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Software Licensing for Beginners"I was laid off from a high-level information technology position last year. In the course of looking for a new job, I subscribed to a number of database products. Just fooling around on the computer a while back, I developed a software application — really, a simple subroutine — that makes one of my database products easier to use. I showed this product to the company that publishes the database, and they absolutely fell in love with it. They've asked me if I'm willing to let them put it up on their website and let their customers download it as an 'add on' to their subscriptions to the database. Sounds like a good idea, but I would like to make some money from this. The database company is a small 'Mom and Pop' business and I don't think I can ask for a ton of money up front." Congratulations, my friend — you are now in the software business! There are two ways you can make money from a product like this: First, you can sell the software outright. The database company would pay you a fee for your customized application, and they would then own the rights to it. If this product is something only users of this particular database would use, then an outright sale might make sense. The two problems with an outright sale are (1) as you point out, this company might not have the funds to pay you a decent price, and (2) once you sell it, that's it — you don't get any piece of the product's future growth. Because this company is small and probably doesn't have the technical staff necessary to keep this product up to date, you might be able to negotiate a consulting agreement under which the company will pay you by the hour for any necessary technical supports, software upgrades and other necessary work you perform to keep "their" product marketable. I think the better approach in this situation would be for you to license your software application to the database company. Unlike an outright sale, you wouldn't get any money up front, but you would receive some money each time someone downloads your product from the database company's website. Here's one way it could work: You and the database company would sign a standard software license agreement, giving the company the right to sublicense your software application to their subscribers — this would be a "nonexclusive" license (so you could license the product to other database companies). When anyone downloads your software as part of their subscription to the company's database, they would pay a "licensing fee" to the company, which would remit a portion of that fee to you. In addition, you could offer the company's customers a "maintenance and support" package in which you would provide tech support, product upgrades, and other benefits in exchange for an annual subscription fee — like the ‘licensing fee,' the customers would pay the annual fee to the database company, which would then pay you a portion of the fee. Should any customer require assistance with installing your product or other "consulting" type work to customize your product to their computer system, you would charge the customer directly by the hour for that, and the database company would not receive a portion of that fee. To draft this agreement, you will need an attorney who is familiar with software licensing and distribution contracts.
You should expect to pay between $500 and $1,000 to have the necessary contract drafted, but if the database company has hundreds of subscribers, and you price your product properly, you should be able to make the fee back in no time. Just be sure the database company gives you contact information for their subscribers who have downloaded your product. Who knows? Once these subscribers become "hooked" on your product, they probably will want to know what other software solutions you may have available. That will give you an incentive to develop some other related products they might find useful, and you can market them directly to your customer list without having to share any of your revenue with the database company. Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2009 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS.COM ?? ?? ?? ??
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