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Software Is the New Oil

130 points by orrsella 11y ago

ph0rque 11y ago
Amazon, the company that “will never make money” surprised Wall Street last week with strong profits and it seems to me that they are going to start producing cash like these other big tech companies now. I missed this... any good articles about it?
- sharemywin 11y ago
  wonder when amazon shed's it e-commerce business to focus on it's real money maker cloud computing?
  - ousta 11y ago
    this is not amazon strategy to ever get rid of the ecommerce business. Amazon strategy is to become a leader in many fields, they got lucky and envisionned the potential of cloud early, for commerce of goods it is a thousand year old industry with big competition from all other the world, their goal is to cut costs, not to care about short term returns and once other businness collapse due to prices cuts that they cant folllow, then amazon will be the only leader in commerce and will rule the price of pretty much everything that is traded in the world.
  - adventured 11y ago
    They'll remain linked for at least another decade. Bezos can now lean on AWS to print money that he can funnel into numerous other expeditions. He won't let go of it any time soon, he has been seeking a big money maker for some time (see: efforts in search, auctions, advertising, phones - where the leaders have generated sizable profits). Why did Amazon launch a semi-high priced phone (rather than stay consistent to the traditional low price strategy)? Bezos was hoping it would spit off a few billion a year in profit, and they'd finally have a big cash fountain to swim in like his competitors in tech. In four to six years AWS will be a $150-$200 billion company in terms of valuation. It'll be capable of generating $4 or $5 billion in operating profit in that time frame. It'll likely pass Facebook in terms of sales within 36 months, and Facebook is worth $292 billion.
- eddd 11y ago
  http://uk.businessinsider.com/analysts-wrong-about-amazon-profit-2015-1?r=US&IR=T http://uk.businessinsider.com/analysts-wrong-about-amazon-pr...
- roymurdock 11y ago
  > AWS reported an operating income of $521m during Q3, which is almost on a par with the amount brought in by its parent company’s entire North American online retail business ($528m). http://www.computerweekly.com/news/4500256048/Amazon-turns-surprise-Q3-profit-as-AWS-cloud-growth-soars http://www.computerweekly.com/news/4500256048/Amazon-turns-s...
jofer 11y ago
If software is the new oil, be prepared for a wild ride. The oil industry is notorious for decade-scale cycles of over-hiring and then layoffs and under-hiring, rinse-lather-repeat. Regardless, it's a good analogy, but be careful how far you take it. There's a _very_ important difference between the energy and other major industries. It's a difference that the software industry shares, but in the opposite extreme: The amount of capital needed to do business. The energy industry is notoriously capital intensive. For my employer, a project has to be over 250 million to be considered a significant project. We have a _lot_ of those, including multiple projects in the 10-50 billion range. Sure, I work for a very large company, but even a "mom and pop" oil company (there are a lot, actually) needs tens to hundreds of millions to get started. By contrast, the software industry prides itself on being able to get an initial product out the door with essentially no other investment than time. At any rate, it's a fine analogy, but keep in mind that the oil industry is _very_ focused on building _big_ infrastructure. In that sense, oil companies have more in common with independent nations than with other companies. It's something to think about, at any rate.
- jerf 11y ago
  "If software is the new oil, be prepared for a wild ride. The oil industry is notorious for decade-scale cycles of over-hiring and then layoffs and under-hiring, rinse-lather-repeat." We've already been through one. We may be on the high side of another right now. I think the mechanisms are sufficiently different from the oil world that comparisons aren't too helpful, though; the presence of some form of negative feedback in the system is often sufficient to produce oscillations. The negative feedbacks are quite different in character even if the results are the same at a sufficiently high level of abstraction. (I'm not sure that we're in a "bubble" in the 1999 sense that people worry about, but still, if the economy ever becomes healthy again and interest rates go up, software will cease to be the only investment people can make that has any chance of paying of, which will mean that even without a "collapse" the investor money flows may dry up relative to today. However, I think the industry has a greater focus on real profits today, which will buffer the industry substantially vs. 1999. Yeah, we talk about the hyper-growth eyeball-selling companies, but we talk about they partially because they are the exception; there's a lot more "real value" companies out there right now.)
eddd 11y ago
Difference between oil and software is that you can easily quantify oil (1 barrel) whereas it is tremendously hard to quantify the value of software product.
- sharemywin 11y ago
  most companies pay by the click.
  - eddd 11y ago
    Well, curl -X POST http:/click.it/pay_me sounds easier than fueling a car.
  - mrweasel 11y ago
    No, that's ad companies you're thinking of. Software companies make money by selling services or shipping a product.
    - sharemywin 11y ago
      Google's a software company last time I checked and most of their money is paid by the click. FYI, if you aren't paying for it your the product.
      - mrweasel 11y ago
