Intangible investment behaves differently

1) The first two paragraphs about 'assumptions' are essentially false. There are no assumptions in supply and demand, it's not a dynamic equilibrium, it's a snapshot.

Yes - over time supplies tend to change due to demand, of course, but that's 'long run' stuff ... not in that chart. The author is kind of misinterpreting the chart.

2) It's not 'sunk cost' that's the issue, this is about 'fixed' vs. 'unit' cost. Software is all 'fixed' (i.e. setting up the production line) whereas most material things are mostly about 'unit' costs (i.e. the cost to make an item)

3) Software sales are a tiny fraction of the economy because almost nobody is selling software. People are selling 'services', basically products that 'do stuff using software'.

The 'key ingredient' is usually some type of business or experiential knowledge, not some algorithm.

4) Software development doesn't finish at v1, it's ongoing.

When I first learned that software had a price during my very young years, I was in quite disbelief. Isn’t it just bunch of invisible bits? Can’t it be copied with almost zero cost? Why someone would pay for it anyway when kids like me can make it? It’s hard to charge money for things people can’t physically posses. In early years, almost all software companies employed a trick to design big attractive boxes with bit of goodies. When Gates wrote BASIC, many programmers themselves in the community didn’t thought any software was worth paying for. It has taken almost a generation to internalize that bits have price and we have got rid of most of those boxes finally.

On the side note, crypto currency is the new new intengible assets that is hard to internalize. Ironically, Gates has wrote them off as not worth calling them assets because they aren’t store of a value.

>> ... as demand for a product goes up, supply increases, and price goes down

I think it is fine but confusing because it skips over some steps. A longer version might be:

... as demand for a product goes up, the demanded quantity goes up, which causes supply to increase (to meet the higher demanded quantity) which then pulls the price down (due to the increased size of the market and competition).

The net effect of this is decreased price overall due to economies of scale (since the total production volume of the product in the market is now higher).

> Imagine Ford releasing a new model of car. The first car costs a bit more to create, because you have to spend money designing and testing it. But each vehicle after that requires a certain amount of materials and labor. The tenth car you build costs the same to make as the 1000th car.

As someone with software and hardware at Ford in Dearborn and at many of their suppliers, this is not true. Ford knows that the costs decrease over time, and demands part of this cut from their suppliers. The contract includes a decreasing price over time or over quantity, because ostensibly you're increasing efficiency and writing off initial engineering costs.

I imagine that Microsft does the same with their hardware division, and agree with the sibling comments that Gates probably did not write all of this.

You're right to say it's mostly oversimplifications. The fallacy was the first economic concept introduced in the article--

> The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down.

Classic econ teaches as demand increases, prices go up. The exception is if the supply curve is flat (for instance, 0 marginal cost).