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What do you mean by > ..a software industry ( which based on profit margins is a toddler ) I thought software has higher margins than most industries.
by vageli 9y ago
What do you mean by
> ..a software industry ( which based on profit margins is a toddler )
I thought software has higher margins than most industries.
- notyourday 9y agoHigh profit margins imply very immature industry. As industries mature the profit margins drop.
- sah2ed 9y agoNot always. High profits largely depends on the kind of competitive advantage (trade secrets, patents, market share etc) that can be deployed in one's sector, it is independent of industry. A few counter-examples that illustrates my point: 1. Having a trade secret that allows only you to manufacture a good exclusively with high margins. The best known example is Coca Cola. They enjoy average gross margins of 60%. https://ycharts.com/companies/KO/gross_profit_margin https://ycharts.com/companies/KO/gross_profit_margin 2. Intel enjoys a near-monopoly in the hardware industry selling server CPUs. They enjoy 63% margins on ~$16b in quarterly revenue. 3. Professional services. I believe this one is self-evident because you can mostly get away with charging value-based prices instead of cost-based prices that is predominant in industries like manufacturing. IBM Global Services contributes more than 60% of IBM's revenue which allows them to enjoy about 50% gross margins even though IBM GS has only been around since 1991. If industry maturity were truly a dominant factor, 26 years is more than enough time for their industry to "mature".
- lookACamel 9y ago1. If by trade secret you mean Coke's branding, marketing and historical dominance.
- sah2ed 9y ago1. No, I meant Coke's recipe is a secret known only to a handful of anonymous employees. https://en.wikipedia.org/wiki/Coca-Cola_formula#Current_ingredients https://en.wikipedia.org/wiki/Coca-Cola_formula#Current_ingr...