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What is Your Software Worth?

Author

Listed:
  • Wiederhold, gio

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.

Suggested Citation

  • Wiederhold, gio, 2005. "What is Your Software Worth?," MPRA Paper 30150, University Library of Munich, Germany, revised 07 Jun 2006.
  • Handle: RePEc:pra:mprapa:30150
    as

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    File URL: https://mpra.ub.uni-muenchen.de/30150/1/MPRA_paper_30150.pdf
    File Function: original version
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    References listed on IDEAS

    as
    1. Walter Krämer & André Güttler, 2008. "On comparing the accuracy of default predictions in the rating industry," Empirical Economics, Springer, vol. 34(2), pages 343-356, March.
    2. Roger Newson, 2006. "Confidence intervals for rank statistics: Somers' D and extensions," Stata Journal, StataCorp LP, vol. 6(3), pages 309-334, September.
    3. Andre Güttler & Peter Raupach, 2010. "The Impact of Downward Rating Momentum," Journal of Financial Services Research, Springer;Western Finance Association, vol. 37(1), pages 1-23, February.
    4. C. A. Field & A. H. Welsh, 2007. "Bootstrapping clustered data," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 69(3), pages 369-390.
    5. Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Valuation; intellectual property; software; software life; maintenance;

    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
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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