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Why is selling software so weird?

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Re: Why is selling software so weird?

#41

Post by WJW »

vineyardmike wrote: post #17
paxys wrote: 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…

> didn't actually add value to the root product, beyond making it easier to use

What a peculiar thing to say. A product that is too difficult for anyone to use has zero value in the market, no matter how valuable it would be if it could be operated. Making a product easier to use increases the amount of people it can be sold to, directly adding value.

Imagine if the only way anyone could use a browser was to write your their compiler first, the web would never have taken off. There is tremendous value in making things easier to use.

Re: Why is selling software so weird?

#42

Post by v-erne »

sirsinsalot wrote: post #37
gumby wrote: post #28

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.

I would love world where this would be possible - no gate keeping and no value extraction, only saved lives.

But cynic in me tells me that this is not possible - too many people who know how to build and operate things dreams about having always more stuff and power and is too afraid of loosing it. The consumption treadmill is always hungry for more. I personally am guilty of this - I always calculate how I can accumulate more value so I have a freedom (a kind of power over my fate) and can provide more unnecessary consumption for my family.

Re: Why is selling software so weird?

#43

Post by simonh »

vineyardmike wrote: post #17
paxys wrote: 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…

>They generated about $1B for the company by creating a portal to (essentially) sell access to the company's existing data.

You are completely discounting the cost of creating and maintaining the underlying data. You can't just write that off as zero. It also doesn't matter if the data generates other sources of revenue, that's great but you still don't get to write the cost off against one revenue stream and not another, the only fair way to account for it is to split the cost across all revenue streams.

Re: Why is selling software so weird?

#44

Post by wodenokoto »

Was happy to see this wasn’t some rant about people not wanting to spend the price of a cup of coffee on your app.

Instead it’s an exploration of the marginal cost of software and how that impacts the creators business.

> The digital nature of software makes it extremely easy to ignore pesky distractions like customers right up until the moment you need their money to buy that expensive Icelandic yogurt you love.

This quote comes right after a paragraph about how the closest thing to the near zero marginal cost of software is the publishing business.

I think that book authors are in a similar position. Spend a year or two writing a novel with almost no idea If people wants to read it.

Re: Why is selling software so weird?

#45

Post by mihaic »

This analysis feels shallow, since it doesn't address the current landscape: it takes a lot longer than 10-15 years ago to get from nothing to revenue if you don't have a contract in advance, while most of the mainstream advice for software entrepreneurs is from a time when the barrier of entry was lower.

The dificulty is mentioned, but probably requires strong emphasis and going into details (having a distribution mechanism before writing any code for instance). I often feel like even VCs and insiders are stuck a bit in the past, since their success came from a different ecosystem.

Re: Why is selling software so weird?

#46

Post by Jaruzel »

jahewson wrote: post #10
jsiaajdsdaa wrote: post #2

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!

I had exactly this experience many many years ago when I was just starting out. I'd written a small tool that enabled pop-up messages between [Windows] users on a network. It was protocol agnostic - as long as the users had a shared file area, it would work. This was back in the day when even internal email was new and mostly non-existent in the workplace.

I sold it as shareware originally, but then a Big Fish came along and said 'we want a licence for 1,000+ users, but can you come in and meet us to discuss'.

Seeing this as a pivotal moment in my entrepreneurial career, I agreed to meet them.

Five minutes into the meeting they started rattling off a long list of features they would like added (for no extra fee). Somewhat shocked, I numbly agreed in principle that I'd look at implementing them for the next release.

Once I had time to think about it, I realised that as a one-man-startup there was no way I could implement their requests, and had to back out of the deal.

And that's the problem. The people with money assume they can ask for whatever they like and have no concept that sometimes it's simply unprofitable for the little-guy to deliver it.

Re: Why is selling software so weird?

#47

Post by simonh »

syl_sau wrote: post #39

I'd predicate the answer to this question on a much more materialistic basis than the author : it's weird to sell software because it's doesn't really exist. I mean, it's barely tangible. 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, compar…

How is that different from music, TV, movies. Is entertainment a real thing? What about education, is that a tangible commodity? That's the kind of thinking that lead Marx to his theory of value, and his belief in the parasitic nature of all economic activities except for making physical things.

Re: Why is selling software so weird?

#49

Post by bob1029 »

> Low volume software is not a good business to be in.

I disagree very strongly with this based on my experience so far.

Being in the business of low volume software is fantastic if your customers are other businesses.

The advantages of low-volume/complex B2B software biz are incredible to me. Contract terms are measured in half-decades. Your users can actually be trained and held accountable in many cases. You don't have to plan for nightmare public cloud scenarios. Your software will usually be running in some firewalled bunker with a guarantee of Granted, low volume B2B software is just as worthless as any other kind if it doesn't deliver profitable value proposition to the customer. We currently sell software licenses measured in the 6/7 figure cost range (and get away with it because of the complexity of the business and value proposition). This means our little startup can hand-craft each customer relationship and carefully manage the sales funnel for optimal outcomes all around.

Re: Why is selling software so weird?

#50

Post by supert56 »

mihaic wrote: post #45

This analysis feels shallow, since it doesn't address the current landscape: it takes a lot longer than 10-15 years ago to get from nothing to revenue if you don't have a contract in advance, while most of the mainstream advice for software entrepreneurs is from a time when the barrier of entry was lower. The dificulty is mentioned, but probably requires strong emphasis and going into details (having a distribution m…

I totally agree with this.

Distribution is the most underrated, most difficult part of creating a tech company.

In the UK Squarespace peddles the slogan 'a website makes it real'. This is very misleading. Making the website is the easy part, being found if you have no prior audience, no experience with SEO or a lot of money for ads is incredibly hard. In my opinion breaking into the tech world now is much harder than it was 5 years ago regardless of how good your product is.

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