The world went through this phase two years ago where any company that hired software engineers marked itself as a tech company. Proclaiming great margins and unending market opportunity as SaaS successes that came before. We quickly learned Uber and Food delivery were not Salesforce. The margins include more than the software which brokered the transaction.
But I still wonder, what brought about zero marginal costs? It's easy to say every extra customer is just a few more electrons to pay for but what exactly does that mean?
Why did these businesses pop up after the internet? What were the business model shifts that captured this?
I think there are a few reasons to explain this.
First is multi-tenancy.
Software wasn't built the way it is today. It was being built for the IT rack. Rarely did the appliances running these services encounter an organization so massive it couldn't handle. Now some services require strict isolation but for those that didn't, they were confined to this inefficient allocation of resources. All from the result that software accessibility was only through the organization's intranet.
Fast forward a few years, the internet arrives. Appropriately we start to see the inverse; data centralized and access decentralized. For engineering teams, this doesn't mean moving a computer from customers' org to theirs. It allows them to take advantage of dormant compute power to enable capacity for massive economies of scale.
Slack is one of the clearest examples of this. $15/user/month, and you never question why they charge you that way. The value is discernable, every person in my organization that uses slack gains historical context, unbound communication, and participation in conversations which all ultimately drive business decisions and deliverables. You know exactly what you're paying for. The value, not the cost.
But I still wonder, what brought about zero marginal costs? It's easy to say every extra customer is just a few more electrons to pay for but what exactly does that mean?
Why did these businesses pop up after the internet? What were the business model shifts that captured this?
I think there are a few reasons to explain this.
First is multi-tenancy.
Software wasn't built the way it is today. It was being built for the IT rack. Rarely did the appliances running these services encounter an organization so massive it couldn't handle. Now some services require strict isolation but for those that didn't, they were confined to this inefficient allocation of resources. All from the result that software accessibility was only through the organization's intranet.
Fast forward a few years, the internet arrives. Appropriately we start to see the inverse; data centralized and access decentralized. For engineering teams, this doesn't mean moving a computer from customers' org to theirs. It allows them to take advantage of dormant compute power to enable capacity for massive economies of scale.
Slack is one of the clearest examples of this. $15/user/month, and you never question why they charge you that way. The value is discernable, every person in my organization that uses slack gains historical context, unbound communication, and participation in conversations which all ultimately drive business decisions and deliverables. You know exactly what you're paying for. The value, not the cost.