Very Computer

Hi all,

I have an a engineering application that performs a specific function
for it's target industry. I've sold this application to this industry
for over 5 years and it's considered by many to be best the it's
class.

I have a request from one of my customers (a large worldwide company)
to purchase the source code so they can build customized solutions for
their enterprise.

I'd like feedback as to how I should value the source code. I don't
have a clue what to table as a price for the source.

You're help is appreciated.

Regards,

Tom

Tom,

I hope following helps, anyway, I did not feel like software engineer
while answering :-).

1. Think and find out "how much this big company can spend? ;-)"
2. Think and find out "will this affect your future sales?"
3. Think and find out "What is your cost of building that source
code?"
4. Think and find out "What is minimun amout you expect?"
5. Think and find out "What is the need of this big company?"
6. Think and find out "How much this big company is to save using your
source?"
7. Think and find out "Will relationship with this company is good for
future?"

Chetan

Chetan,

Thanks for the feedback. Those are pretty much the questions that I've
been running through my head.

Since I would require this customer to sign an NDA, they would not be
able to disclose the source outside of their organization. With that
said, the main factors that come to mind are future lost sales to this
customer and how much will my source save them in development costs.

If I was to estimate the numner of development hours to reproduce my
app, what should I use for a price per development hour? Multiplying
these values and adding the cost of the lost future sales seems like
it would give me my number.

But, are development hours the only factor? What about time spent in
analysis and design. We are talking about an engineering app that has
relatively complex conditional structure. Surely there's value there,
but how do you value it?

Tom

Quote:>Hi all,

>I have an a engineering application that performs a specific function
>for it's target industry. I've sold this application to this industry
>for over 5 years and it's considered by many to be best the it's
>class.

>I have a request from one of my customers (a large worldwide company)
>to purchase the source code so they can build customized solutions for
>their enterprise.

>I'd like feedback as to how I should value the source code. I don't
>have a clue what to table as a price for the source.

Chetan raises some good questions. Here's what I'd be thinking about:

1. How much money does the company think it will make from using your
code?

2. How much will they save from using your code?

You might also consider letting them make the first offer, in response
to a question something like this: "You've told me that you foresee 40
applications over the next two years using my code. You'll probably
save at least 10 man years, or about a million dollars, by using it.
What do you consider a fair price?"

Good luck!

Ronald E Jeffries
http://www.XProgramming.com
http://www.objectmentor.com

Are you continually updating the software and sell them updates and
bugfixes?  If so, that will not necessarily change for you if they have
ths ource - they still should be interested in enhancements and fixes from
the original author.  If not, then you don't have any prospective income
from that customer anyway and might as well give them the source.

Quote:>  But, are development hours the only factor? What about time spent in
>  analysis and design.

That is part of the development hours.

-Jan

--
Jan Schaumann <http://www.netmeister.org>

Actual English Subtitles Used In Hong Kong Films:
 4. "Same old rules: no eyes, no groin."

Your issue is not the value of your source code, but what you can
get for it. This will depend, for example, on whether your client
paid you the full development costs, or thought they did.

In my experience, most software developers greatly overvalue their
source information (not that it *should* be more than code). Unless
your software does something worldbreakingly amazing, it's unlikely
that allowing your client to have a copy of the source code will
hurt you in any real way, simply because it will cost them a lot
more than you to maintain and enhance it. Don't underestimate the
ability of experienced software developers to match and improve your
app, either. For 99% of the software apps out there, particularly
the smaller ones, providing something as good or better is not at
all difficult. It just takes time.

Having said that, there are a number of traps. For a start, you need
to protect yourself and your copyright. If you assign the copyright
to your client, you may not be able to use the source information
yourself. If your client competes with you in the market or reduces
your sales in other ways (eg by giving your software a bad name),
you need to consider this in your price.

You may also find that you will have difficulty in selling
intellectual property (IP) rights to the source information simply
because you don't own all of the IP - often a sizable chunk of the
IP comes from the web or other sources, including shareware or
shrinkwrap components. So you may find yourself in an interesting
legal situation down the track when your client gets sued by
someone.

Note also that an NDA or similar may not be as useful as you think
it is, unless you have good oversight of what the client is doing
with it and have team of lawyers on your payroll. I've seen NDA's
blatantly violated in the interests of greed, with no real chance of
any redress to the victim, even if he knows. The legal cost are
simply too high.

But, as a rule of thumb, I would aim my price at about half of what
it would cost the *client* to develop it from scratch (note that
this may be more than what it cost you to develop), plus an amount
for potential loss of future sales. When the client laughs, explain
the business issues involved, and ask them to make an offer based on
what it's worth to them.

Andrew

--
Andrew Gabb

phone: +61 8 8342-1021, fax: +61 8 8269-3280
-----

I really hate to suggest this, but this is a good time to find
a lawyer with Intellectual Property experience.  They may not
be able to directly help you on the price, but they will certainly
have a clue about the contract issues.  They may also be able to
steer you to someone who has done this sort of thing before and
will be able to work with you to figure out the various values
the software actually has under the possible contract terms offered.

Pricing intellectual property is slippery and has much more to do
with perceived value than it does about actual cost.  You need to
get into your prospective clients head as much as possible to see
their side of the value equation.  What they may really be saying
is that your prices are too high and a lower fee from you might
be what they're really after...

--
Jonathan Allan

Neither Mayo Clinic nor I speak for each other unless we explicitly
say so.  You should assume I am speaking only for myself.
Please remove the antispam ".6809" to reply direct to me.  Thanks!

Also, once you sold them the source-code, you could release it to the
world as open-source, just to spite them :)

-Jan

--
Jan Schaumann <http://www.netmeister.org>

DON'T PANIC!

Thanks to everyone for your valuable feedback. It's all very helpful.

Tom

Quote:>I'd like feedback as to how I should value the source code.

How the hell would we know ?  We're all code geeks too. I don;t know
about you, but this is the sort of stuff I've just _useless_ at, and I
know it.

Last time I did this, I involved a friend of the family who knew
nothing about software, but was a canny businessman in construction
plant hire.  I trusted him, and he could negotiate.  From that we
could engineer a much better deal than I'd ever have achieved on my
own.

--
Smert' Spamionam