Software Escrow - Why bother?

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Some have said that a software escrow isn’t worth the bother because the chances of a release event triggering the escrow are very remote. And beside that, verification of materials on deposit is very costly. Some of which is partly true, but mostly it is misleading.

Our experience for almost 50 years is that about 1 in every 1,000 escrows is triggered in any given year. It is also true that less than 1 in every 1,000 houses are destroyed by fire in any given year, but not having fire insurance would rightly be considered foolhardy.

Software escrow and fire insurance are both a matter of costs versus benefits. The cost of an escrow is about the same as one might spend on coffee – about $3 a day. The benefits range anywhere from avoiding a minor disruption in business operations all the way up to preventing a catastrophic shutdown if the application is central to operations. Either way, the cost benefit calculation points strongly to having the escrow.

As for verification of materials under escrow, most escrow agents vigorously promote their own verification services. In fact they look upon the escrow itself mostly as a platform from which to sell such services, which indeed are costly. There are methods of verification that do not involve significant costs, and we have found them to work perfectly for almost 50 years.

That might explain why a licensee would want an escrow, but what about the licensor?

Without any question a software escrow is an additional cost to the licensor, and it would certainly prefer to see the whole escrow question just disappear. But licensees know that this is not a perfect world and that maintenance and support could suddenly stop for many reasons, leaving them stranded. So they demand an escrow.

Smart licensors turn this demand into an advantage by already having an escrow in place. It demonstrates professionalism and experience. Some even turn it into a profit item by charging their customers a fee to be named as a beneficiary.

“Why bother with an escrow?” The better question is “Why not?”.