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Software has near-zero marginal cost to manufacture, very few barriers to distribution, and can displace giants in a very short amount of time solely by virtue
by roncesvalles 4y ago
Software has near-zero marginal cost to manufacture, very few barriers to distribution, and can displace giants in a very short amount of time solely by virtue of being Good. In other words, software is viral. Valuations are an extortion fee. Here I have a doomsday device that will kill your multi-billion-dollar business faster than you can say Mississippi, and I'm selling the key.
- rchaud 4y agoI don't know if any of that holds true anymore. Marginal Cost to Manufacture - Not in terms of cardboard boxes and CDs, but you can't scale up your user base without paying hefty fees to cloud providers or payment processors these days. In any case, software companies aren't valued on the basis of gross margin but recurring revenue and operating cash flow. Barriers to Distribution - OK, this is still mostly true. I will say that "enterprise" type software tends to require RFPs, SSO integration and regulatory compliance that can let monopolies fester, like Microsoft (and Adobe). I wouldn't say software is displaced at all though. Companies are simply buying the competition as in the case of Figma, (or Instagram, or Activision) or pouring money into developing vertically integrated solutions to strengthen their moats further.