Have you thought about software escrow recently? No? Not even sure exactly what it is or why you’d want it? Depending on whether you are a software vendor, buyer, or both, software escrow is an important component, especially in our current times of economic turmoil. You may be surprised to learn that software escrow can be a straightforward affair that can even improve your profitability, rather than just an expensive hassle everyone tries to avoid.
Software Escrow
If you are not sure what software escrow is, here is the short version: In escrow scenarios, one party (typically the software vendor) provides a copy of the source code or other proprietary files to a neutral third party for safekeeping, so a beneficiary (typically the customer) can have access to it in case some future situation occurs. A typical example would be a customer being worried about a software vendor going out of business or ending support for a product, thus losing the ability to access or use the product. For this reason, customers often desire access to source code, design specs, developer documentation, and much more. This is a worry that is not to be taken lightly and based on sound reasoning, especially in times of economic uncertainty. At the same time, it is not reasonable to expect a software vendor to give up their assets such as source code or design specifications, which may often represent the vendor’s “crown jewels” or trade secrets.
The solution to this is to put these assets into escrow. This way, the customer is guaranteed access to everything needed to reduce their risk, while the vendor is not forced to give up any critical assets.
Note that there are many reasons for putting things into escrow. “Going out of business” is the classical example, but “release conditions” can include many other things such as the vendor indicating that the product is no longer supported. Additionally, escrow can also be used for no risk sales transactions in which one party puts something into escrow with the release condition being the payment made by the customer, thus eliminating all risk of not getting paid or not receiving the desired products. This is especially useful in custom software development scenarios.
So why doesn’t everyone in software use escrow? Because in the past, escrow has always been an expensive hassle for everyone involved. This is a fact that the founders of Tower 48 have had to deal with, and have been frustrated by in many instances, which is why Tower 48 was created.
The Tower 48 Escrow Approach
Tower 48 is an escrow company created by a group of experts around Markus Egger, Publisher of CODE Magazine, Founder of EPS Software Corp., and renowned industry expert, author, and speaker. Tower 48 will take digital escrow out of the Stone Age and make it a simple, pleasant, desirable, and advantageous experience for everyone involved.
Most escrow is very expensive with fees ranging in the thousands of dollars, and processing fees added every time someone wants to update what is stored in escrow or take a look at what has actually been deposited. Tower 48 makes this much more affordable with the standard plan allowing people to put up to five different projects into escrow (with an unlimited number of associated files and file versions) for up to five beneficiaries, as long as the overall file size is under 5GB. (We refer to this model as “5/5/5.”) The expense of this is $29.95 a month, or less than $1 per day. A company doesn’t pay fees for adding new files into escrow or verifying what’s already in escrow. For people who want to put more assets into escrow or who have or add more beneficiaries, fees raise gradually, with the per-beneficiary or per-product fee actually going down, making overall costs very affordable. For vendors selling standard products to larger numbers of customers, Tower 48 has plans available that not only keep the fees per customer very low, but also allow the vendor to charge for the service (see below).
Tower 48 has been created specifically for digital assets, in particular for computer software, although Tower 48 can handle anything that is stored as digital files. Most other escrow firms receive the “deposited assets” physically, meaning that depositors have to burn their software on a CD or DVD and send it to the escrow company, which will put it in a vault. In many cases, the escrow fee is basically a rental fee for physical space in a vault. This means that every time one wants to update what is in escrow, one has to create a CD or DVD and send them to the escrow company. This represents an ongoing task that is not just a hassle, but also expensive as many escrow companies charge a fee for updating the stored assets. Furthermore, the customer has little information about what is in escrow beyond “there is a silver disc in a box.”
Tower 48’s digital escrow allows depositors to upload files digitally in a secure fashion. This process can be done manually or integrated in other processes. For instance, a software vendor can integrate escrow directly into the Visual Studio build process, eliminating all extra steps and expenses from the process.
Similarly, it is possible to integrate adding beneficiaries (“customers”) to a product either manually through a Web interface, or by direct integration of an eCommerce system (see below) or some other software system. This allows vendors to automatically escrow contents for customers that purchase software in a Web store, or systematically add beneficiaries from an enterprise system.
Customers, on the other hand, can go online to see what is in escrow and even see the content of ZIP files to verify that the escrow account is up to date and contains the desired assets. It is important to note, however, that while customers can see what files are in escrow, they cannot download the assets until release conditions have been met!
A Service Vendors can Add for their Customers
Alternatively, if you are a software vendor, Tower 48 offers a unique model that not only allows you to easily put assets into escrow for your customers, but to actually be able to make money from this service. For instance, if you are selling software through a Web store, you can add an option for customers to automatically have the software escrowed. Perhaps you sell a product for $299. You could offer an escrow option to a customer for a one-time annual fee of $29.95 (for example). This way, for a very small fee, customers can purchase the safety of escrow, which is a great service to them. As a software vendor, you get to keep two thirds of that fee, while Tower 48 gets one third for performing this service.
This escrow option offers a great deal for everyone involved! Customers get the benefit of very affordable escrow, while vendors have the opportunity to get an extra income stream for their trouble!
With this model, as the software vendor, you determine the actual escrow fee to charge your customers. The only rule Tower 48 has is that the total fee charged to the customer must be a minimum of 5% of the purchase price of the software. You then pay Tower 48 one third of this escrow fee which covers the customer for one year (after which the customer has the option to renew the escrow agreement). So no matter whether you sell an iPhone application for $1.99 or a $500,000 enterprise software license, Tower 48 has a model that works. (Keep in mind that for smaller volume setups-5/5/5-mentioned above, is also always available.)
Types of Escrowed Assets
Tower 48 is optimized for software escrow, but we can escrow really anything that is a digital file. For instance, if you sell clip art such as JPEG or TIFF files, why not put the original PhotoShop files or higher resolution files into escrow in case someone wants them under certain conditions? Why not put DRM-free music files into escrow if you are selling rights-managed content?
Also, be aware that release conditions can be all kinds of things. Tower 48 offers standard release conditions such as “release if I go out of business” or “release if I don’t support the product anymore,” but our attorneys can also draw up custom release conditions. Maybe you are selling DRM content and want to make the DRM-free version available a few years down the road for people who want to pay an extra 10%? You could certainly make that a release condition.
The Tower 48 Technology
Tower 48 is based on a state-of-the-art system built on .NET technology (heavily based on WCF, ASP.NET, and Silverlight) and architected on SOA principles. Tower 48 offers a modern Web site as well as service integration using various standards (SOAP, REST, etc.) as well as a client-side SDK and integration into development environments.
Tower 48 is also heavily based on cloud computing. Tower 48 will offer an optional Windows Azure version as soon as Microsoft releases Azure (we are an early implementer).
Getting Started
To get started, go to www.Tower48.com and create your free account and start your 30-day free trial. The Tower 48 site features a free video that demonstrates the entire escrow process, as well as additional information including integration of the development environment and eCommerce integration.
If you have questions, feel free to contact us at info@tower48.com.
