Calculating the True Worth of Software

chromatic writes "Many people recognize that the cost to duplicate a piece of software is a fraction of the number on its price tag. Many people also understand that software without support and maintenance loses much of its value. Is there a way to put a price on the software, support, maintenance, and the option for future upgrades itself? Robert Lefkowitz recently applied an options pricing model to software in ONLamp.com's Calculating the True Price of Software. Don't let the description fool you; it's both a readable and serious apologia of the common free software business model."

Comments

A Financial Analysis of Things We Already Know

[Akoman]

There is a lot of finance talk going on in this article, but the conclusion he comes to is one that many of us already know: commercial Open Source creates a market for support and maintenance. Article might be good for corporate types wondering why licenses cost nothing over here.

Re:software is worth..

[ZephyrXero]

That said... free/open source software can be worth much more than pay/proprietary software ;)

*Shameless Self-Promotion :P

An example

[Donny Smith]

Just this morning, I was wondering the same question.

There's this bulletin board software that I use.
It's open source, it's popular, it's free, but it is an unsecure piece of shit. There's a security fix for it every fucking month and once I got hacked because I didn't have time to update it for like 3 days (luckily the hackers - nice of them - only defaced the home page and left the mySQL DB untouched)

So this morning I concluded it SHOULD be free because I really wouldn't wanna pay or donate a single cent for that crap.

A lot of free software is worth nothing.
I know I'll get modded down for this, but really - think how much you would suffer if (for example) Postfix became commercial - you'd probably switch to qmail or whatever in no time. Big deal.
So for those free software that costs nothing, the value is probably equal to cost of switching to alternative.
For irreplacable free software, hmm, is there such thing?

True Cost of Software

[bokmann]

I hate it whenever I see a sentence that equates the cost of creating software to the cost of copying the software.

I am a software engineer. the piece of software I work on has 18 people working on it full-time to write it. THAT is the major cost. Duplicating it is a trivial expense. The cost of the people has to be amortized over all of the copies generated.

I contribute to open-source projects as well; I do that for a different motive than putting a roof over my head. Congratulations to those who can do that entirely with open source; for me, open source is like pro-bono work for a lawyer; I want to give back.

All that aside, you NEVER pay for the true COST of something, you pay for its true WORTH. The soft drink you are drinking right now has about $.06 worth of sugar water in it. I bet the can, transportation, and refrigeration cost more than the contents. I won't even try to calculate the cost for a $5 cup of coffee at Starbucks.

Re:What the competition is charging ?

[Anonymous Coward]

But hey, Google buying up companies and offering the software for free to kill the competition is a honorable thing right?

I think now that Google is a public company it is inevitable that it will follow its motivation. The examples you cite, however do seem to be different. I don't see that any of these products are tied (pdf) to an existing offering, responsible for breaking a competitor's product or obtained through outright theft

Re:What the competition is charging ?

[xeno-cat]

"You can't charge awefully more than your competition, can you ? If the competition gives it up for free -- then well, all your calculations go awry. "

This is not the type of pricing formula the article is discusing. It is much more interesting than that.

What the author is basicaly saying is that Free software and proprietary software cost about the same once you figure out what you are actually paying for (by breaking out all the hidden elements and assigning them a value).

His conclusion is that, at least for the "enterprise" market, the service options are almost the entirety of the cost of the software, even when you include the list price for the software itself.

The difference between Free and closed software is in how the options are sold. With closed software they are sold by the company that ownes the software. With Free software anyone has access to the source and so can provide support to the same level as the original developer if they so choose. This creates a market for service where all the capitalist pricing pressures are at play. Closed software is more insulated from these pressures.

I'm not explaining it terrible well, go (re)read the article. It is the most interesting thing I have read in awhile.

Kind Regards