        Google is an ad company. 91% of their revenue comes from selling ads. They just happen to be an ad company that started with a successful search engine. All the amazing software Google develop is to support their ad business, more or less.
kfk 11y ago
And yet when you look at it, the biggest opportunities to create immense value added are on the hardware side of things: self driving cars, pharma (aging, cancer, etc.), robotics, batteries, power generation, interstellar expeditions, bringing billions of people out of poverty, etc. I don't want to be dismissive, but the software industry might very well go through and M&A and commodification phase once it matures. It looks like oil now because those companies are big monopolies, will it last? I don't know, I wouldn't put all my assets in software, that's a bad idea in general anyway,
- pjc50 11y ago
  self driving cars, pharma (aging, cancer, etc.), robotics, ... , power generation, interstellar expeditions All of those involve very large software elements, and benefit from software innovation. It's quite plausible that the existing winners are at the top of their ramp, so buying in today at high p/e might not be a good bet. But all the unicorn investing is betting on new software companies coming along and reaching ascendency.
  - kfk 11y ago
    Excluding maybe self driving cars (maybe), I doubt that the core capability needed to drive the innovation in the above is software. I mean, that's like saying metal is everywhere in those industries. Of course it is, but it's also a commodity because it's easy enough to be produced by many competitors. I don't see software as so complex that few companies can keep the monopoly.
    - pjc50 11y ago
      I didn't downvote you, but I disagree strongly. Software is both the most complex and skilled-labour-intensive thing that humanity has produced, and something that needs to be individually commissioned for any kind of real business edge. And it's supply constrained; that's why we're paid better than most of the non-finance economy. You can't just go down and pump another few thousand barrels of raw software into your Strategic Software Reserve.
sharemywin 11y ago
It's software as communication/marketplace platform that makes most of the money. metcalfe's law + near zero marginal cost = $$$$.
fab1an 11y ago
I don't know nearly enough about macroeconomic trends or basics to have an informed opinion on this, but I do wonder how much of the software giant's cash-generating power is eventually still based on industries that 'extract stuff out of the planet'. Even if that dependency were indirect - say by the amount of oil/minerals/diamonds needed to produce a chip that your software needs to run on - such a dependency would still mean that software can never be as much of a 'primal' industry as oil is/was.
- adventured 11y ago
  It's an interesting consideration. Software is clearly not a primary layer, but neither is oil. Energy, land, machinery, labor, transport - a few of the things you need to extract and then process oil. The same goes for creating and making a microchip useful. The first oil tower at Titusville didn't use oil as its energy source. Is oil a layer two product, and software a layer three product? Perhaps, however oil is definitely not primal, it just seems like it is. The vast effort and industry required to make oil useful, along with a century of science, is mostly hidden away from view.
roymurdock 11y ago
I think it makes more sense to say that data is the new oil, and software is the machinery used to extract, refine, store, and convert it into energy. AWS, Azure, etc. will be the Shell and BP of the data world. But not all data is created equal, and we still haven't gotten the refining process down. Hopefully we'll be able to use digital oil to fuel more than just the great engine of personalized advertising, which seems to be where most of the revenue is coming from right now.
jefe_ 11y ago
I like the analogy, and eagerly await the arrival of a software rentier state.
mtgx 11y ago
So what's the renewable alternative to software then? And are we going to make wars over software, too?
- sharemywin 11y ago
  open source?
jasode 11y ago
I'm not convinced by this blog post that "software" is the new oil. To me, it's the top talent of "software PROGRAMMERS" that's the "oil". Let's pretend that Google Inc opensourced their entire software stack. Now, anyone can just spend money on hardware and datacenters and "replicate" what Google does in a certain sense. But did you really duplicate their abilities? Would intelligent and visionary investors fund such copycat endeavors? I say no because smart people would realize you didn't replicate Google Inc's "hiring pipeline" of the best minds from Stanford/MIT/etc. Yes, we may have gotten a snapshot of Google's source code but we didn't duplicate their ability to attract desirable workers who can build <<the next future thing that's NOT in that source code dump>>. Even Bill Gates had noticed this point: Google's ability to poach top talent from Microsoft was better than Microsoft's ability to attract Google defectors. Same analysis can be done for Amazon inc. A person could take all their source code for ecommerce and warehouse logistics and I'm not confident he could outcompete Jeff Bezos. First, you must prove that you're hiring a better pool of candidates than Amazon. Lastly, the "software" advantage leaks outside of the organization because others copy it (open source) or ex-employees with knowledge leave and reimplement it (legally) at their next gig. On the other hand, it's not as simple to make top compsci graduates switch their career aspirations from Google/Facebook/Apple in SV to SmallPotatoesInc in Alabama.
- dlsx 11y ago
