Valuing Software Source Code

« Greg Brill | Main | Proposition F Part VI »

Nov22

Valuing Software Source Code

Linda Chan

November 22, 2006

Know More: Licensing 2.0, Licensing

The following is not meant to be legal advice, and provided only for information purposes.

Is there a premium that a software company can put on the pricing when it delivers source versus object code? There is unlikely any premium for delivery of the source code versus delivery of object code to a customer when the two are almost the same. The valuation of source code may depend on what restrictions a company places on the use of the code, rather than whether the company licenses source or object code.

Usually, in a perpetual model, a software company charges an initial license fee (based on the number of licensed users) for a personal, non-assignable, perpetual license to use the software only in support of the customer's internal operations, with no rights to sublicense, operate a service bureau. Also, the company usually charges a percentage of the original license fees on an annual basis to cover a subscription to support services, which includes telephone support, bug fixes, patches, updates.

Usually, if the customer is allowed to modify source code, the software company provides no warranties on modified code, and the company does not make any representations that if the code is modified that it will be compatible with future patches, service packs or releases.

If customers customize the code, that may present the software company with an opportunity to provide consulting services to migrate the customization from the old release to the current release.

related entries

Request for Proposals Oct 29, 2007
More on Software License Agreements Oct 24, 2007
Warranties and Replacements Oct 20, 2007
Distributor Terminations Oct 20, 2007
Negotiating License Agreements Oct 16, 2007

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