The Value of Outsourced Software

Outsourcing of work to support software development and services is seen primarily as a transfer of labor to another shore. But intellectual property, as software, is transferred as well. There are risks when IP is transferred. In order to assess the extent of those risks, one needs to know the value of that concerned software. Software is an intangible good, and the value of intangibles is based on the income they are expected to generate in the future. This paper exploits a model for software valuation based on principles of IP valuation, sales expectations, net present value, and related parameters. Having a quantitative model on a spreadsheet allows for the exploration of business alternatives in outsourcing. The motivation for this paper is to increase the awareness of members in the computing community. Software valuation plays a role in a global economy where the developers of the software and the users of the company reside in different countries.