6 ms·
90% profit is a market failure, you should not be able to overcharge your customers almost 10x in a working market.
by danbruc 3y ago
90% profit is a market failure, you should not be able to overcharge your customers almost 10x in a working market.
- nickkao 3y agoDrop your LinkedIn I wanna see something
- DandyDev 3y agoI agree that it is a market failure, but it is for sure a marketing success. I cannot help but feel that there must be dozen competitors to his simple products that gather more "honest" profit margins (aka are cheaper or more feature rich) but have a hard time with marketing. This is obviously something Tony put a lot of time and effort in, and it paid off. Good on him!
- free_energy_min 3y agoIt’s not the same as profit margin in other business it doesn’t take into account labor costs. How much is his time worth?
- danbruc 3y agoPick some random full-time developer salary, say $100k per year, and cut this in half as he says he works four hours per day.
- ayushchat 3y agoHave you ever heard of a company called Apple?
- danbruc 3y agoI have no idea how high Apple's profit margins are, but I am quite sure they are not small. But what is your point, that is also a market failure.
- hackerdrew 3y agoWhy don’t you exploit that market failure?
- danbruc 3y agoNot interested. I would feel bad for overcharging people and getting rich from that. And if I would charge them the actual costs, then I would mostly just destroy that guy's business and save some thousand people each a couple of bucks on some utilities that they almost certainly do not really need and are voluntarily paying for.
- kyawzazaw 3y agoHow are you able to tell with that much certainty of the users needs?
- danbruc 3y agoIf those people had only access to overpriced water, then yes, making this market failure go away would be a worthwhile undertaking with a meaningful positive outcome. But people getting overcharged on a progressbar around their Twitter profile picture, who cares? And who could not live without that or do it manually with Paint at the cost of some additional time? My original comment was just meant as a general comment that this kind of profit is not supposed to exist. I am not sure if I want to call it unethical but I am really tempted to do. You make yourself a nice life and others do the work.
- kyawzazaw 3y ago> But people getting overcharged on a progressbar around their Twitter profile picture, who cares? evidently, these people, who are paying money are finding value in it and they care. > And who could not live without that? What does this even mean? What difference is it from people who want their landscaping or house look a certain way so they pay money to others to do that for them. at the > or do it manually with Paint at the cost of some additional time? time is valuable or they just dont want to do it. I don't understand the logic of all of these. What???
- hyperliner 3y ago[dead]
- Aslan93 3y ago90% never lasts for long. Its called the law of attractive profits. The more attractive your profits are, the more competition you attract.
- danbruc 3y agoSure, that's the theory. In theory someone cleaning toilets should also earn more than software developers or CEOs. People doing badly paid unpleasant jobs should all learn to program or manage a company and then drive down the salaries until cleaning toilets pays a premium because it is unpleasant work no one wants to do.
- imgabe 3y agoNo they shouldn’t. There is a large supply of people capable of cleaning toilets. And a relatively smaller supply of people capable of writing software.
- danbruc 3y agoUnder idealized conditions they would all take some training and learn to program.
- imgabe 3y agoWhat’s stopping them? You can learn to program with free information from the Internet. How much more ideal does it need to be?
- danbruc 3y agoDo you think all the people cleaning toilets for little money prefer their job over sitting in a comfortable office and getting well paid? If not, then there have to be barriers. Here are some. You need time, you may need additional education before you can even start to tackle programming. You might have to move. You might just not be smart enough. You might not be an autodidact and need a teacher which might cost money. You need a computer for which you might not have the money.
- pHollda 3y agoyup yup. cc Why don't people realize that 'high software profit margins' are fugazi?(https://buttondown.email/tZero19e/archive/why-dont-people-realize-that-high-software-profit/ https://buttondown.email/tZero19e/archive/why-dont-people-re...)
