Software platforms have come a long way since the early days of personal computing in the 1980’s running on MS-DOS and Microsoft Windows. In the 1990’s,  the internet and web platform era enabled new methods of software delivery via browsers and mobile applications.  Today’s software platforms are cloud-based, such as software as a service (SaaS) or mobile applications built for iOS and Android. In addition, artificial intelligence functionality is being integrated with today’s software platforms, combining artificial intelligence with traditional software functionality. 

A software platform provides the foundation or infrastructure upon which software applications can be built and run. From an investment standpoint, software platforms offer many strategic business advantages including: 

• Low marginal cost - Software platforms are scalable businesses that support high margins and revenue growth at scale with virtually no marginal costs or the need for debt financing. 

• Competitive moats - Low incremental sales costs means more revenue can be used to innovate, build new products, and provide increased utility to customers, creating a sustainable competitive advantage.

• Recurring revenue models - Most software platforms operate under  subscription-based models (SaaS), generating recurring revenues with high customer retention.  The SaaS model is also tariff-resistant. 

• AI and innovation tailwinds - Artificial intelligence and applications such as generative AI are creating new opportunities for software companies, as investor focus shifts from hardware infrastructure to software applications. 

One of the critical strategic advantages for software platforms is scalability. While the marginal cost of traditional goods increases with production due to resource constraints, the marginal cost of digital goods trends to zero as production scales.  As a result, investing in software platforms creates an attractive  opportunity for investors. 

Historic rise of software¹

1951 - UNIVAC became the first commercially produced computer, advancing the need for software. 

1952 - Grace Hopper developed the first compiler which translated symbolic code into machine code.   

1960 - COBOL, one of the earliest high-level programming languages, was developed.

1964 - IBM introduced the first family of mainframe computers, the IBM System/360. 

1972 - The C programming language was developed by Dennis Ritchie at Bell Labs, revolutionizing software development and leading to Unix.

1980 - Microsoft’s Disk Operating System (MS-DOS) became the standard operating system for personal computers. 

1984 - The Macintosh, with its graphical user interface, brought more user friendly software to the masses.

1991 - The World Wide Web was created by Tim Berners-Lee.

1995 - JavaScript was introduced, becoming a crucial language for web development.

1997 - Microsoft released Windows 95.

2001 - Apple introduced the Mac OS X.

2002 - The rise of cloud computing coalesced with Amazon Web Services (AWS).

2006 - The Google App Engine cloud platform launched as well as AWS’s EC2, which allowed users to license virtual machines.

2007 - Netflix became a video streaming service on the cloud.

2008 - The launch of the Apple App Store kicked off the mobile application era.

2009 - Microsoft launched Azure marking its entry into the cloud. 

2015 - The term "Artificial Intelligence" gained widespread attention as machine learning and AI become an integral part of software development.

2020 - The Covid19 pandemic gave rise to remote work solutions.

2022 - Quantum computing made critical advancements.

2023 - Generative AI became mainstream with the release of OpenAI’s ChatGPT.

Scalability

In 2011, venture capitalist Marc Andreessen famously announced that “software is eating the world.”² Andreesssen was referring to software’s role in digitizing industries and transforming and scaling the way businesses and consumers interact. Software companies can maintain high profit margins because the incremental cost of adding new customers is low.  

Software is scalable.  While the marginal cost of traditional goods increases with production due to resource constraints, the marginal cost of digital goods trends to zero as production scales. 

Comparing marginal costs

High substitution costs

Another key attribute protecting profits is that there are high substitution costs associated with switching from one software solution to another.  Users risk losing data, functionality, and productivity time when they make a switch. 

Competitive moats and large barriers to entry

Software vendors often have large barriers to entry given the significant R&D required to maintain functional superiority and service its broad customer base.  This creates a barrier to entry and competitive moat for small startup operations. 

Recurring revenue model

Today, most software companies have adopted subscription based, recurring revenue models.  This business model provides for predictable cash flows assuming there are high renewal rates and low customer churn. 

Premium valuation, superior growth

Given their long-term profitability and scalability, recurring revenue model, and high level of customer retention, software companies tend to trade at above market multiples.  As seen in the table below, companies in the VettaFi AOT Software Platform Index trade at a premium valuation relative to the VettaFi 500 TR Index, but also exhibit superior earnings and sales growth characteristics. 

	VettaFi AOT Software Platform Index		VettaFi 500T Index
Trailing Price/Earnings	27.16		22.93
Forward Price/Earning	26.08		20.99
Trailing EV/Sales	7.06		4.32
Forward EV/Sales	6.55		4.11
EPS Growth (%)	11.32		9.08
Sales Growth (%)	9.40		5.56
Dividend Yield (%)	0.45		1.19

Source: VettaFi, as of 6/30/2025

At the forefront of innovation

Historically, software has been at the forefront of innovation and disruption, from the early days of MS-DOS and Windows to today’s digital cloud-based and mobile computing applications. Strides in AI-powered development, quantum computing integration, edge computing, and extended reality are driving the next wave of software innovation, along with other disruptive trends such as low-code and no-code software development.³   Software technology and innovation will play a pivotal role in transforming the digital landscape of the future.

