What is Your Software Worth?

Wiederhold, gio (2005): What is Your Software Worth? Published in: Communications of the ACM , Vol. 2006, No. 9 (September 2006): pp. 65-74.

Abstract

This article presents a method for valuing software based on the income that use of that software is expected to generate in the future. Well-known principles of intellectual property (IP) valuation, sales expectations, discounting to present value, and the like, are applied, always focusing on the benefits and costs of software. A major issue, not dealt with in the literature of valuing intangibles, is that software is continually upgraded. Applying depreciation schedules is the simple solution, but does not represent at all the actual devaluation of the inherent IP of software. A realistic approach, allowing ongoing maintenance, is presented here. All steps of the process are presented and then integrated via a simple quantitative example. Having a quantitative model on a spreadsheet allows exploration of business alternatives. An example a service model is evaluated. Conclusions are drawn that reflect on academic and business practice.

• Item Type: MPRA Paper
• Language: English
• Keywords: Valuation, intellectual property, software, software life, maintenance
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; L - Industrial Organization > L8 - Industry Studies: Services > L86 - Information and Internet Services ; Computer Software

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