What is Your Software Worth?
AbstractThis 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30150.
Date of creation: 14 Dec 2005
Date of revision: 07 Jun 2006
Publication status: Published in Communications of the ACM 9.2006(2006): pp. 65-74
Valuation; intellectual property; software; software life; maintenance;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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