  Lol, Google can do what it did with Isreali programmers, you think the brightest minds are in college? Wake up man, please. College is an institution where creativity goes to die. Google's best employees never went to college. I'm talking about the people who make a difference.
- toptalentscout 11y ago
  >> To me, it's the top talent of "software PROGRAMMERS" that's the "oil". So does that make all the rest of us plain programmers the grease?
  - doyoulikeworms 11y ago
    I think all programmers are the "oil". Some are higher quality that others, just as is the case with oil. Maybe tech companies are like refineries? This analogy is getting strange, but I like it.
pjc50 11y ago
One of these is a capital-intensive industry that extracts finite resources from the particular areas of the earth that happen to have them. The resource is consumed on a continuous basis. The other is entirely dependent on skilled labour, and once deployed continues to deliver value. Software is much more like real estate: the first entrants erect a patent barrier around the best bits and use it to charge rent to everyone that clusters around the core. It's subject to gearing-driven bubbles.
tacos 11y ago
And posts like this are why I hold shares of Berkshire Hathaway instead of Tumblr.
- dlsx 11y ago
  Take your pills gramps.
sharky93 11y ago
I feel 'data' or rather big data is the new oil. There are big monopolies which control a lot of it and are trying to make sense out of it, the likes of Amazon, Google, Palantir et. al. and similarly there are companies like ExxonMobil in the energy sphere. We could in fact extend this analogy to smaller players in the renewable energy zone which are trying to make better qualitative use of their resources and similarly you will find small startups trying to make qualitative sense out of whatever lesser data they have but with niche applications.
- rm_-rf_slash 11y ago
  The difference between data and oil is that you aren't going to drive to the oilfields one morning and find that it's all been hacked and stolen. Data is collected. Oil is sold.
  - saryant 11y ago
    > The difference between data and oil is that you aren't going to drive to the oilfields one morning and find that it's all been hacked and stolen. Ask Western oil workers in Libya or Nigeria or Venezuela or Mexico (depending on the decade) how accurate they feel that sentence is. Oil concessions have been regularly expropriated.
    - rm_-rf_slash 11y ago
      Fine then, stolen at the click of a button. Oil is a finite resource, software isn't. We create our own scarcity. Oil = software is a lazy metaphor.
      - saryant 11y ago
        As opposed to the stroke of a pen?
  - sharky93 11y ago
    I guess saying 'oil' is being a bit too specific. It is more like the 'energy' that drives the modern economy? and that is sold and you find new avenues everyday of collecting(producing) it. But yeah, it digresses a bit too much from this post I guess.
mathgeek 11y ago
"Facebook could have $20bn of cash in the next year and could be producing $20bn of cash a year soon." Came here hoping to find a "Facebook could..." line when talking about revenue. Was not disappointed. :)
- adventured 11y ago
  Why? They're tracking to a likely $18+ billion in sales in the next four quarters. That's obviously an extremely substantial business. By comparison SAP is Europe's largest tech company and does $21 billion in sales. Facebook will surpass them within eight quarters (at a mere ~14 years old as a company).
  - mathgeek 11y ago
    It's just the common line that you see when people talk about revenue possibilities and Facebook. There's a tendency to talk about Facebook's potential (rather than their current state) because they're a company with a lot of it.
kriro 11y ago
Another interesting related perspective that we used to give our (business information systems) students to argue about is "IT doesn't matter" by Carr (2003). Can be found online at: https://hbr.org/2003/05/it-doesnt-matter https://hbr.org/2003/05/it-doesnt-matter
dear 11y ago
So California Is the New Texas.
doczoidberg 11y ago
Very vague comparison. Software is a technology and oil is a commodity. you can't copy oil, you can't open source oil, software isn't limited
pcurve 11y ago
It's a grabby headline, but after reading it, it came across as an attempt to create a new business meme, rather than compelling arguments. All these companies make money through very different means, not just software. Most of them are valuable because they've monopolized sizeable chunk of consumer space through combination of good planning, products, designs, marketing, and a little bit of luck. Also, there are other wildly profitable companies in other sectors that have been around for decades.
tempodox 11y ago
“We are long software” Of all the suit babble I ever heard, this must be the most incomprehensible. Juggling stock options apparently wreaks havoc on the speech center of your brain.
- jasode 11y ago
  The author just inadvertently left out the word "on" as in "we are long on software", or "long on gold", "long on the euro", etc. It's typical phrasing that describes a long-term bet on something going up in value.
  - elsewhen 11y ago
    saying phrases like "i am long gold" or "i am short oil" (without the "on") are commonplace in investor circles.
  - harryc2011 11y ago
    FWIW, the duration has nothing to do with it - you could be 'long APPL' etc. for only a few minutes (or even seconds, microseconds etc.) - see [0] An alternative phrasing here might be "We are bearish on software" [1] [0]https://en.wikipedia.org/wiki/Long_(finance) https://en.wikipedia.org/wiki/Long_(finance) [1]https://en.wikipedia.org/wiki/Market_sentiment https://en.wikipedia.org/wiki/Market_sentiment
- gaius 11y ago
  It's a sentiment , not a distance.
Spooky23 11y ago
