What Is Software Escrow? The Alternative Answer

Software escrow means deposit of the software's source code into an account held by a third party escrow agent. Escrow is typically requested by a party licensing software (the "licensee"), to ensure maintenance of the software. The software source code is released to the licensee if the licensor files for bankruptcy or otherwise fails to maintain and update the software as promised in the software license agreement.

What Is Software Source Code?
Source code is the software's programming code represented in a particular programming language that humans can write and understand.

Picking an Escrow Agent
Either the licensor or licensee should pick an escrow agent. Generally, the licensor should pick and pay for the agent so that the owner of the software has the choice of which third party will be responsible for storing and handling the source code. Additionally, the licensor often will have more than one licensee request escrow, and having the same agent each time makes the record keeping and contract negotiation much simpler.
Often, licensees will allow the licensor to pick the agent if the licensor also pays the escrow fees. When picking an agent, be sure to investigate the background and financial status of the company. An agent with no assets and without substantial insurance coverage is not a good choice. The agent should have substantial resources, so that the parties to the escrow agreement may be protected in the event of the agent's negligence and ensuing litigation, or in the event of loss of the code and financial reimbursement by the agent's insurance company.

Costs of Software Escrow
Software escrow fees are typically between $1000 and $2000 per year per licensee. There is some variation based on different pricing structures. Some companies will reduce the rates for licensors who have substantial numbers of licensee deposits.

Escrow Agreement
The software escrow agreement is a three party contract that governs the procedures and terms of the escrow process between the licensor, licensee and agent. Usually, the software license agreement will contain a clause that states that the parties agree to escrow and will execute a separate agreement to cover those terms. As this agreement involves three parties, the negotiations can be more difficult than usual.
The party that chooses and pays the agent should negotiate its terms with the agent prior to bringing the third party into the negotiations. This will save time in that two of the three parties will already have agreed on the contract wording prior to the third party reviewing the agreement.
Important Terms

Procedures
The agreement should outline the procedures for the deposit and handling of the code by the licensor and agent, including what will be deposited (updates, customizations, etc.) and how often the deposits should occur. How the agent is to receive the code, and where and how it is to be stored should also be addressed.
The agreement must also define the procedures for release of the code after an event that's recognized as triggering its release. These procedures should include notice to the parties, deadlines for response and counter argument, opportunity to seek court order, and so on.
Events Triggering Release of the Code
The agreement should state what events result in release of the code to the licensee. These may include:

• The licensor filing for bankruptcy
• The licensor breaching the license agreement
• The licensor failing to provide maintenance as agreed
• The licensor going through a merger or acquisition resulting in a new licensing entity
• The licensor should always try to limit the release events solely to failure to provide maintenance.

If any of the other events above occur and the licensor continues to provide maintenance as agreed, there is no reason to justify release of the source code and release may cause substantial damage to the licensor in this event.

What is Software Escrow?

Getting someone to write software for you can result in a wonderful, custom solution to your problem. It can also incur a significant amount of risk if things go wrong.
Software escrow is one way of protecting you in certain types of projects when certain things go wrong.
When you contract out for software to be written for you, there are several decisions that are part of the process. One that's often overlooked is whether or not you get a copy of the source code when the project is done.
The source code is the collection of written instructions that the programmer actually writes to create a program. For many types of programs, the source code is then transformed into the "executable" that you actually run. For example "notepad.exe" is a executable program that comes with Windows. Somewhere back at Microsoft they keep the written instructions, or source code, that the programmers used to create it.
Open source software projects make the source code publicly accessible. Anyone with enough knowledge can create the software executable using the source code. Closed source, or "proprietary" software is just the opposite ... the source code is not available publicly, only the executable. Companies use this approach to retain their intellectual property, and trade secrets.
When you contract with someone to write software for you one decision, implied or explicit, is whether the source code belongs exclusively to the developer, or whether you get a copy. If you do, you have the safety of being able to have someone else make changes or fix bugs in the future, but the developer is giving up some of his or her potential control of that software. If the developer retains the source code and you don't have access to it, then you are dependant on the developer for all future updates. Typically developers will charge more if you get the source code.
It's common to opt for the cheaper option, or to have the developer simply not give you the option.
So what happens if your developer goes out of business? What if all of the source code simply disappears?
That's where software or source code escrow comes into play.
As part of arranging for your software to be written, you and the developer can agree that a copy of the source code will be given to a neutral third party - an escrow agent. The agreement would then specify under which conditions that agent would be allowed to release the source code to you. For example one of the conditions might be the developer's bankruptcy or going out of business for other reasons. By using software escrow, the developer is protected as long as it makes sense for them to retain control, and you are protected should the developer disappear. (Naturally other conditions might trigger the release, but the developer's going out of business is a clear example.)
Software escrow is not fool proof. For example, what happens if the escrow agent goes away? And escrow typically adds some cost to your transaction.

Long term success achieved with the appropriate Software for small businesses

The three S's which spells success for your small business - Software, Security and Speed.
Software for small businesses are very essential for fast and steady long term growth. The opportune software should be built on both communicative as well as a collaborative platform. Small business software caters to the basic needs such as sales, customer support and marketing. However selecting the right type of software to suit your specific business requirements is the key to success
Be it a big or small business, software is vital for smooth functioning of key area operations: sales, marketing and customer support. The sales functionality requires a system to track and follow up automatically on each and every transaction made by the customer as well as maintain unique individual files for each customer. This will enable swift communication to and from the customer. Marketing helps boost the image and credibility in the market. It involves the overall maintenance of e-mail invoices, individual customized billing templates, tracking expenses without having any accounts knowledge. Customer support services include feature rich techniques for creating and tracking customer inquiries after the initial sales transactions as well as maintaining a post sales detailed report for every customer.

• While selecting the right type of software for your business a few tips to keep in mind
• Research analysis of the business is a must before adopting particular software.
• Target audience for the product/ service offered by the enterprises should be taken into consideration.
• Payment details as well as whether you require a payment gate way.
• Necessity of E-commerce and shopping in the near future.
• Collaboration portals to suit your specific needs: chat messenger, task manager, calendar, contacts and document sharing facility.
• What type of process centric business application would adapt well to your unique business needs: sales, billing and customer support services.

Small businesses, apart from size are very similar to big established business giants. To get to the top, one needs to select, implement and maintain the right type of software your small business requires for its specific goals and objectives.