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Royalties for software licensing

I have a software library that I've been developing for the last couple of years in my spare time, mostly as a hobby, and a small company has expressed interest in licensing it.  I'm really a software guy, not a business guy, and I've never negotiated anything like this, so I feel a bit out of my depth, and was hoping to find some advice from this list on what a reasonable rate I could expect.

My software library is a platform for playing audio on mobile platforms (iOS and Android), specifically designed for game development.  The other company has a cross-platform game development environment (including graphics, audio, user input, etc) and is interested in using my library for the audio in place of their current code.

Currently I offer my library for free in binary format to app developers, with the requirement of a visible credit in the app, or $99 for a source license and no credit.  The other company's product has a free version, an "indie" version for $149/year, and a "professional" version with enhanced support for $449/year.

My initial guess would be to ask for 10% of sales (and maybe expect to get 5%), but I haven't proposed anything actual numbers to them yet… I was hoping to get some sense if this is a reasonable expectation.  Any help from more experienced negotiators on this list would be very much appreciated!  :-)
Steven Merel Send private email
Thursday, June 20, 2013
 
 
Never do this.
Bring back anon Send private email
Thursday, June 20, 2013
 
 
Both 10% and 5% seem high to me for a library royalty in this case. Though could depend on how much they sell their thing for.

What if we say $1 per unit is our minimum. Well, then if they are selling for $10, that's 10%. I'd call it $1 per unit in this case though rather than 10%.

Disclaimer, I haven't licensed libraries to others, though a long time ago I worked at a couple places that licensed from others and the terms varied wildly. For example, in one case our company retained the right to sell the licensees product, rebranded, and pay them back $15 per copy, competing against them, sort of, in return for their right to license our IP.
Scott Send private email
Thursday, June 20, 2013
 
 
Absolutely get some of the royalty payments in advance, at least 10%. Also demand a right to periodically audit their sales books, maybe every 6 or 12 months.  You dont have to, but you want the right. I was very active negotiating such licenses many years ago for a company I worked for.
Bill Anonomist Send private email
Friday, June 21, 2013
 
 
"a small company has expressed interest" ... "in using my library for the audio in place of their current code"

My final answer is "$99 for a source license and no credit"

My reasoning is that this is probably the intersection between the function representing the resources available to this underfunded customer who is facing failure because their current product isn't good enough to get enough revenue to stay afloat and the function that represents the net revenue to you after deducting the cost to support this customer so they can  be successful and you can get royalties.

In other words, the only way a royalty scheme works  for you is if they are successful, and the fact that they want to license your library by paying royalties indicates a low likelihood of success.  There are situations where a royalty license makes sense, but this isn't one of them.

And I'm not even getting into the ridiculously low margins in the mobile app business.  Sell as many $99 licenses as you can, and keep your support costs to an absolute minimum.  The only money to be made in mobile OS programming is bespoke software.
Howard Ness Send private email
Friday, June 21, 2013
 
 
I doubt I would never licence something that went for a percentage of sales.  It is too much of a headache and too costly.  What if I want to use ten libraries in a large project?  At 10% each, there goes the business.

Sincerely,

Gene Wirchenko
Gene Wirchenko Send private email
Friday, June 21, 2013
 
 

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