Some guidance on software pricing

For many organizations, software licensing represents an increasing share of their intellectual property portfolio. Because most software is new and the market uncertain, it would be useful to have a quick, back-of-the-envelope method of estimating the selling price. The replacement method of valuing software on the basis of total R and D expenditures tends to over-predict the value of software. This occurs because most research is not initially directed at software development per se; the research is usually more general, with a useful product emerging only later in the project. However, if the author can estimate the time and costs necessary to rewrite the software, using present knowledge,d this modified replacement cost estimate is a better indicator of market value. It is proposed that 5% of this cost is a reasonable first estimate of the software shrink wrap selling price. The purpose of this paper is to present the replacement costs for several software licenses, discuss them, and compare them with other competing products on the market. In addition, a pricing survey has been completed for multiple users in order to estimate how one can rationally set multiple-user prices. Two distinct multiple-user pricing regimes were found: one regime, defined as market share software, is slightly discounted from list price; the other regime, defined as highly discounted software, is highly discounted from list price.