Oil is fundamentally rent-seeking. You're pumping money out of the ground. Software platform companies are the real equivalents. I think the difference is that the state of the art shifts so quickly, long term survival for platforms is questionable. There's always a new player.
- refurb 11y ago
  How is oil "rent seeking"? They are pumping something out of the ground and producing a product for sale.
jmnicolas 11y ago
Oil is finite, one day there won't be anymore. Software is potentially infinite as long as you can produce electricity ton run it.
bluegrape 11y ago
This is a fascinating analogy and shouldn't be written off, even though the OP is missing many of the parallels. Michael O. Church wrote about this in a recent blog post ( https://michaelochurch.wordpress.com/2015/10/17/the-four-stages-of-a-company-the-resource-extraction-culture-and-silicon-valleys-cultural-hayflick-limit/ https://michaelochurch.wordpress.com/2015/10/17/the-four-sta... ). The core argument is that Silicon Valley is now a resource-extraction culture. Ultimately, I’ve come to the conclusion that the source of Silicon Valley’s ethical failure is pretty simple: it’s a resource-extraction culture. I doubt that its culture is any more negative than, say, the oil or gas industries. What is this resource? There are two key resources that drive Silicon Valley. The first is the flow of passive capital into an oligarchy of careerist bureaucrats (venture capitalists) who invest other peoples’ money into supposedly technological companies. The second is self-undervaluing talent, which arrives in waves each summer in Northern California. The combination of these resources, along with optimistic overvaluation (worst of all, not only by investors but by the workers) of the companies and the career opportunities they will provide, creates an environment in which a small number of individuals can become very wealthy. He concludes that the finite resource being extracted is the good will of the American middle class. To that, I would also add the prestige of the U.S. abroad, since the country remains a destination for hard-working immigrants. As the Valley runs out of its ability to run on middle-class American good will, as people eventually learn that their startup equity isn't going to make them millionaires, it will instead run on third-world desperation through the H1-B program. So it has a long way to go before it dies out entirely, but the observation that VC-funded technology is a resource-extraction culture is spot-on accurate.
vezzy-fnord 11y ago
More specifically, it seems that he's referring to software as a service (or service as a software substitute, depending on your POV) as the one netting the surplus value. Distributed server-side applications with intrinsically limited client-side interaction and no standard release model or auditability so to speak of. That's actually a rather different beast than just "software".
blobbers 11y ago
Amazon made 17 cents per share and that was enough to convince you? "strong profits"? Drink the koolaid much? I'll sell you some shares in my software company at the same multiple. We've even got better margins. It'll be great. I promise.
- adventured 11y ago
  They generated a billion in operating profit between AWS and retail. Specifically what's so amazing, is that AWS is set to produce perhaps $2.25 to $2.5 billion in operating profit in the next four quarters. With the growth curve it's on, it'll very rapidly become one of the most valuable companies in the world, buried within Amazon. They'll hit $20 billion in sales in just three years, assuming slower growth. By comparison, AWS is already generating 2.5 times the operating profit of VMWare. It has greater sales than either Salesforce or Netflix, and is generating a drastically greater operating profit than either of those two.
beambot 11y ago
So when is "peak software"?
- crpatino 11y ago
  I don't know when, but it certainly seems to abide by the diminishing returns rule: "Programming today is a race between software engineers striving to build bigger and better idiot-proof programs, and the Universe trying to produce bigger and better idiots. So far, the Universe is winning."
grflynn 11y ago
Assumes that software is a tangible item, when a more suitable term for it is the wetware between the CPU and a user's screen? This connotation of software with some form of product is analogous to selling sand to The Arabs. There is more than enough to go around, and it is not scare. Soo leave it alone and create products borne from soft, not make the soft the product.
liveoneggs 11y ago
software is definitely a lot of snake oil.
douche 11y ago
Apparently acknowledging the existence of Michael O. Church is still verboten around here...
pg_is_a_butt 11y ago
hacker news is the new pile of shit
theworstshill 11y ago
The physical analogy isn't even close. The volatility at the present time may be applicable. Software is a product of someone's imagination, while oil is pumped out of the ground. Without invention of the combustion engine (also a product of someones imagination), all the oil in the world would be nearly worthless.
k__ 11y ago
Isn't it more like the new "Movies"?
peter303 11y ago
I've heard the exobyte data centers called the 21st century's "refineries" or industrial plants. They are physical plants consuming large amount of electricity (and nearly no labor). Although valiant attempts are made to minimize environment costs, the overall energy consumption increases and data creation rapidly grows.
ryanmarsh 11y ago
Hydrocarbons are something companies buy in order to burn or use to make other molecules they can sell. Explain to me again how this is an analog for software?
penglish1 11y ago
I just know there is a "There Will be Blood" joke in here somewhere..

