 of developing and maintaining the software internally. Therefore, the sum of the initial development costs (counted on per-customer basis), the additional costs per customer, the margin (counted on per-customer basis), and the integration costs should not exceed the costs of developing software in-house, as is illustrated in Fig. 1. Based on the above assumptions, the following boundary conditions can be derived: 11-c1+m/Cimit where = Cinit As can be seen, neither the absolute value of the vendor's customer-specific costs nor the absolute value of the customer's configuration costs directly affects the minimum number of customers, whereas their ratios to the initial development costs do. Vertical Integration due to Small Market Size and High Product Development Customer's spending when Customer's spending when buying software developing software in-house Software Costs of initial license development Cinit price (distributed across customers) Costs of in-house Costs of added (n-1)(Cadd+Cconf) Cintdev software functionality development Margin (distributed across customers) Software integration Cintegr costs Fig. 1 Costs of buying software VS. developing software in-house Table 1 Minimum number of ISV's customers Independent Margin (m) Customer's integration Degree of ISV's customer- variable costs (Cintegr) specific costs (c1) Partial derivatives Let us now consider the dependency between the minimum number of customers and the margin (m), the customer's integration costs (Cintegr), and the degree of customer-specific costs (c1) by the software vendor. The respective derivatives of min n are considered in Table 1; the variables were assigned the values as follows: Cinit = 10, C conf = 2, m = 30, and varying values were assigned to Cadd. These dependencies are also illustrated in Fig. 2 with exemplary graphs. As can be seen from the graphs shown in Fig. 2, the minimum number of customers grows linearly with the margin, but hyperbolically with the integration costs and the customer-specific costs. Thus, the number o