Software Pricing Fair Play Rules


Agnieszka Gwozdzinska, Jerzy Kaczmarek
Department of Applied Informatics,
Faculty of Electronics,
Telecommunications and Informatics,
Technical University of Gdansk,
ul. Narutowicza 11/12
80-952 Gdansk


In this article problem of relation between effort of software production and its price will be presented. As effort will be meant time needed to produce it. Price of software will be considered as market value of product, which was set by its producer.

Some methods of effort estimation known in informatics, such as COCOMO, Function Points, COCOTS will be described. An argument, that price should be fairly and objectively related to effort, will be established.

On new, highly changeable software market obviousness of this statement is questioned. Recently there were some unfair practices discovered on those markets. Programmer writes a software product that is one thousand lines long, for example. He estimates it, with COCOMO, Function Points or other methodology, as two manmonth of work. What happens next? Businessman, who wants to make a profit, not a loss, might multiply value of programmer’s work by 200 and might try to sell the product with such a price. In this article it will be considered whether such practice is legal or does it break rules of free market. Impact of such practices on enterprise standing, computing branch outcomes or finally on national gross product will be discussed.

Ethical aspects of such software producer’s attitude will be also taken into consideration. There start some moral dilemma rather from business than from computing ground. Of course, when businessman promises anything untrue about product he sells, it is immoral and even illegal. When he sells overpriced software just to get some Value Added Tax returned from tax department, while really he did nor add anything to product but its price, that’s illegal. But we will not follow such thinking. In the article concentration will be rather on ethical than legal aspects. For example, what happens, when customer does not know, how much particular product may cost and producer takes unfair advantage of him. It will be discussed, whether taking advantage of immaturity of market, when competition mechanisms are not fully formed and there are no points of reference, is ethical.

In this article some market cases, when unfairness of software producers takes place, will be described.

In addition, a trial will be taken to say how it should be and what does it mean “fair price”. It will be proposed, how price of software products should be related to effort.

Some problems with effort estimation such as: how to evaluate effort needed to produce code with usage of automatic generators will be mentioned. But article will concentrate on problems with estimating systems dedicated for Internet. Such problems as estimation of value of graphic look and layout design of website, value of website addresses, value of links between sites and price of advertisement on WWW site will be considered.

In this article some unfair practices related to software pricing will be described. Firstly problem of designing certain solution for second and next time and influence of this fact on effort estimation and price will be considered. It will be supported with reference to PN-ISO 9000-3 standard which says:

“[…] The following aspects inherent to the design activities should be taken into account: […] Usage of past design experiences: utilizing lessons learned from past design experiences, the supplier should avoid recurrences of the same or similar problems”.

Then some unfair practices related to website business such as unfair increasing statistic visitors counters in order to overpricing advertisement, pre-buying popular website addresses, stealing website’s ideas and designs will be described.

From business point of view different methods of setting a price will be introduced: cost plus surcharge, cost plus enterprise expenses, price to obtain certain revenue or profit, average of market price, price below competitors, method “how much market can bear” and “ceiling” method.

As an conclusion methods of estimating effort and of setting a price will be compared and the gap between them will be discussed.

The main purpose of this article will be to prove an argument, that there exists fir software pricing method based on effort estimation.

Issues mentioned are ethical dilemmas existent in business and social environment. Statements of the article may influence conflicts on customer – producer cooperation on software market.