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Jeff Meyerson
Jeff Meyerson

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Non-Winner-Take-All Software Categories

Software companies are often talked about in a zero sum, winner-take-all context. And this make sense for many categories, like social networking, professional social networking, marketplaces, dating marketplaces, and ridesharing.

Not all software is winner-take-all. Many software categories lack network effects, or do not feature other forces that pull the category towards winner-take-all.

Examples include continuous delivery software, monitoring, logging, knowledge work gig economy, digital transformers, and (in the limit) cloud computing.

Are these categories bad investments? Many of them can be excellent investments:

  • Continuous delivery software costs almost nothing for the provider to host it; lock-in is significant; there are upsells over time
  • Monitoring and logging software can be priced by amount of data that is being stored; as data gets more heavy and multidimensional there are upsells in search, indexing, automated insights
  • Knowledge work gig economy platforms like Fiverr, Upwork, and Toptal are often not the sole platform where their workers hang out; if you are a designer on Fiverr, you are probably also looking for work on Upwork
  • Digital transformers like Pivotal, Mesosphere, and Red Hat use consulting services as an onramp to high-margin software subscriptions
  • Cloud computing infrastructure companies have great margins, and they will get better over time with economies of scale, better virtualization utilization, and data center robots; higher level cloud providers like Zeit and Heroku will allow different developers (often in the same org) to develop and deploy software however they want to

There are secular trends which make these businesses more appealing.

  • The abstractions for building a software company are becoming “no-ops”; if you build monitoring software or continuous delivery software, your tool probably won’t have outages very often; your op-ex is very low
  • Software never gets torn out of an organization, it just gets papered over
  • The TAM for software is gigantic yet unclear; how many paper companies will need continuous delivery software? How many oil refineries will need distributed tracing? How many plastic manufacturers are going to buy a CRM? How many insurance companies will give up with their in-house efforts at digital transformation and bring on Mesosphere or Pivotal?
  • Today’s Indie Hackers are tomorrow’s small businesses--and there will be tons of them. And each of them will need monitoring software, data engineering tools, and part time workers from Fiverr
  • Procurement will get much easier; today, much software procurement is gated by CIOs and CFOs who inhibit the innovation for the sake of cutting costs; more engineers will get trust, blank checks, and creative freedom for their cloud infrastructure (of course, the whole business of cloud cost management is a countervailing trend to this point so it’s possible the pendulum here has already swung)

It’s still great to be a winner-take-all company. But it’s not a requirement for success.

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