Software Products: Terms and Characteristics

Software is an intangible economic good, with no physical form, its utility or value not even perceptible in another form. So only the functionality of software is perceptible e.g. via a user interface, or as the result of a controlled transaction via software, e.g. as an account movement. What exactly constitutes a software product is often rather subjective. As with many highly technical products, many people do not understand how software products work. Software is therefore in the truest sense of the word “intangible.” Software thus contrasts greatly with other investments or acquisitions of consumer goods. In particular the customer does not really acquire the product when buying software, rather very specific, precisely defined rights of use in a license contract. However, investments in software today represent a larger proportion of spending for IT infrastructure than investments in hardware, and software contracts with large companies often amount to multiple million of dollars.

Software belongs not to the three classic economic factors of capital, land, and labor, but in the new fourth category of “knowledge.” Software is the manifestation of human know-how in bits and bytes and in this form also possesses the invaluable advantage (and simultaneous disadvantage), that it can be easily copied and quickly circulated over any distance. The right software, ideally applied, can represent a more important strategic competitive advantage in today's economic life than all the other factors. Software can be crucial for competitiveness in production processes, functionality, the availability of service products, and thus for a company's success or failure on the market. But what is a software product and what is it not -or not yet? What role does the price play? How should we classify services that are offered on the basis of software?