What is Proprietary software? Definition and examples

Proprietary software refers to software that is owned and controlled by a single organisation or vendor. Under a proprietary software definition, users are granted permission to use the software through a licence, but they do not have access to the source code or the right to modify, redistribute, or resell it.

This model is built around restricted access and vendor ownership. The software provider retains full control over how the product is developed, updated, and supported, while users operate within the terms of the licence agreement. Proprietary software is commonly used in commercial and enterprise environments where control, accountability, and consistency are prioritised.

The proprietary software's meaning centres on ownership and control. When software is proprietary, the vendor owns the intellectual property and defines how the software can be used, accessed, and distributed. Users purchase or subscribe to a licence that grants usage rights, not ownership of the software itself. This licence outlines limitations such as the number of users, environments, or devices allowed.

This is where confusion often arises around what is proprietary software versus commercial or custom software. While proprietary software is often commercial, not all commercial software is proprietary in the same way, and custom-built software may be owned outright by the organisation commissioning it. Proprietary software specifically refers to systems where source code remains closed, licensing is enforced by the vendor, and long-term control sits with the software owner rather than the end user.

A proprietary software system operates under a formal licensing model that defines how the software can be used. Through a proprietary software license, users are granted specific rights such as access, duration of use, or number of users while ownership and intellectual property remain with the vendor. These agreements set clear boundaries around usage, distribution, and modification.

Updates, fixes, and ongoing maintenance are fully controlled by the software provider. This means customers rely on the vendor’s roadmap for improvements, security patches, and support, rather than managing changes internally. For many businesses, this structure offers predictability and accountability, especially when internal technical resources are limited.

Related read: What is Waterfall software development model?

These proprietary software features explain how most proprietary systems are structured and managed in commercial environments.

1. Closed source code

The source code is kept private and owned by the vendor. Users cannot inspect, modify, or redistribute it, which allows the provider to protect intellectual property and control how the software evolves.

2. Vendor-controlled updates

All enhancements, bug fixes, and security patches are released by the vendor. Customers follow the provider’s update schedule and roadmap, rather than making changes independently.

3. Licensing and usage restrictions

Use of the software is governed by a licence that defines access rights, usage limits, and compliance requirements. These restrictions help vendors enforce commercial terms and protect their product.

4. Limited customisation

Customisation is usually limited to predefined settings, plug-ins, or approved integrations. Deep architectural changes are typically restricted, ensuring consistency but reducing flexibility for specialised needs.

Here are some clear, real-world proprietary software examples to make the concept tangible:

• Enterprise software such as CRM, ERP, and finance systems used by large organisations to manage operations, data, and reporting. These platforms are licensed, closed-source, and maintained by the vendor.

• Productivity tools used for email, document creation, collaboration, and project management. While widely adopted, users access them under strict licence terms without control over the underlying code.

• Industry-specific platforms built for sectors like healthcare, insurance, manufacturing, or logistics. These systems often support regulatory compliance and specialised workflows, with vendors retaining full ownership and update control.

In practice, most commercial software products fall into this category. If software is licensed, closed-source, and controlled by a single provider, it is almost always proprietary.

The advantages of proprietary software are most apparent for organisations that prioritise reliability, accountability, and structured support. Below are some of the key benefits of proprietary software, explained from a practical business perspective.

1. Dedicated vendor support

Proprietary software is backed by a single vendor responsible for maintenance, fixes, and support. This creates a clear point of accountability when issues arise and removes uncertainty around ownership or responsibility.

2. Stability and accountability

Because development and updates are centrally controlled, proprietary systems tend to offer consistent behaviour across versions. Vendors are accountable for performance, compliance, and long-term viability of the product.

3. Security through controlled access

Closed source code limits exposure to unauthorised changes and reduces the risk of unmanaged modifications. Security updates are tested and released by the vendor, helping maintain system integrity.

4. Predictable performance and updates

Updates follow a defined roadmap, allowing organisations to plan upgrades and changes in advance. This predictability supports operational continuity, especially in enterprise and regulated environments.

Understanding the disadvantages of proprietary software is essential for making an informed decision. These limitations often become more visible over time, particularly as business needs evolve.

1. Vendor lock-in

Once a proprietary system is embedded into operations, switching providers can be difficult and costly. Data formats, integrations, and workflows are often tightly coupled to the vendor’s platform.

2. Licensing and long-term costs

Proprietary software typically involves ongoing licensing fees, renewals, or subscription costs. Over time, these expenses can exceed the initial implementation cost, especially as user counts or feature requirements grow.

3. Limited flexibility or transparency

Closed source code means limited visibility into how the software works internally. Customisation options are often restricted, which can make it harder to adapt the system to unique or changing requirements.

4. Dependence on the supplier roadmap

All enhancements, fixes, and feature development are driven by the vendor’s priorities. If the roadmap does not align with business needs, organisations may have limited influence over future direction.

At a strategic level, the choice between proprietary, open source, and bespoke software comes down to ownership, control, and long-term flexibility. Each model solves a different problem, and none is universally better. Understanding the trade-offs helps organisations select the right approach based on risk, capability, and priorities.

In practice, many organisations use a mix of all three models. Proprietary software offers stability and accountability, open source provides flexibility and transparency, and bespoke software delivers alignment where off-the-shelf solutions fall short. The right choice depends on how much control, adaptability, and ownership the business needs over time.

Understanding when to use proprietary software comes down to how much control, accountability, and predictability a business needs. Proprietary systems are often the right choice when organisations prefer clear ownership and defined support structures over flexibility.

They are commonly used in regulated industries where compliance, security, and auditability are critical. Businesses that require strong vendor accountability benefit from having a single provider responsible for performance and support. Proprietary software also suits organisations with limited internal technical capability, as maintenance and updates are handled externally, and environments built around standardised processes where customisation is less important than consistency.

Proprietary software may be less suitable when a business needs a high level of control or flexibility. Organisations that require deep customisation often find licensing restrictions and closed source code limiting, especially when workflows are unique or evolving.

It can also be a poor fit for teams aiming to avoid vendor lock-in or those with strong internal engineering teams capable of building and maintaining their own systems. In cost-sensitive environments, long-term licensing and subscription fees may outweigh the benefits of vendor-managed software, making alternative models more viable.

In today’s development landscape, proprietary software has evolved beyond traditional installed systems. It is now commonly delivered through cloud-first and service-based models.

• SaaS dominance
  Most proprietary software is offered as Software-as-a-Service, where vendors manage hosting, updates, security, and scalability, reducing operational burden for businesses.

• Hybrid delivery models
  Organisations often combine proprietary platforms with open source tools or bespoke components, using each where it makes the most sense.

• Proprietary platforms with APIs
  Modern proprietary systems expose APIs that allow integration, automation, and extension without giving access to source code, balancing control with flexibility in enterprise environments.

Proprietary software is neither inherently good nor bad. It represents a set of trade-offs between control, flexibility, cost, and accountability that suit some organisations better than others.

For businesses that value stability, vendor responsibility, and predictable delivery, proprietary systems can be a strong fit. Where customisation, ownership, or long-term independence are priorities, alternative models may be more appropriate. The right choice ultimately depends on the level of control required, cost tolerance, and overall risk appetite.