Marc Andreessen, the man remembered for triggering the explosive growth of the early web 18 years ago when he and the team at NCSA released the Mosaic graphical browser, has come a long way. His Wall Street Journal opinion piece over the weekend discusses the current scramble away from hardware to embrace software, using recent news from HP (where Andreessen is a board member) and others to illustrate his argument. Margins are, indeed, typically higher in software, and it’s a far more scalable business (the billionth download needs no more development work than the tenth or the millionth did, whilst every physical server you build costs you money for labor, parts, shipping, etc) than hardware. Andreessen’s argument is strong, and illustrated by experiences from across the economy; software is, indeed, where it’s at. But. And it’s a big but. All of that software runs on hardware. All those books and other products shipped by (“software company”) Amazon are physical goods, shipped from physical warehouses in physical vans driven by physical people. The virtual and the physical need to co-exist. The real-world needs that so many companies address will still be there, long after the latest wonder-kid software startup is long gone. In the context of Andreessen’s argument, HP is considering offloading its desktop computing business to focus on the higher margins and growth potential of software and services. That’s a good argument, and might even be a sound business decision. But in the process, the company is seriously considering giving up on 4-5% margins, un-matched market share, and billions in quarterly revenues. 4-5% is nowhere near as good as typical software margins, but it’s hardly bad. But yes, software probably is eating quite a lot of the world. Just so long as we remember that someone has to invest in, build, sell, and buy the cutlery it’s eating with, and the plates it’s eating off.
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