- mckravchyk 3y agoI'm not an expert in this but I think that generally price is determined by what the upper limit of what the users are willing to pay and the lower limit of what the vendors are willing to charge. As a new software vendor it only makes sense to look at the price of similar software in your space. And is it really bad - how many would want to be a software vendor otherwise? I'm not saying that some physical products do not come with risk, but the article is mentioning water - what are the chances that a company selling water will have a product market fit problem? What are the chances that the app you have worked on for so long without getting paid for it will not net more than a day job would 2 years after launch? And Google, Facebook - they are something entirely different, they have a monopoly on their ad machine so they can charge whatever they want - and give something back in R&D in exchange - a company that struggles to keep its lights on can't innovate much (Zero to One is a nice take on this). For the latter, I'm not saying it is good or bad, it has benefits and drawbacks and it's the way it is and it's certainly not limited to virtual products. The Train Monopoly Co in my country has made the tickets practically 2x as expensive in just 1 year and what can I do? They could increase the price even further and I would still be riding with them because there are no other options.
- barry-cotter 3y agoWhy are you on this forum if you hate capitalism? It’s an advertising funnel for a VC firm, in case you don’t know.
- danbruc 3y agoPeople have different ideas what capitalism exactly means, but free matkets are generally part of it. And properly working free markets would ensure that profits are zero and that to a first approximation everyone earns the same. Making profits and getting rich is against the spirit of capitalism.
- barry-cotter 3y agoYour understanding of the practical and philosophical backing for capitalism is limited and reads more like an Econ 101 description of perfectly competitive markets than anything else. If you would like to learn more you could read Joseph Schumpeter’s Capitalism, Socialism and Democracy[1] or Deirdre McCloskey’s Bourgeois Virtues[2] [1] http://libgen.is/book/index.phpmd5=21EE8F203D5C3F9530D55985B805A4F9 http://libgen.is/book/index.phpmd5=21EE8F203D5C3F9530D55985B... [2] https://press.uchicago.edu/ucp/books/book/chicago/B/bo3750637.html https://press.uchicago.edu/ucp/books/book/chicago/B/bo375063...
- danbruc 3y agoRead a book is not a very helpful response in a discussion. Why do you not just state your position or point out a concrete flaw in mine or a disagreement with it? Until now you have not actually said anything substantial. Do you think the system is working well if 90 percent of your revenue is profit? Do you think competitive markets are not an important part of a capitalistic system? Do you want to say that zero profits only holds in equilibrium?
- barry-cotter 3y agoYou have confused the equilibrium state of perfect competition and knowledge in frictionless markets with how dynamic markets work. In a properly working market in real life there will sometimes be large profit opportunities. Then someone will notice them and exploit them and eventually someone else will enter the same market niche and compete, eventually reducing economic profits to something approaching the rate of interest. This is very far from profits should be zero and everyone earns the same. In a market with no market imperfections, completely interchangeable goods and no market power from either buyers or sellers there will be no economic profits. Even in this toy market participants will earn more or less depending on how much capital they have. Zero economic profit holds only in equilibrium and there are no markets where equilibrium ever holds for long because the global and local economy is constantly in flux and entrepreneurs are constantly trying to find new ways to solve old problems cheaper or new markets or ways to solve a problem when one of the inputs suddenly dectupled in price. The system is working well if 90% of revenue is profit at pip squeak levels, yes. If Microsoft could manage 90% profit margins on billions of dollars of working capital that would be concerning. Individuals or small companies finding tiny market imperfections and becoming wildly rich exploiting them is the system working, incentivising people to produce value. Schumpeter: Entrepreneurs make new things and that’s great. Outside capitalism those people turn that energy into taking more of the pie, as warlords or tax farmers. Capitalism is better. McCloskey: Capitalism is good because it inculcates patience, diligence and tolerance in people.
