The Forgotten Asset Class
There’s been a lot of chatter about securities, utilities, and what assets are and aren’t. Billions of dollars have flowed into digital assets and the infrastructure that powers exchange and storage.
NFTs and Cryptocurrency have just begun to showcase what can be possible for marketing and commerce in the future, and many industries see use cases that can save on costs and enhance collaboration.
However, at this moment, there isn’t that much utility to them. Outside of evangelists (and a couple small countries), no one is really using either of these asset classes in their daily lives other than speculatively trading them.
Not to worry, this won’t be a critique on NFTs and cryptocurrency, but rather making a point about a digital asset class that has significant value, but no medium of exchange; source code.
Source Code Commerce
Source code is what runs most of our lives. Google, Amazon, Uber, Instacart, Tesla have monolithic source codebases that facilitate and enforce behavior. Although none of us could just get the source code to any of these businesses and become billionaires, it would certainly give many a head start on creating something new and innovative.
Let’s stay on blockchain for a second more. An E-commerce store on the blockchain in which each purchase represents a smart contract execution. If you had the source code for such a project, you would have many options at your disposal for monetization as opposed to binary trading or staking with current digital assets:
- Sell licenses to a full-stack template
- Sell licenses to a library / SDK of components used
- Launching a business yourself
- Selling the IP
- Partner with companies to power their blockchain commerce
With all of these different options at your disposal for source code, your ability to monetize your investment is far greater than other asset classes.
The problem with this asset class is that there are currently two main ways to obtain source code; labor or acquisition. Both of these options have significant drawbacks.
Labor
You need to pay people to develop an asset. The project takes months or years, tens or hundreds of thousands of dollars, and has a very unknown outcome. Your source code could fulfill a use case for a customer, but that doesn’t mean the source code is investment grade. If the code can’t be easily adapted or maintained, it’s the same as an investment property with a constantly failing heater, on-going costs!
Finding contracting resources who can write investment grade source code is not easy or cheap. It will also a require a technical product owner who can ensure best practices are followed, and quality can be sustained.
Acquisition
There are marketplaces for purchasing online businesses, as well as websites to purchase a license to a templated application. Licenses are limited in investment utility, and the majority of online businesses being sold are not built to be assets.
On the whole, these businesses aren’t being sold by entrepreneurs who took a shot and failed. Most are groups who make businesses from templates, put Google Adwords on the site for a couple months, and sell the business alongside favorable analytics for a small price.
The business was not designed to be profitable, and the source code was not designed to be an asset. It was designed to be sold with a singular, non-configurable use case. This can’t be considered investment grade.
Outcome
With labor and acquisition options putting some constraints on what’s realistic with the underlying source code, it is no wonder that this asset class has gone so under the radar.
In order for us to get to the point where source code assets become an investable asset class, there needs to be universal standards to code quality, a shift in sellable code infrastructure from single use-case to multi-purpose, and a medium of exchange to enforce and promote these shifts.
An Evolved Source Code Asset Class
A strong source code asset class is based on a paradigm shift to what people are looking for when it comes to their purchases of software. Currently, buyers are looking at functions: can you sign up, can you pay, can you edit, etc. This is a small piece to the evaluation process.
Instead of just evaluating what you can do with an asset, the shift should incorporate how an asset does something. Confirming an asset is comprised of re-usable, test-backed components requires a deeper level of information on the asset and the author.
You can achieve proof for the above with a trifecta of tools that commercial code bases should have: Tests, DRY code, and Documentation. Tests allow you to evaluate what is / isn’t possible, DRY code principles enforce modular recyclable components, and documentation is the “sales pitch” to investors or future buyers of the contents of your asset at the component level.
Code Quality Standards
Code quality is a subjective term. For development teams and businesses, these are pre-defined and documented rules on what source code updates will be accepted to the main codebase. Some teams enforce very strict rules, while some teams have no rules at all.
When developing an asset, getting the job done is just the tip of the iceberg. If buyers cannot adapt or understand your software easily, it’s not commercial grade.
The current population of buyers aren’t requiring these due diligence assessments, but rather playing around in a demo environment and clicking on buttons. As this evolves into an asset class where sophisticated buyers, investors, and developers are evaluating code; the status quo for due diligence needs to evolve.
Just like a grading system for other investments like stocks and ETFs, there should be a standardized grading system on source code. For every line of source code written, what is a satisfactory amount of test coverage per line? What should good documentation contain? How much abstraction is in the code to fulfill the maximum amount of use cases?
These are all questions that I’m taking into account when developing my own grading system to evaluate source code assets.
Code Infrastructure
When you’re buying source code through labor or acquiring a business, it is a collection of functions and components that work together to achieve a task. Let’s take an e-commerce store.
The functions and components you use for e-commerce are often ones you’d find in a SaaS product, or an integration. When you write code in a way that makes it one size fits one, you’ve limited your population of buyers, and people will have a very difficult time using an asset for its “parts”.
The parts can be the most valuable things about the codebase to a developer. Everything from authentication integrations to settings pages can be reused, but it’s currently more expensive to adapt than to re-create.
When source code is built in an abstracted manner where component design and architecture are evaluated equally with function, you’ve grown your population of buyers who can begin to pick and choose things out of the asset that are valuable, rather than needing to make a decision to use or not use the entire code base. This is followed in open source via packages, but not available in the commercial market.
A New Medium of Exchange
As this asset class grows, sophisticated buyers with commercial use cases outside of just turnkey business acquisition will demand quality. The current environment for exchanging these assets is not built for such due diligence and analysis.
If you look at marketplaces selling these assets, it looks the same as Alibaba or Amazon. Product photos, description, demo, buy now. There are so many factors involved with evaluating source code that it can’t be the same as purchasing a lawn chair.
If you look at a Morningstar.com or Coinmarketcap; due diligence information is plentiful. Historical performance, news, product MOAT, etc. Source code should be treated in the same manner, with a unified set of grading metrics taken into account and provided to the buyer.
Conclusion
We hope we’ve made a strong case that high quality source code is a very valuable asset to have. Companies charge up to 7 figures for use of their source code, and you can do the same thing if you know where to look, and what to look for.
There are already success stories where client facing templates have had $5–10MM in revenue, and 10s of thousands of licenses sold. Our problem is that there aren’t nearly enough projects and stories to equate to the size we believe this market should be. Expansion begins with standards.
We are currently developing standards for how source code is offered to the public, as well as building a marketplace where these standards are enforced. We want as many groups as possible to understand the opportunity associated with buying and selling quality source code, and we’d love to chat with you on your idea or any thoughts you have on the space.
If you have an asset you’d like to sell, please sign up for our seller alpha for 0% in marketplace fees…forever! https://4source.market
