2014 Software Business Models

I have to admit, I generally hate New Year’s posts. You know the ones I mean, right? Some silly “look back” at the year before or some bloviated “look ahead” at what the new year will bring, lamenting all the lost opportunities and swearing the author will do differently [1]. First of all, I think few care (except the person writing it). Second, the new year is artificial. You want to do better in August? Then do better in August. But no one ever writes these screeds in August.

But then Ben Thompson came along and wrote the New Year’s post that is better than all the others, as it is actually practical and supposed to be for us, not him. Ben wrote an absolutely fantastic piece called 2014 Business Models that is well worth the read for anyone trying to make a living selling software (oops, apps) in 2014.

There are two concepts he discusses here. First he sets up his business models by first discussing marginal cost, and this is incredibly important to understand in the “download” economy:

The implication for apps is clear: any undifferentiated software product, such as your garden variety app, will inevitably be free. This is why the market for paid apps has largely evaporated. Over time substitutes have entered the market at ever lower prices, ultimately landing at their marginal cost of production – $0.

Marginal cost of a single additional unit is 0. Development is sunk cost.

Then he explains his business models. I won’t spoil the fun or rip off his excellent writing here. Go read the entire article.

[1] On occasion I’ve written these too and, after the fact, hated myself for doing it.