My first interaction was with myself, over the last week seeing record earnings after record earnings for the top of mind tech companies. Google was the one that made me think the most about it. They had nothing short of a stunning quarter. Then Brad Silverberg, the former head of the Windows division at Microsoft turned Venture Capitalist, wrote this on Twitter “Software may be eating the world but do people want to pay for software anymore?” And finally, John Lilly, former CEO at Mozilla and a partner at Greylock, wrote this interesting post on the strategies of the big tech companies.
I’m not even close to level of strategic knowledge that Silverberg or Lilly have, but the Google numbers made me obsessed, and in a strange way saddened, by the state of the Software as a business.
Google makes the majority of its money not by selling software, or software solutions, or even infrastructure for software, but from advertising. Businesses pay Google so Google can display their ads next to search results, content, on videos, etc.
Microsoft, Oracle, Salesforce, IBM and a few others are the last standing tech giants that make true money by the sale of the software on itself. And I would dare to predict no other company will ever achieve that level of revenue by doing what they did. That ship has sailed and we live in a different world now.
The way I came to this conclusion is by looking at the more recent multi-billion dollar “tech” companies, what they sell and what’s their true asset. Every company might say their true asset is their fantastic engineers and their engineering chops, but if you just assume that’s table stakes, what each company has as their main asset is:
- Microsoft: It’s software installed base.
- Google: The consumer intent.
- Facebook: The consumer idle time.
- Amazon: The best distribution process of goods.
- Apple: The best process to create end-to-end consumer solutions.
From this angle, Microsoft is doing the right thing by trying to transform itself because it knows that asset is depreciating at a faster pace than ever and it’s not as defensible as it used to be. On the other hand, Google and Amazon seem to have the strongest position to continue doing what they are doing, optimizing even more, and growing those businesses. Facebook and Apple seem to be vulnerable by the same treat: consumer’s fickle behavior.
It will be definitely interesting to see where these companies will be in ten years. Remind me to write part 2 of this post in 2023.