Fair Value on Commons-Based Intellectual Property Assets

        Jesús García-García & Mª Isabel Alonso de Magdaleno
    ...
Baruch Lev (2001). Intangibles: Management, Measurement and Reporting.
--- Wikimedia Foundation, Annual Report 2008/09
--- Wikimedia Foundation, Annual Report 2008/09
--- Wikimedia Foundation, Annual Report 2008/09
--- Novell Inc., Annual Report 2007
--- Mozilla Foundation, Annual Report 2008
--- Red Hat Inc., Annual Report 2008
--- Microsoft Inc., Annual Report 2008
Expense/Capitalize general framework

       technological feasibility with
    recoverability of development costs       ...
Valuing the Linux Kernel (1)
Database:
• Kernel development history from
Linux Foundation.

• Main variables: SLOC (total,...
Valuing the Linux Kernel (2)
Intermediate COCOMO'81



where,

a=3   b=1.12 ΠCi=1.55

Size=SLOC

Mean salary = 30,040€

Ov...
Valuing the Linux Kernel (3)
Why to value commons-based assets?
                          • To raise finance

                          • To put a real...
How to report?

           Financial
          Statements:
        intangible asset

  Community Value Report

Corporate S...
Corporate Social Responsibility

• Self-regulation to monitor support to law, ethical standards and
international norms in...
How to value?
Past value             COST INCURRED: historical data

               Initial booking value


              ...
Basic financial reporting frameworks




               FASB                                       IASB
Financial Accounti...
What is an asset?




    Future benefit
                                  Future benefit
  Exclusive control
            ...
What is an intangible asset?

                Identifiability


                Control


   IAS 38       Future benefits
So we would need ....

• An initial gross value

• Useful life and amortization rate, or ...

 basis for determining an in...
Intellectual Capital Reporting
Community Value Report
Community profile        Who are the members and how do they differ from other
                    ...
Conclusions
• Not enough development on financial reporting.

• Commons-based IP assets provide competitive advantage not
...
Thank you for your attention!

It's time for questions and comments.
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Fair value on commons-based intelectual property assets: lessons from Linux kernel case

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Presented at 4th International Workshop on Free/Libre/Open Source Software, at Friedrich-Schiller University of Jena (Germany). July 1-2, 2010.

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Fair value on commons-based intelectual property assets: lessons from Linux kernel case

  1. 1. Fair Value on Commons-Based Intellectual Property Assets Jesús García-García & Mª Isabel Alonso de Magdaleno 1 2 1 Department of Accounting - jesgar@uniovi.es 2 Department of Business Administration - ialonso@uniovi.es University of Oviedo (Spain) 4th International Workshop on Free/Libre/Open Source Software Friedrich Schiller University, Jena July 1-2, 2010
  2. 2. Baruch Lev (2001). Intangibles: Management, Measurement and Reporting.
  3. 3. --- Wikimedia Foundation, Annual Report 2008/09
  4. 4. --- Wikimedia Foundation, Annual Report 2008/09
  5. 5. --- Wikimedia Foundation, Annual Report 2008/09
  6. 6. --- Novell Inc., Annual Report 2007
  7. 7. --- Mozilla Foundation, Annual Report 2008
  8. 8. --- Red Hat Inc., Annual Report 2008
  9. 9. --- Microsoft Inc., Annual Report 2008
  10. 10. Expense/Capitalize general framework technological feasibility with recoverability of development costs general realise R&D phase pre-commercial phase (expense) (capitalize)
  11. 11. Valuing the Linux Kernel (1) Database: • Kernel development history from Linux Foundation. • Main variables: SLOC (total, added, modified and removed), days of development, commits, numbers of developers, employeers. • EUROSTAT: Mean annual earnings in high-tech manufacturing and knowledge intensive high technology services for upper secondary and tertiary education.
  12. 12. Valuing the Linux Kernel (2) Intermediate COCOMO'81 where, a=3 b=1.12 ΠCi=1.55 Size=SLOC Mean salary = 30,040€ Overhead cost factor = 2.4 Results validated developers observed vs. developers predicted. Linear regression R2=86.49%
  13. 13. Valuing the Linux Kernel (3)
  14. 14. Why to value commons-based assets? • To raise finance • To put a realistic value on business (know-how) Similar to other assets • For taxation purposes • To enable effective decision-making • To report accurately providing true and fair view Not for licensing IP to others
  15. 15. How to report? Financial Statements: intangible asset Community Value Report Corporate Social Responsability No report, it's free!
  16. 16. Corporate Social Responsibility • Self-regulation to monitor support to law, ethical standards and international norms integrated into business model. • Perspective broader than inmediate short-term profits. • Growing support from academia, accounting profession and firms. • Humanitarism, human development, ecology …
  17. 17. How to value? Past value COST INCURRED: historical data Initial booking value Revised booking value (when needed) MARKET PRICE: needs comparable transactions Future value INCOME: discounted cash-flow /net present value
  18. 18. Basic financial reporting frameworks FASB IASB Financial Accounting Standards Board International Accounting Standards Board GAAP IFRS - IAS General Accepted Accounting Principles International Financial Reporting Standards International Accounting Standards Based on RULES Based on PRINCIPLES
  19. 19. What is an asset? Future benefit Future benefit Exclusive control Value measured with reliability Transaction in the past
  20. 20. What is an intangible asset? Identifiability Control IAS 38 Future benefits
  21. 21. So we would need .... • An initial gross value • Useful life and amortization rate, or ... basis for determining an indefinite life • Impairment losses (fair value) • Reconciliation: additions, retirements or revaluations
  22. 22. Intellectual Capital Reporting
  23. 23. Community Value Report Community profile Who are the members and how do they differ from other communities Potential to improve loyalty, generate new collaborations and convert from other projects Collaboration duration How often community collaborates on development How and when members become loyal What is the frequency of contact with community Community role How community is involved in product design, production, delivery or service Community support What programs are in place to communicate and ensure community satisfaction Community success How do customers purchase rate (if applicable), downloads rate and overall satisfaction measure up with similar products
  24. 24. Conclusions • Not enough development on financial reporting. • Commons-based IP assets provide competitive advantage not reflected on financial statements and firm's value. • Accounting framework is based on transactions, it does not report external voluntary contributions. • There is chance to generate intangible open source assets, but additional research is needed to evaluate absence of exclusive control and not existance of previous monetary transaction. • Community Value Report may be a first step as voluntary disclosure.
  25. 25. Thank you for your attention! It's time for questions and comments.

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