A well-known large company contacted my company to build a customized version of our software. The software is a tool that helps some users using the company’s product. They sent me their customization requirements, which are extensive. Then I gave them the price quote, which includes NRE (non-recurring-engineering cost), software licensing and support fee. Now they came back to me saying that their intention is not to license the software once it is finished, but the software stays with my company and my company is to release it to the open market. They say that the users of the final product will be outside of their firm, so my company will deal with the licensing issue with those users directly. I am puzzled. I have done licensing deals before, but have never heard of this. A few questions come to my mind:
- I do not have control over their users, how can I market the product and justify the costs associated with this marketing effort? Their users are not the target of our general product.
- Who would determine the product price if I were to deal with the licensing to those end users? I do not know these users. I do not think I can get enough revenue by selling the software directly to these end users.
- Is it a normal approach? It sounds strange to me. Why does the company ask for it? For saving licensing fee?
- The customized version of software will include the large company’s APIs as well. So in their approach, legally and strangely, it is my company should pay a license fee of these APIs to the large company, not the other way, right? What?
- If there will be no software licensing from the firm, how will the pricing structure change? Will my company lose the licensing fee?
Any comments and suggestions on how I should respond will be appreciated.