A few months ago I read a tweet from Elon Musk, CEO of Tesla, that had me shaking my head:
The guy was going to push a button to release some new software code and have it affect the speed of a large piece of hardware: a car. It’s ridiculous to think about, and I wonder how my grandpa would react if I told him that software could speed up a car post-purchase.
And of course it’s just another example of the phrase Marc Andreessen coined: “software is eating the world” – but this case stuck out even more….for the simple reason that cars are the prototypical example everyone uses to explain depreciating assets.
Depreciating assets, of course, get less valuable over time. A new car purchase is said to lose anywhere from 10-20% of value just by driving off the lot. But here was an example of the the opposite: the car was more valuable at the end of the day than it was at the beginning, all because of cloud software. In short, great software is an appreciating asset – and cloud based software enables rapid appreciation.
When I sold software at Clearwater, we were typically talking to companies who weren’t adept at purchasing software, and the idea of buying something based “in the cloud” scared them. I’d often use the simple example of appreciating vs depreciating assets in a short story to help them understand the value of their purchase was only going to increase with time (on *top* of the already attractive value we offered now). At Clearwater, we released new code multiple times a month, often rolling out game-changing enhancements that users clamored for. We even carried around a book that contained each month’s enhancements so the prospect could thumb through a tangible piece of evidence that our software improves. We then asked them to ask their current vendor for similar evidence. Because they were all using on-premise software, many hadn’t seen improvements in years.
They were used to the old way of software: installing it on their own server….and once that installation was complete, it was instantly out of date. This “appreciating asset” feature made it extremely easy to have conversations with longer term clients who wanted a price break on their access to our solution:
“We want a fee decrease!”
“You do realize that since you’ve purchased, we’ve released (this feature), (this feature), and (this feature), and that has made your life exponentially easier based on (this data)? We are happy to discuss a fee adjustment, but because our software is significantly more valuable now than it was when you bought, the market price has one up, and the only direction we will adjust current customers is up.”
of course it was more tactful, but that typically ended the negotiation.
Talk about pricing power – talk about a moat around the business! No wonder why software is eating the world.
I think of my first experiences on the internet – using an AOL CD mailed to me once a month for upgrades (on premise installed software), as opposed to my new internet experience of having my browser updated “on the fly” while I sleep (cloud software updates).
All this leads me to the reason why I posted today: I got an email from Wealthfront letting me know they had added a feature to the software that would greatly enhance my investment returns over time. Incredible.
Did it cost me more? No.
Did I have to do anything to install it? No. I logged in, and it’s there.
Will the software continue to improve? Yes.
We live in an incredible time technologically, and the reason is largely because cloud-based software is an appreciating asset, and funny enough, that is an under-appreciated fact.
Leave a Reply