The FRED® Blog

The rise of custom software spending

When we think about business capital we often think about traditional capital—physical items such as machines, desks, and cash registers. These kinds of items are rival, meaning their use is limited to a given time and place. However, many new types of capital are non-rival, meaning they can be used simultaneously and costlessly in multiple locations at the same time. Today, we look at one non-rival good: custom software.

Custom software is software that has been created or modified for a specific business either in-house or by a vendor. In the FRED graph above, we plot vendor-customized and own-account software spending as a share of total private fixed investment. As this graph shows, there has been tremendous growth in custom software as a share of total private fixed investment. In 1985, custom software was 3.1% of total private fixed investment. By 2022, it had increased to 9.1%, a nearly threefold increase.

This increasing share of custom software spending could help explain recent macroeconomic trends such as market concentration and the rise in the number of establishments owned by the largest firms. For more information, see this working paper.

How this graph was created: Search FRED for and select “Private Fixed Investment in Intellectual Property Products: Software: Custom” (series Y004RC1A027NBEA). From the “Edit Graph” panel, open the editing box: Under “Customize data,” search for and add “Private Fixed Investment in Intellectual Property Products: Software: Own account” (series Y005RC1A027NBEA) and “Private Nonresidential Fixed Investment” (series PNFI). Next to the “Formula” header, type (a+b)/c. (That is, divide the sum of Private Fixed Investment in Intellectual Property Products: Software: Custom and Own Account by Private Nonresidential Fixed Investment.)

Suggested by Cassie Marks and Hannah Rubinton.