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Why is selling software so weird?

zeptonaut.com

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Re: Why is selling software so weird?

#11
While all of this is mostly true, this problem isn't unique to software by a mile. The model of high fixed cost, low marginal cost applies to pretty much every consumer good or service sold in the industrial age. If you think publishing the first copy of a piece of software is hard, try setting up a new production line in a factory, or opening a restaurant, or producing a music album or movie.

Yes it is hard to break into a space that is dominated by large established companies. Yes you need a lot of up front capital. Yes you will need to differentiate yourself. None of this makes software a "weird anomaly", this is how business works.

Re: Why is selling software so weird?

#12
The weird part about software is that most of individual code-units (i.e. functions, methods) are not very specific to your product. Thus they could be part of another product as well And then you realize it's actually a huge waste that they are not used by other products as well. You are almost re-inventing the wheel most of the time you write a new function.

The value is only in what your multitude of trivial parts do together. Maybe that's not weird, but it's peculiar, to software development.

Re: Why is selling software so weird?

#13

It's because the hardest parts of software involve connecting with other systems and soliciting your custom requirements. Imagine if you wanted to buy a custom car, but you wanted an "off the shelf from walmart" experience. "Hello, I'd like to buy a custom car." "Ok great, we have many over there." "Yes but you don't have any pink ones with cool designs" "Well, we could make you a pink one, but what design would you…

Perfectly describes the experience of a startup staring to sell to enterprise!

Except that the "Oh, no, what about" comes later, and repeatedly.

Re: Why is selling software so weird?

#14

The weird part about software is that most of individual code-units (i.e. functions, methods) are not very specific to your product. Thus they could be part of another product as well And then you realize it's actually a huge waste that they are not used by other products as well. You are almost re-inventing the wheel most of the time you write a new function. The value is only in what your multitude of trivial parts…

That is not peculiar to software development, even the most sophisticated F1 motor or Raptor engine is composed of five or six "simple machines" based on only three principals: wheel (wheel, pulley), lever (lever, screw), inclined plane (inclined plane, wedge).

Re: Why is selling software so weird?

#15
The question contains a false premise.

> Paging back through history, there have been very few opportunities for near-zero marginal cost goods.

The only way that capitalism allows for the production of non-rival use values is by turning them into "club goods" and excluding access to them by state-enforced monopoly (intellectual property laws in this case). There's no shortage of examples of club goods.

The three "downsides" the author lists as unique to club goods aren't unique to club goods at all. (1) All commodity production requires capital ("up front time"); (2) All new commodity categories are risky and only tested when they hit the market; (3) Breaking into any commodity category is next to impossible without sufficient capital.

Re: Why is selling software so weird?

#16
I'm running into a weird paradox when it comes to marketing - providing a service more cheaply than your competitors doesn't make it easier to reach customers, it makes it harder. It is a meritocracy of sorts, but one optimizing the value extracted FROM customers, not the value provided TO customers. By having thinner margins, you are also able to pay less to have others promote your product, and that's what the digital ad market is optimizing for.

Re: Why is selling software so weird?

#17
post #11

While all of this is mostly true, this problem isn't unique to software by a mile. The model of high fixed cost, low marginal cost applies to pretty much every consumer good or service sold in the industrial age. If you think publishing the first copy of a piece of software is hard, try setting up a new production line in a factory, or opening a restaurant, or producing a music album or movie. Yes it is hard to break…

Software still has the lowest marginal cost - the distribution cost is basically 0, unlike things like CDs. And unlike a movie or album, the value that can be extracted via software is much higher. There's tons of make-once sell-lots products, but you need factories and supply chains and all that crap, not just a cat6 connection. If you want to serve more customers, you need to buy more CDs. Streaming is better for content distribution, except the content still has limited value created (so limited price) since its often consume-once and has a limited life span - and digital content is basically "tech" even if its not quite SaaS. Tech is what it is because of how easy it is to create, and how much value it generates, and how low the marginal costs are. Nothing physical compares.

I interviewed for a team at that was part of a 100 person org. They generated about $1B for the company by creating a portal to (essentially) sell access to the company's existing data. They said most of what they spent that 100 people on was building integrations into existing b2b enterprise apps so other companies could ingest it easier. The per-person value created (extracted?) at this org is astonishing, especially since most of those 100 people didn't actually add value to the root product, beyond making it easier to use.

Re: Why is selling software so weird?

#18

Earlier quoted context omitted.

Perfectly describes the experience of a startup staring to sell to enterprise!

Except that the "Oh, no, what about" comes later, and repeatedly.

"Here's your Harry Potter car!"

"Who are all these teenagers in robes on my car? I don't see Gandalf or Legolas or Gimli anywhere!"

Re: Why is selling software so weird?

#19
Software is very close to math. Most people would agree that math should not be sold or licensed. How to add numbers is not something that should be paid for. If actually someone made their living by adding numbers we would probably agree they should be paid. So the programmer should be paid, the hardware should be paid, but the software not?

Doesn't seem to work. Exactly like people expect everything to be free on the internet. Surveillance capitalism is one way to overcome the paradox. Not that I personally like it, but it seems to work.

Re: Why is selling software so weird?

#20
post #11

While all of this is mostly true, this problem isn't unique to software by a mile. The model of high fixed cost, low marginal cost applies to pretty much every consumer good or service sold in the industrial age. If you think publishing the first copy of a piece of software is hard, try setting up a new production line in a factory, or opening a restaurant, or producing a music album or movie. Yes it is hard to break…

Software still has the lowest marginal cost - the distribution cost is basically 0, unlike things like CDs. And unlike a movie or album, the value that can be extracted via software is much higher. There's tons of make-once sell-lots products, but you need factories and supply chains and all that crap, not just a cat6 connection. If you want to serve more customers, you need to buy more CDs. Streaming is better for c…

> the distribution cost is basically 0

How do you figure? Surely you know the magnitude of ad spend on software products, not to mention hosting and scaling infrastructure. We're not shipping cd's to every mailbox anymore but a typical marketing budget + Heroku/AWS cost is likely far higher for a typical growth SAAS startup than AOL was dumping on their physical distribution methods in the early 2000s right?

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