130 points by orrsella 11y ago

Amazon, the company that “will never make money” surprised Wall Street last week with strong profits and it seems to me that they are going to start producing cash like these other big tech companies now. I missed this... any good articles about it?

sharemywin 11y ago
wonder when amazon shed's it e-commerce business to focus on it's real money maker cloud computing?
- ousta 11y ago
  this is not amazon strategy to ever get rid of the ecommerce business. Amazon strategy is to become a leader in many fields, they got lucky and envisionned the potential of cloud early, for commerce of goods it is a thousand year old industry with big competition from all other the world, their goal is to cut costs, not to care about short term returns and once other businness collapse due to prices cuts that they cant folllow, then amazon will be the only leader in commerce and will rule the price of pretty much everything that is traded in the world.
- adventured 11y ago
  They'll remain linked for at least another decade. Bezos can now lean on AWS to print money that he can funnel into numerous other expeditions. He won't let go of it any time soon, he has been seeking a big money maker for some time (see: efforts in search, auctions, advertising, phones - where the leaders have generated sizable profits). Why did Amazon launch a semi-high priced phone (rather than stay consistent to the traditional low price strategy)? Bezos was hoping it would spit off a few billion a year in profit, and they'd finally have a big cash fountain to swim in like his competitors in tech. In four to six years AWS will be a $150-$200 billion company in terms of valuation. It'll be capable of generating $4 or $5 billion in operating profit in that time frame. It'll likely pass Facebook in terms of sales within 36 months, and Facebook is worth $292 billion.
eddd 11y ago
http://uk.businessinsider.com/analysts-wrong-about-amazon-profit-2015-1?r=US&IR=T http://uk.businessinsider.com/analysts-wrong-about-amazon-pr...
roymurdock 11y ago
> AWS reported an operating income of $521m during Q3, which is almost on a par with the amount brought in by its parent company’s entire North American online retail business ($528m). http://www.computerweekly.com/news/4500256048/Amazon-turns-surprise-Q3-profit-as-AWS-cloud-growth-soars http://www.computerweekly.com/news/4500256048/Amazon-turns-s...

