Meaning
Purchasing activities exploit price variations between different geographic markets to obtain software permissions at a lower cost. This license arbitrage targets the regional price discrimination strategies used by global software vendors. The goal is to reduce the total cost of ownership by sourcing assets from markets with weaker currencies or different economic conditions.
Price Disparity
Large gaps between the retail rates in different countries create the financial incentive for these transactions. Large corporations use license arbitrage to lower their IT spend across international boundaries.
Contractual Violation
Most vendors include specific clauses that forbid the transfer of software keys between different geographical zones. Engaging in license arbitrage often puts the buyer at risk of a failed audit and subsequent financial penalties. The legal department must review the terms of service to determine if the deployment of foreign licenses constitutes a breach of the original agreement.
Regional Restriction
Technical locks frequently prevent a product from being activated outside of its intended sales territory. Even if the license arbitrage is successful from a procurement standpoint, the software might not function without a local IP address. This technical barrier acts as a primary defense for the manufacturer against unauthorized secondary markets.