- dogibacsi 3y agoif you talk economics make sure you know what you're talking about. profit happens when I can give you 10 units of value that costs me 1 unit of value. depending on risk factors, we split the difference. ie: if I give you the tool that does it for you, I get all 9 units because all risk is mine. if I tell you how to do it I get maybe 1 unit because most risk is yours. what you're referring to is arbitrage. efficient markets kill arbitrage (zero risk profit)
- danbruc 3y agoNo. Profits should not exist in working markets in equilibrium. If they exist, competitors are supposed to show up to also collect some of the profits eventually driving them to zero. If there are no competitors driving the profits to zero, that is a market failure.
- mejutoco 3y agoIt is the efficient market hypothesis. If it really were 100% efficient why would anybody start a company? In reality there are pockets of inefficiency, and they are still working markets. You can see how this interpretation clashes with another dogma of economics: that the price of sth is the price that someone is willing to pay for it. I read your message as saying that this software should be cheaper (arguing working markets but I think it is really a moral argument). This seems like the opposite of markets determining its worth. Another argument against 90% being a market failure is that this will inspire competition of copycats with lower margin over time. Corrections and competition are not instant.
- danbruc 3y agoThe efficient market hypothesis is something different, that one just says that prices reflect all available information. I was talking about competition which should ensure that there are no profits, i.e. that consumers do not pay more than the costs of production, including risk adjustment and development costs and so on, but that are mostly uneccesary details for this discussion. You can see how this interpretation clashes with another dogma of economics: that the price of sth is the price that someone is willing to pay for it. There is no conflict here. On the one hand the price can be as high as what customers are willing to pay, but on the other hand competitors should show up in order to take some of your profits by offering a lower price. I read your message as saying that this software should be cheaper (arguing working markets but I think it is really a moral argument). Sure, there is also a moral aspect to this, overcharging your customers in order to be able to relax on the beach is not the most ethical thing, but the economy cares relatively little about ethics. So the best one can do is to hope that market forces will correct this. Another argument against 90% being a market failure is that this will inspire competition of copycats with lower margin over time. Corrections and competition are not instant. Yes, I did not spell this out precisely enough, it is of course only a market failure if it persist. But given that many of those projects seem relatively simple, how long should one wait before declaring a market failure? Maybe there are already cheaper alternatives but people do not know about them? That is itself a market failure.
- imgabe 3y agoThen why don’t you make the same thing for 85% margin?
- danbruc 3y agoIf, then I would have to do it at zero profits. But I already have a job.
- imgabe 3y agoOh, so you won’t work to provide something for free, but you lament that someone else also won’t work for free. I see.
- danbruc 3y agoI did not say this. If I build it in five days - and for simplicity assuming no future maintenance, support or service costs - than I would want to make say $5k for five days of work. Profit is revenue minus costs and costs include salaries. So I never said anyone should do anything for free. But I have a problem with making money without doing any work. If you put in a week of work, then you should be paid for a week of work, you should not profit from indefinitely selling the result of that work again and again. Or even worse, make it into a subscription so that you do not even have to sell it again and again but can just repeatedly extract money from your customers.
- imgabe 3y agoUtterly insane. If you write a piece of software you can only sell it once? That makes no sense. And a subscription means you are administering a server (or some menagerie of “serverless” resources) which is an ongoing service that requires maintenance and cost, so that’s what people are paying for, a premium to not have to do that administration themselves. Like you just want people to suffer? It pains you if people make money without a sufficient amount of hardship?
- 3y ago
- dusanbab 3y agoGross profit, operating profit or net profit? If you mean the latter please show us some examples of public cos with a 90% net profit margin. I don’t think there are many.
- danbruc 3y agoAsk that guy. I would guess it is none of the three, i.e. he did not deduct a salary for him, but I really do not know.
- anonporridge 3y agoIf there are any, they're private and keeping an extremely low profile to increase their run time before potential competitors catch on and come to eat their lunch. People with a lucrative gold mine don't talk about it until the mine has run dry and their winnings are secure in the bank.
- Sigfigs 3y agoThat comma is a punctuation failure.
- iamgopal 3y agoMost code editor and compiler are free, why someone else not built it ?