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.

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Comments on “Software In A Box”

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dorpus says:

Two points

1. Proprietary in-house software is and probably always will be a labor-intensive, locally produced affair. Your cheap programmer in India will not know all the nuances of what people inside the company want; it takes many face-to-face meetings, trial-and-error, ongoing changes of design. Many vendors have come out with “enterprise management” software, but companies all have their nooks and crannies that are not satisfied by out-of-the-box packages.

2. What about custom chips? A truly optimized computer system will have some of the software hard-wired into the system. There has been talk before of making custom chips for specific programming languages, or “chess calculators”. Will we get to the point where it is easy to crank out custom chips, or is the complexity of modern chip design outpacing this?

aNonMooseCowherd says:

Re: Two points

Custom chips for Lisp computers died out years ago because they couldn’t keep up with the general purpose CPU market.

There is still a big market for specialized processors like DSPs (digital signal processors), which are not exactly ASICs but are designed for particular needs that are common to signal processing (like combined multiply-and-add instructions).

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