What is the use of Salesforce Identity license?

What is the Use of Salesforce Identity Only license?

Identity Only license can be used when you need extra licenses for employees to access only identity services, such as single sign-on (SSO). This license doesn't give access to full fledged access to salesforce features. It's confined to identity services only.

Let's take an example -

XYZ.inc have 500 employees in the organisation and is using salesforce as CRM. Out of 500, 100 employees are sales reps and rest all are working on external analytics app. These 400 employees don't need access to salesforce features.

Now, XYZ can purchase 100 sales cloud licenses and 300 identity licenses ( 300 because 100 Identity only licenses are free for all salesforce editions ). These 400 identity licenses will cost less and will allow the employees to access analytics app via salesforce. This will reduce the cost of setting up any external identity provider as well because salesforce will serve as identity provider here. They can have IDP initiated SSO here.

PS: I tried to create this fictional scenario to understand the use of Identity Only license and referred various documentations. If you think this can be improved or have flaws then feel free to comment and then we can discuss further.