EME16 Software industry & market

Software industry & market

16.1 Economical characteristics of software

Software evolution

Software will be evolution, not involution.

• Hardware will be worn - Bathtub curve (1)
• Software will be deteriorated(退化) - Sail curve (2)
  
  

The marginal cost of software is Zero

Marginal cost of software, also called incremental cost, refers to the cost to be paid for each additional unit of software product production.
The source code development cost of the first software product is high, but the cost of copying the source code is close to zero, and the quality of the copy is the same as that of the first product.

16.2 Sources of Software Value

The objects processed by software include:

• data
• information
• knowledge
• intelligence

Different views on Software Quality

• A priori view(先验论): quality is recognizable, but undefined.
• User view: quality is just to achieve the goal.
• Developer's point of view: quality is the consistency between products and specifications.
• Product view: quality is related to the internal characteristics of products.
• Value based view: quality depends on the amount the customer is willing to pay.

16.3 Paradigm of SEE Analysis

Goal-Plan-Metrics in balance

• Goals in software engineering economics are mostly business goals or business objectives. Goals apply to operational planning.
• Metrics are a well-founded evaluation of resources and time that will be needed to achieve stated goals. e.g., Effort, Schedule, Cost Estimation and Maintenance Cost Estimation.
  Estimation is a periodic activity, should be continually revised during a project.
• Plan describes the activities and milestones that are necessary in order to reach the goals of a project. The plan should be in line with the goal and the estimate.

Estimates are done based on the initial goals. The plan tries to match the goals and the estimates. This is an iterative process.

16.4 Decision-Making process of SEE

The decision-making process of software engineering economics follows the software engineering process.

Make-or-Buy Decision

16.5 Law of software market

Externality

The value of software product to consumers increases with the number of other users using the software.

Two perspectives of software

• Software as a Project
  Origin - customer’s requirements.
• Software as a Product or Platform
  Origin - product features and functions.

Davidow's Law

the First Generation of products entering the market can automatically obtain 50% of the market share.

Law of supply of software

Software products are characterized by high fixed cost and low marginal cost.
With the increase of network scale, the price of software products decreases, and the supply curve shows a downward trend.

Network effect

the larger the network, the more the users benefit.

• Direct network effects:
  by employing the same software standards or common technologies, users can communicate with each other more simply and therefore more cost-effectively.
• indirect network effects:
  result from the dependency between consumption of a basic good and consumption of complementary goods and services.
  They arise, therefore, when the wider adoption of a good generates a broader range of associated goods and services, which enhances the utility of the basic good.

Ecosystem in network

Ecosystem in Market terminology refers to the inter-dependence between demand and supply.

Roles of network effect

• Developers
• Equipment Maker

Law of demand of software

The lower the price is, the more products consumers are willing to buy.

• the demand curve of software products shows a downward
  slope in the left half of the curve, which is the same as that of general products. With the increase of demand, consumers' willingness to pay decreases. At this time, the diminishing marginal utility effect is greater than
  the network effect.
• In the right half of the curve, because the network effect is greater than the marginal diminishing effect, the demand curve inclines upward. With the expansion of the network scale, the value of the network increases, and consumers' willingness to pay increases accordingly.