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Software and Hardware...I remember first hearing these words when I was a youngster and my dad had a gentleman over at our house. They were talking business and apparently my dad was interested in buying a computer system for his business. This had to have been around 1980, and the gentleman, a salesperson for the computer firm Wyse (a long long time ago in galaxy far far away but apparently still in business, or at least the name), took the time to explain hardware vs. software. The stuff made of plastic and metal and blinking lights vs the delicate bits and bytes which ostensibly existed on that 45 rpm disc-like object but which was the real important thing. I remember understanding the difference. But more likely I just nodded expectantly like a spaniel so I could go outside and play roller hockey.

Hardware is an old term. There's a hardware store in every town. It's heavy and takes up space, at least a sturdy shed or a two car garage. Software is newer. It takes up less space, weighs less. Can be stored in a desk drawer or iPod. But any 12 year old today knows the difference between the two, and most likely already knows at his or her young age that it's the software that rules. Sure, an iMac may be handsome hardware but it's the OS and the sleek user-friendly applications that rock. The iPod, without iTunes, would be another Zune. I think the PS3 is better than Xbox because it has better games, or at least my nephew does.

Numerous examples abound. It's 2008, who doesn't know that software is important, and becoming more and more important every day? As a business owner, in a high tech industry, there is one group that doesn't know the difference. It's a rather innocuous industry but one that all business owners deal with - capital leasing. Businesses need to buy things. Sometimes they are very expensive and need to be financed. Exactly the same thing when consumers finance cars. And if one misses a few monthly payments, the car will get repo'd. And cars are relatively easy to repo. The repo guy can hotwire or most likely he has a valid spare set of keys.

The stuff for which banks offer capital leases to businesses is very similar. They like to finance things that can be repo'd. PC's, copiers, furniture, and yes, cars. These can all be hauled away in a truck. But what about the software that a business owns? Software that most likely costs more than any hardware? I know our Great Plains accounting software was singly more expensive than anything else in our office, at lease 20 times more than the Dell server it runs on. How does one actually repo software? Take the original install CD's? Oops, misplaced those. It's a quandary for sure. As more and more of the value, the stuff that is our standard of living, is transferred to the software application and the information, to a virtual model, the less and less relevant the specific hardware becomes, the less the hardware costs. Conversely, the more the software costs. Oracle, SAP, and Microsoft - stuff ain't cheap.

So how does a business get software financed if it can't be repo'd? The answer is that it doesn't. A business can get a limited amount of software financed but typically in small amounts relative to hardware. The traditional repo model doesn't work and it becomes more of a straight business lien, not a capital lease. I understand the bank's perspective. But I don't know if they are doing anything about it. Perhaps leasing Dell PC's and Canon copiers is enough business for them.  With all the software platforms out there - CRM, HR, OSS, etc... - most businesses do without because they cannot afford the old pricing model. Forget that they cost so much, a business couldn't finance it if wanted to.

Which leaves the business owner perhaps in a bind. Which creates what I like to call a market. This is one aspect which makes software as a service a logical solution for many of the businesses. Enterprise quality without the barriers to entry. Easy in, easy out. The "as a service" may be overused, or a re-labeling of something old, but it does make sense in a risk mitigation strategy. Ownership requires obligations and liabilities. Why own something not core to the business? SaaS may be this generation's ASP. But perhaps it was that ASP's didn't take it far enough?