> A team of a few hundred tech workers could build a business that brings the company in the order of a billion dollars in annual recurring revenue,
Like who? "Software" in and of itself doesn't accomplish anything. Nobody today is selling CDs in boxes that run entirely offline with no dependencies.
What is Airbnb without a giant network of IRL brokers that actually make inventory available? What is Uber without thousands of real people running ID checks, lobbying politicians, and negotiating down AWS and Google Maps API bills ?
Figma, everybody's favourite unicorn, only made $190m in revenue. It's only in bizarro world Silicon Valley that that results in a $20bn acquisition.
Software has near-zero marginal cost to manufacture, very few barriers to distribution, and can displace giants in a very short amount of time solely by virtue of being Good. In other words, software is viral. Valuations are an extortion fee. Here I have a doomsday device that will kill your multi-billion-dollar business faster than you can say Mississippi, and I'm selling the key.
Marginal Cost to Manufacture - Not in terms of cardboard boxes and CDs, but you can't scale up your user base without paying hefty fees to cloud providers or payment processors these days. In any case, software companies aren't valued on the basis of gross margin but recurring revenue and operating cash flow.
Barriers to Distribution - OK, this is still mostly true. I will say that "enterprise" type software tends to require RFPs, SSO integration and regulatory compliance that can let monopolies fester, like Microsoft (and Adobe).
I wouldn't say software is displaced at all though. Companies are simply buying the competition as in the case of Figma, (or Instagram, or Activision) or pouring money into developing vertically integrated solutions to strengthen their moats further.
Valuations are also about the future based on current adoption trends. It's like asking why did facebook pay so much for whatsapp, it's because it was very close to pulling a tiktok on FB themselves. They had half a billion people and was the defacto network effect locked in messenger for most of the smartphone world outside of China and the USA & Canada, on top of being extremely more staff efficient. If they bothered to add social networking, it would've been the beginning of the end for FB in those markets, and I wouldn't be surprised if it was a WIP in WhatsApp when acquisition talks were happening.
Figma was pretty much acting like the whatsapp to core parts of adobe business based on adoption. If they let it go on further, a similar thing would've happened.
Like who? "Software" in and of itself doesn't accomplish anything. Nobody today is selling CDs in boxes that run entirely offline with no dependencies.
What is Airbnb without a giant network of IRL brokers that actually make inventory available? What is Uber without thousands of real people running ID checks, lobbying politicians, and negotiating down AWS and Google Maps API bills ?
Figma, everybody's favourite unicorn, only made $190m in revenue. It's only in bizarro world Silicon Valley that that results in a $20bn acquisition.