31–40 of 154 posts
So yeah, software is different to houses. Software needs huge [1] upfront spend in time and/or money. This means risk, and high risk comes with potential high reward. By contrast building houses, even at scale, is pretty low risk, but since its low risk the upside is constrained. In many ways software is a lot more like making movies. You have to do the whole thing before you see any revenue. Risk is high, most lose…
Also, you're going to lose me a little if I'm just supposed to accept that your pricing model for your software is $x per month.
The third downside is that, unless you can differentiate your product from what already exists, it’s going to be hard to find a foothold in the market. Given how many software products already exist, that’s a high hurdle to clear.
It seems to me that, in any particular domain where there are several or many competing solutions, each with small differentiations, each differentiation takes on a disproportionate amount of significance. So it is possible to make a business out of fairly small differentiations from normal. Eg, through integrating with external systems or better UX for common tasks. And even better, it is often the competitors that have done the work for you deciding which external systems need integrating and what the common tasks are.
Where the diffs are the USPs for all your competitors, it almost makes it easier for you to join in.
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…
Good article. This bit is interesting: The third downside is that, unless you can differentiate your product from what already exists, it’s going to be hard to find a foothold in the market. Given how many software products already exist, that’s a high hurdle to clear. It seems to me that, in any particular domain where there are several or many competing solutions, each with small differentiations, each differentiat…
With such a company, you do not need much to differentiate to get 1000+ paying clients: you just probably will never get to millions of clients, and that is OK.
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 digi…
Earlier quoted context omitted.
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…
> Software still has the lowest marginal cost... I invite you to switch sectors to the pharma world. I worked on a program for a drug planned to be sold at $2,000/dose with a projected cost of $0.0025/dose. That figure included amortization for all the manufacturing equipment, QC etc and raw materials.
Honestly, the idealist in me says healthcare/pharma/research should be publicly owned and operated.
Eric S raymond had a different way to explain this: Software is largely a service industry operating under the persistent but unfounded delusion that it is a manufacturing industry
Eric's exactly right, you're providing a service and service costs scale up with users. Not all of them linearly, but some for sure.
You can copy it indefinitely. It doesn't exist physically. It's much more natural really to buy, say, a painting or a house. You can hang it, see it, use it. You have exactly one house, exactly one of this painting. Software, compared to that, just feel lazy.
One could argue that most software in history did not really improve anything, and that true innovation came from advancements in hardware, which software just took time to adapt to.
Earlier quoted context omitted.
> Software still has the lowest marginal cost... I invite you to switch sectors to the pharma world. I worked on a program for a drug planned to be sold at $2,000/dose with a projected cost of $0.0025/dose. That figure included amortization for all the manufacturing equipment, QC etc and raw materials.
Having friends in pharma too, I never hear anything about the commercial end that I don't find disgusting. I get that like any business the goal is maximizing wealth, but feeling empathy for the "customer" makes the margins and decisions seem sickening. Honestly, the idealist in me says healthcare/pharma/research should be publicly owned and operated.
The biggest problem of pharma is IMHO lack of competition. The field is over regulated - some of it is for good reasons, but perhaps it went too far.