Software In A Box
from the can't-sell-software dept
Bill Gurley seems to have returned from his writing exile, and is now explaining why many technology executives are realizing that hardware is a better business than software. He makes some interesting points – but misses the most important one. As he points out, software has a nearly zero variable cost – which means that if there’s any competition, the price will get driven down towards zero. He mentions this briefly – but it’s the most important point. Software, by itself, is difficult to productize, because if the environment ever gets truly competitive, you won’t be able to sell it for any money. Instead, companies can take advantage of that zero marginal cost by using it (for free) to enhance the value of something else (the hardware). Suddenly it becomes a free input, making the hardware more valuable. It’s just basic economics. Of course, the same applies for music and plenty of other digital goods, but those industries aren’t quite ready to accept that yet.