data is free…

as a followup to my previous rant about how “music is free, get used to it”, the same logic must be applied to all forms of digital information, movies, and particularly, software.

now software is a tricky beast, because once people have it, they feel a sense of ownership. And they arent going to pay to go to a software developer concert, or a movie theater to watch geeks code. So, you need to charge on a subscription basis. Enter SaaS (software as a sevice).

But… people arent used to paying an ongoing cost for software. Actually, people arent really used to paying an ongoing cost for many things, maybe magazine subscriptions, and the lawnmower guy.

People might not be. But enterprises are. They regularly enter into multi-thousand dollar ‘support’ contracts which basically mean some guy in India who has no idea about your particular issue (and why should he?) answers the phone. ‘Support’ contracts are really enterprise SaaS.

So the trick in the enterprise is twofold. 1. security, enterprise are paranoid about it. and 2. working out how to treat those monthly charges, and get them as part of the capital budget.

re-educating accountants can be a tricky thing!

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data is free…

4 thoughts on “data is free…

  1. Why would it be capital? At the end of the day you don’t own anything you can sell, so it’s just an expense like water, power and an internet connection.

    Even software as a product depreciates in value so quickly it’s almost an expense rather than an asset.

    I see things going to more of a “browser” model. Basically, the software is free but it acts as an interface into some kind of a wider system and you have to pay for that. Thus the game is free, but to play against your friends on an internet server is not, that you have to sign up for. Same for movies. You sign up to a service either paying per movie download or a flat fee for 60 movies a month etc. The software to watch them is free and DRM free. Sharing movies on the internet is still illegal. However, given that you can use a nice interface to download and watch any movie you want for a couple of dollars per movie off a fast server and get consistently high quality… it’s hardly worth digging through illegal versions online.

  2. well, its capital because its a big purchase, like a computer. ‘large’ software purchases (over about $500) are treated as capital expenses and depreciated.

    which is completely crazy, since the depreciation rate is… 3? or 5? years, can’t remember. I own software that I upgrade basically every year, which I am depreciating (the original > $500 purchase) and expensing the upgrade (which is a complete replacement for the original). Huh?

    i guess the question applies to all software. MS Office, how does that go to the browser model? Photoshop? IDEs? All those bits of software people have installed on their machine… if the software is free, which is what im implying, how do those companies make money? Or is there a big cost cut looming in the software industry that I don’t know about…?

  3. It can only be capital if it’s something you can sell. If you can’t sell it, it’s not an asset, so it’s not on your balance sheet. It doesn’t matter how much it cost. Thus, a pen is an expense because you can’t really sell a half used office pen. Same of small software. Something like Photoshop, if it’s pretty new, might be sellable and thus can count as an asset for a year or so.

    I don’t see what’s crazy about any of this.

  4. The problem is, people like seeing things on balance sheets. It makes you look like a healthy, asset filled, stable business. Rather than having lots of cash-flow sucking expenses. Even though you would never be able to sell that massive monolith of MS Sharepoint Server for love or money.

    Its not crazy. its common sense in the software world. but… people tend not to think that way. Not yet at least.

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