4 ms·
A core aspect seems to come at the end as a tossed in aside but gets disappointingly little consideration: >Real business flywheels do exist. Software makers h
by xoa 5y ago
A core aspect seems to come at the end as a tossed in aside but gets disappointingly little consideration:
>Real business flywheels do exist. Software makers have managed to lock users in and thus generate gross margins typically above 70%.
No, it's not just "lock in" it's the magic of minimal to zero marginal cost, near zero "stocking" cost, instantaneous reaction to demand, etc. Software and digital services firms face dramatically different scaling curves than traditional physical products/services. That they also in turn have been able to continuously add in ways not limited by IRL physical constraints and experience real network effects certainly helps, but I suspect one of the big foundational issues for a lot of these valuations is people naively applying software business lessons to businesses based around hardware and real world physical human interactions. It doesn't cleanly translate though, they aren't the same thing.
- colinmhayes 5y agoThe only way to consistently have margins above 70% is a strong lock in effect. All the other reasons who listed don't matter when a venture capitalist with a couple billion dollars can come in and rebuild the software. At 70% margins they absolutely would do that. The reason they don't is because consumers wouldn't actually switch to their product, even if it is cheaper, because they're already locked in.
- Ekaros 5y agoReal software or even content have minimal marginal costs... But these gig-economies clearly aren't software or content. And they have very real minimum price. And not even robotaxis will fix that. Just because you make software doesn't mean you are such tech company, see WeWork...
- letmeinhere 5y agoI think that was their point
- deleted 5y ago[deleted]
- kmeisthax 5y agoOne thing to note is that every piece of software is born with a government-granted monopoly (copyright title) around itself. This monopoly is strengthened by the fact that software has strong dependencies that don't exist for other kinds of creative works. You can't buy and run a Windows app without also buying and running Windows[0] - there really isn't an analogue to this in other forms of creative media. If you ran any other kind of business with the same level of monopolistic zeal as a software company does, you would almost certainly be in violation of antitrust law. [0] Yes I know WINE exists. It doesn't really affect the argument here; the fact that it's legal to reimplement APIs merely puts upper bounds on the size of the software monopoly. And those bounds are really high - reimplementation is far more difficult than just, say, pirating Windows.