Question: The economics of software investment

patto_chan

I'm working on a business plan at the moment and have to consider the worst case scenario i.e. if it doesn't work out and I pull the plug (say) 12 months from now, what portion of the original investment can be salvaged?
For physical assets you can estimate their salvage value but what about software?
In this particular case I am considering investing in very specific CAD software which can cost 12 to 15k per license depending on options.
I realize it may depend on the software license terms - most vendors won't allow ownership to be transferred or sold on and are in a position to block as they alone can generate license keys.

If a plumber or electrician buys a van as an asset for a new business he can sell it on if he decides to (or has to) fold the business later on - it has a salvage value. But what about high value software? Anybody have any experience in this?

The Corinthian

Been there, done that, etc. As a rule, until an application is mature and widely used it’s not worth a lot and you’re unlikely to get it to that stage in 12 months. As such a competitor will most likely not want it (they already have a version) and a software house looking to add another product to their line of offerings would be hesitant to add something with little market value and still largely untested.

Your best bet is that you sell it off to a client who uses it so that they can potentially support it themselves (or outsource its support), but even then you’ll get very little for it. Additionally I’d look at other IP assets, such as domain names and/or brands, third party software licences (if transferable), or even the traffic on your Web site (if significant).

antoinolachtnai

The OP is talking about buying software licences for his business, I think, rather than developing software.

In principle, you might be able to sell the licence (there may be an EU directive about this) but in general there is no market if it is in any way specialized.

Usually, the cost of commissioning and training in people on the software is much greater than the cost of the software itself. If you can't sell the business or part of it as a going concern, it probably isn't going to be much of a return on the investment.

In my experience, most finance companies will not do hp leases on software for this reason.

Second hand computer hardware is basically almost worthless too. Once it's 12 months old, no one really wants it.

Pines

It will almost certainly be a term of the licence. For example, if you take the AutoCad product, the licence prohibits transfer, though the company (Autodesk) has the discretion to allow transfer in special circumstances. I've quoted from their FAQ below on this point.

As a general rule you can expect that the standard terms of a licence will be that it is non-transferable, simply because this is easier for the person drafting the licence. Imagine the lawyers trying to imagine which kinds of transfer they're happy to allow and which they would have a problem with... ("Ah screw it, lets just say 'non-transferable and be done with it.")

Can a licence be transferred to another company?
The licence holder of Autodesk software is subject to the Terms and Conditions mentioned in the Autodesk software licence agreement (Autodesk software license agreement). This contract with Autodesk appears when the Autodesk product is opened/installed. This agreement clearly states that Autodesk software cannot be transferred to another company.

The Autodesk licence may be transferred in exceptional cases. If in your view there are special circumstances in which Autodesk may consider making an exception to the Autodesk software licence agreement, you may make an official request for the transfer of the licence. For more information, please contact your authorised Autodesk dealer.