eNewsletter - November 2006

Software Escrow Industry Marks Silver Anniversary

In 1982, entrepreneurial groups on both coasts of the United States realized the business world had embarked on a new era of relying upon technology and businesses would become increasingly dependent upon software and the intellectual property of others. Recognizing this spawned projections that companies would soon incorporate source-code protection into their overall risk-management strategies. Data Securities International (DSI) and Fort Knox Escrow Services, became the first-ever software escrow providers, and laid the groundwork for what would become one of the most critical business tools of the 21st Century.

Initially, the overall demand for such protection was quite minimal, primarily due to limited computer usage that was confined to governments, acadecmic institutions and large companies for mission critical applications. However, it was clear that the software industry would eventually permeate business at every level and software escrow was projected to become a worldwide industry.

Software Escrow contracts grew slowly through the 1980s and began to realize double digit growth in the 1990s as software became more user friendly and cost effective for organizations of all sizes in virtually all industries. Market savvy software companies soon began to use software escrow agreements as sales tools; overcoming the “what if” objections during sales presentations and further separating their product from their unprotected competitors. Then came the high tech boom of the late 1990s, when low to mid-tier companies invested massive ammounts of money in technology upgrades and attorneys began advising their clients to enter into software escrow agreements to ensure access to raw programming.

But it was perhaps when the dot-com bubble burst that the software escrow industry demonstrated it’s value to the market and realized its strongest and most steady growth period. Horror stories spread quickly with details of end user companies losing millions of dollars in technology investments when software companies were dissolved, programmers were gone and there was no access to source codes. The potential financial devastion of unprotected intellectual property became common knowledge and an increasing number of licensees would not even entertain a software purchase if an escrow was not attached to the deal.

Twenty-five years after its inception, the software escrow industry has grown into an estimated $65,000,000 annual industry with 200,000 clients having entered into 60,000 contracts worldwide. Analysts project that double-digit industry growth will continue as more end user companies leverage the latest technology to gain a competitive edge in their respective industries.