THE IMPORTANCE OF SOFTWARE
Leasing often (but not always) provides substantial benefits to users, vendors and sales representatives - because it solves business problems and satisfies company and individual needs. Software leasing often provides these benefits in spades because institutional policies and individual perceptions often lag in realizing that the primary driver of the communication and computer industries is software. Our apologies to hardware manufacturers, Andy Grove, and George Gilder ("Microcosm"), but that's what we think. For some support for our position, see Don Tapscott and Art Caston ("Paradigm Shift") and Geoffrey A. Moore ("Crossing the Chasm" and "Inside the Tornado"), among others.
The computer hardware industry has grown exponentially since the 1950's - and so did the computer hardware leasing industry. Which helped cause the other? One thing is sure - leasing was a big contributor to the growth of the computer hardware industry. Leasing will contribute to the growth of the software industry and the software companies that use leasing. And leasing will accelerate users' benefits of the software.
Information technology expenditures in 1994 were split roughly evenly between computer hardware on the one hand and software and services on the other. One would expect that equal amounts of hardware and software would be leased. However, computer hardware was more than 20% of the cost of assets acquired through leasing in 1994, while software was only 1.5%! Something is out of whack!
IS SOFTWARE THAT DIFFERENT FROM HARDWARE?
Yes, software is different -it's intangible, but an intangible can have value (like a book or movie) and it can have a long useful life (like a Beethoven symphony or a word processing or database program).
Yes, a lot of people, both at the user and vendor level, are not aware it's leasable.
And yes, a lot of people at many leasing companies and banks do not appreciate the fact that software has value, even from a lending point of view.
But, no, software is not that different - it's something that is useful and can have a long useful life, so it should be leasable.
And no, it's being leased now, but it's only in the Early Adaptor phase of the leasing product lifecycle.
So although software is in some respects different from tangible computer hardware, the difference should be meaningless from a leasing perspective. In addition, software leasing provides some additional benefits not found in the more mundane leasing transaction. You might want to take a look at Benefits of Leasing for a detailed explanation of the general benefits of leasing. Then come back here; or just keep reading and go to Benefits of Leasing when it's more convenient.
SOFTWARE LEASING FROM THE USER'S PERSPECTIVEWHAT IS SOFTWARE LEASING
From the viewpoint of the user, it is just about the same as equipment leasing, except it's for an intangible, the software and the software license. It is a method of paying for software over time instead of a single upfront payment and the functional equivalent of a loan from the leasing company or the software developer. It is normally structured as a capital lease rather than an operating lease. However, it is often accounted for as an operating lease.
WHAT ARE THE SPECIAL BENEFITS FOR A USER
WHEN IS SOFTWARE LEASING AVAILABLE TO A USER
If all or most of the "if statements" are true, software leasing is probably available. And it may be available even if most are not true.
SOFTWARE LEASING FROM THE VENDOR'S PERSPECTIVEWHAT IS SOFTWARE LEASING
From the viewpoint of the software developer, software leasing is a sales and marketing tool which provides users with a lease financing alternative to an upfront cash payment. Leasing often results in an increase in revenues, a decrease in sales time, and an increase in user satisfaction levels.
WHAT ARE THE SPECIAL BENEFITS FOR A VENDOR
WHEN WILL A SOFTWARE LEASING PROGRAM BENEFIT A VENDOR
If most of the answers are "yes", leasing software may well benefit you and your customers.
Software leasing is the leasing product of the 90's - and beyond. Used correctly, it can solve problems, satisfy needs, and result in a win/win solution for everyone.
© LPI Software Funding Group, Inc.
593 Cricket Lane, Suite 200 Wayne, PA 19087
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March 7, 2006