Capturing the rise of digital tollbooths

The software industry is undergoing a profound transformation, shifting from traditional Software-as-a-Service (SaaS) models to a "digital tollbooth" paradigm, where platforms capture a percentage of every transaction processed through their ecosystems. Companies like Toast, Unity, Amazon, Shopify, Visa, Paylocity, and Robinhood exemplify this evolution, positioning themselves as critical infrastructure that automates complex tasks, minimizes human error, and delivers unparalleled value to users. By embedding themselves into the transactional flow—whether it’s processing payments, powering in-app purchases, or streamlining payroll—these platforms function like tollbooths, collecting a small but consistent cut of the revenue they enable. This model not only ensures scalable, predictable revenue streams but also creates high switching costs, as businesses and consumers become deeply integrated into these ecosystems. As automation and digitization continue to reshape industries, the digital tollbooth model represents a powerful investment opportunity, capitalizing on the exponential growth of transactional volume in an increasingly digital economy.

Our index approach

The AOT VettaFi Software Platform TR Index (SOFTT) tracks the performance of the top companies that rely on, contribute to, or create software platforms that enable the functionality and delivery of services.  

The index selected the top ranked companies from its Software Platform universe. Scores used for ranking combine measures of quality and market leadership. 

Companies are classified, based on their business model and activities, as software-driven enterprises where their Software Platform is a main driver of their business, and/or their products are crucial to Software-Driven Enterprises. These companies must be at least materially engaged with 20% of their revenue from software-driven enterprise business activities.

“Software Platforms” refer to integrated software systems or frameworks that serve as foundational technologies enabling the development, deployment, and operation of applications, services, or digital ecosystems. 

These platforms are essential to the functionality and strategic direction of Software-Driven Enterprises, which rely on software as a core enabler of their business models, product offerings, and operational capabilities. Designed to be extensible and scalable, these platforms often support broad user, client, or developer ecosystems. 

Within Software-Driven Enterprises, a Software Platform may include: 

• Cloud infrastructure platforms – Systems that provide on-demand computing, storage, and networking services (e.g., IaaS and PaaS solutions). 
• Enterprise software platforms – Core business applications such as customer relationship management (CRM), enterprise resource planning (ERP), and human capital management (HCM) platforms. 
• Application development platforms – Tools and frameworks that support the creation, testing, and deployment of software applications, including low-code/no-code environments. 
• Data analytics and artificial intelligence platforms – Platforms that support large-scale data processing, machine learning, business intelligence, and predictive analytics. 
• Middleware and integration platforms – Software that facilitates communication, data exchange, and interoperability between disparate systems and applications. 
• Industry-specific software platforms – Specialized platforms designed to meet the unique technological needs of verticals such as healthcare, ecommerce, financial services, education, or logistics. 

Companies that develop, license, or use Software Platforms as a core part of their operations, and whose platforms are mission-critical to the infrastructure, innovation, or service delivery of their enterprise or other Software-Driven Enterprises, are considered relevant under this definition. These platforms often enable digital transformation, operational efficiency, automation, data intelligence, and scalable ecosystems across multiple industries. 

Additionally, companies must trade on eligible US exchanges and meet the following minimum criteria: 

• 3 Month Average Daily Trading Value

• 1 million USD Float Market Cap Percent 

• 20% Full Market Cap: 100 million USD 

At least 80% of the value of the index must be composed of principally engaged companies that derive at least 50% of their revenues from software-driven enterprise business activities as listed in the appendix. The top 50 ranked companies within the index’s universe are selected with a 10 company ranked buffer for current constituents. 

Companies must have a positive Earnings to Price ratio. Ranking is based on the average of a factor score rank and a market cap rank. The factor score is calculated based on a company’s Cost of Goods Sold/Revenue, Earnings to Price, and Return on Invested Capital.

Materially engaged companies (those with less than 50% revenue in software-driven enterprise business activities) are capped at 20% and their excess weight is redistributed pro-rata to the principally engaged companies (those with at least 50% revenue in software-driven enterprise business activities). Constituents are weighted by float modified market cap with a maximum weight of 7.5% and a minimum weight of 0.5%. 

The index rebalances on a quarterly basis on the third Friday in March, June, September, and December. 

The AOT VettaFi Software Platform TR Index (SOFTT) has been licensed by AOT for a daily 2X levered ETF sub-advised by Tidal Financial Group which trades under the ticker symbol SOFL.

More information about the index can be found here.

¹https://www.geeksforgeeks.org/software-engineering/evolution-of-software-development-history-phases-and-future-trends/

²Grieb, Frederick. State Street Investment Management, Software: Still Eating the World Just Taking a Pause to Digest, October 22, 2024. 

³Simplilearn, Future of Software Development: Trends & Technologies of Tomorrow, April 26, 2025.