How Does De-valuation of a Software Asset Occur?
It’s not uncommon to see distressed or “orphaned” software assets sitting inside large corporations – assets that have become de-valued and no longer serve the mission or needs of the company. Often, the asset is a software product that was added to the company’s portfolio as strategic acquisition but is underperforming.
Why is the asset not fulfilling its potential?
Most software acquisitions become subjected to a variety of destabilizing forces within the larger enterprise, many of them unforeseeable:
- Priorities and strategic plans change.
- Goals and definitions of success change, such as revenue recognition.
- Human Resources (skill sets) are dispersed across the company, creating a breakdown in focus – these skill sets typically include product management, R&D, QA, and product marketing personnel.
- The acquiring company has difficulty assimilating the software business into its culture and organizational fabric.
- The acquired software business finds its product bundled with hardware assets that it is meant to “pull through.” The software is offered at a deeply discounted price as an incentive to drive a bundled sale, allowing enterprise to maintain incumbent pricing for core products.
- Over time, the lack of revenue attribution leads to the business being treated as a cost center and not a revenue generator; budgets are cut, staff is reduced, tech debt accumulates, and the business enters into a period of devaluation.
- The owning enterprise then changes strategic focus, or imposes financial goals on the new business that are unattainable, particularly when tasked with balancing a broader set of priorities.
After a period of protracted decline, the decision is often made to exit what is now characterized as an “orphaned” business. The decision? Either end-of-life (EOL) the business or partner with Dillon Kane Group on a lift-out strategy. In other words, do you want a hard landing or soft landing?
Hard or Soft Landing?