Resource Planning (ERP) systems like SAP or Oracle have complex licensing models. Mismanaging these licenses can lead to non-compliance or over-payment, directly impacting operational efficiency and cost.
  • Collaboration: Tools like Microsoft Teams or Slack are licensed per user. Proper licensing ensures the entire operations team can communicate and collaborate effectively.

Marketing

  • Creative Tools: The marketing department relies heavily on licensed software like Adobe Creative Cloud (Photoshop, Premiere Pro) for content creation. Using pirated versions risks data corruption and legal action.
  • Customer Relationship Management (CRM): Systems like Salesforce are licensed per user. Legal licenses are essential for securely and legally managing customer data, which is vital for marketing campaigns and sales.
  • Analytics and Data: Marketing analytics tools that track campaign performance are licensed. Using them legally ensures data integrity and access to vendor support.

Real-World Examples from Nepal

1. Case Study: The Nepalese Banking Sector and Core Banking Software (CBS)

Banks in Nepal, such as Nabil Bank or Himalayan Bank, operate under strict regulations from Nepal Rastra Bank (NRB).

  • Concept: They cannot risk using pirated or unsupported software for their critical operations. They use licensed, proprietary Core Banking Software like Finacle or Pumori.
  • License Type: These are high-cost, proprietary, often perpetual licenses with mandatory annual maintenance contracts for support and updates.
  • Business Implication: The license ensures data security for millions of customers, regulatory compliance with NRB directives, and access to 24/7 technical support from the software vendor. Using anything less would be a catastrophic business and legal risk, affecting finance (customer transactions), operations (branch services), and marketing (customer trust).

2. Case Study: The Rise of Subscription (SaaS) Models in Nepali SMEs

A growing digital marketing agency or a tech startup in Kathmandu needs access to world-class tools but may not have the capital for large one-time purchases.

  • Concept: Instead of buying a perpetual license for Adobe Creative Suite for NPR 100,000+, they subscribe to Adobe Creative Cloud for a monthly fee. Similarly, they use Google Workspace or Microsoft 365 for email and collaboration.
  • License Type: Subscription (SaaS).
  • Business Implication: This OpEx model allows them to manage cash flow effectively while using legal, up-to-date software. It enables collaboration (HR/Operations) and professional output (Marketing) without a huge upfront investment (Finance). Nepali payment gateways like eSewa and Khalti also offer their business APIs under specific licensing terms, allowing e-commerce sites to integrate payment services legally.

3. Case Study: Open-Source Adoption by ISPs and Tech Companies

Internet Service Providers like WorldLink or web hosting companies in Nepal need to run thousands of servers efficiently and cost-effectively.

  • Concept: Many of these companies build their core infrastructure on the Linux operating system and use Apache or Nginx as their web servers.
  • License Type: Free and Open-Source Software (FOSS).
  • Business Implication: By using FOSS, these companies drastically reduce their software licensing costs. This allows them to be more competitive in their pricing. Their operations teams have the freedom to customize the software to meet their specific network management needs. This is a strategic decision that directly impacts their financial bottom line and operational flexibility.

Key Takeaways

  • A software license is a legal permission to use software, not an ownership of it.
  • The main license categories are Proprietary, FOSS, Freeware, and Shareware.
  • The choice of license type has direct financial implications, particularly CapEx (Perpetual) vs. OpEx (Subscription).
  • Using illegal or pirated software exposes a business to significant legal, financial, and security risks, including fines, data loss, and reputational damage.
  • Proper software license management is a cross-functional responsibility, impacting Finance, HR, Operations, and Marketing.

Review Questions

  1. Explain the fundamental difference between “owning” software and having a “license” to use it.
  2. From a financial perspective, what are the key differences for a business between a perpetual license and a subscription (SaaS) license?
  3. Why is it critical for a bank in Nepal to use licensed, proprietary software for its core operations instead of a freeware alternative?
  4. What does “FOSS” stand for? Provide one example of how a Nepali business might use FOSS to its advantage.
  5. Describe one responsibility of the HR department regarding software licensing in an organization.