jofer 11y ago

If software is the new oil, be prepared for a wild ride. The oil industry is notorious for decade-scale cycles of over-hiring and then layoffs and under-hiring, rinse-lather-repeat. Regardless, it's a good analogy, but be careful how far you take it. There's a _very_ important difference between the energy and other major industries. It's a difference that the software industry shares, but in the opposite extreme: The amount of capital needed to do business. The energy industry is notoriously capital intensive. For my employer, a project has to be over 250 million to be considered a significant project. We have a _lot_ of those, including multiple projects in the 10-50 billion range. Sure, I work for a very large company, but even a "mom and pop" oil company (there are a lot, actually) needs tens to hundreds of millions to get started. By contrast, the software industry prides itself on being able to get an initial product out the door with essentially no other investment than time. At any rate, it's a fine analogy, but keep in mind that the oil industry is _very_ focused on building _big_ infrastructure. In that sense, oil companies have more in common with independent nations than with other companies. It's something to think about, at any rate.

jerf 11y ago
"If software is the new oil, be prepared for a wild ride. The oil industry is notorious for decade-scale cycles of over-hiring and then layoffs and under-hiring, rinse-lather-repeat." We've already been through one. We may be on the high side of another right now. I think the mechanisms are sufficiently different from the oil world that comparisons aren't too helpful, though; the presence of some form of negative feedback in the system is often sufficient to produce oscillations. The negative feedbacks are quite different in character even if the results are the same at a sufficiently high level of abstraction. (I'm not sure that we're in a "bubble" in the 1999 sense that people worry about, but still, if the economy ever becomes healthy again and interest rates go up, software will cease to be the only investment people can make that has any chance of paying of, which will mean that even without a "collapse" the investor money flows may dry up relative to today. However, I think the industry has a greater focus on real profits today, which will buffer the industry substantially vs. 1999. Yeah, we talk about the hyper-growth eyeball-selling companies, but we talk about they partially because they are the exception; there's a lot more "real value" companies out there right now.)

eddd 11y ago

Difference between oil and software is that you can easily quantify oil (1 barrel) whereas it is tremendously hard to quantify the value of software product.

sharemywin 11y ago
most companies pay by the click.
- eddd 11y ago
  Well, curl -X POST http:/click.it/pay_me sounds easier than fueling a car.
- mrweasel 11y ago
  No, that's ad companies you're thinking of. Software companies make money by selling services or shipping a product.
  - sharemywin 11y ago
    Google's a software company last time I checked and most of their money is paid by the click. FYI, if you aren't paying for it your the product.
    - mrweasel 11y ago
      Google is an ad company. 91% of their revenue comes from selling ads. They just happen to be an ad company that started with a successful search engine. All the amazing software Google develop is to support their ad business, more or less.

kfk 11y ago

And yet when you look at it, the biggest opportunities to create immense value added are on the hardware side of things: self driving cars, pharma (aging, cancer, etc.), robotics, batteries, power generation, interstellar expeditions, bringing billions of people out of poverty, etc. I don't want to be dismissive, but the software industry might very well go through and M&A and commodification phase once it matures. It looks like oil now because those companies are big monopolies, will it last? I don't know, I wouldn't put all my assets in software, that's a bad idea in general anyway,

pjc50 11y ago
self driving cars, pharma (aging, cancer, etc.), robotics, ... , power generation, interstellar expeditions All of those involve very large software elements, and benefit from software innovation. It's quite plausible that the existing winners are at the top of their ramp, so buying in today at high p/e might not be a good bet. But all the unicorn investing is betting on new software companies coming along and reaching ascendency.
- kfk 11y ago
  Excluding maybe self driving cars (maybe), I doubt that the core capability needed to drive the innovation in the above is software. I mean, that's like saying metal is everywhere in those industries. Of course it is, but it's also a commodity because it's easy enough to be produced by many competitors. I don't see software as so complex that few companies can keep the monopoly.
  - pjc50 11y ago
    I didn't downvote you, but I disagree strongly. Software is both the most complex and skilled-labour-intensive thing that humanity has produced, and something that needs to be individually commissioned for any kind of real business edge. And it's supply constrained; that's why we're paid better than most of the non-finance economy. You can't just go down and pump another few thousand barrels of raw software into your Strategic Software Reserve.

sharemywin 11y ago

It's software as communication/marketplace platform that makes most of the money. metcalfe's law + near zero marginal cost = $$$$.

fab1an 11y ago

I don't know nearly enough about macroeconomic trends or basics to have an informed opinion on this, but I do wonder how much of the software giant's cash-generating power is eventually still based on industries that 'extract stuff out of the planet'. Even if that dependency were indirect - say by the amount of oil/minerals/diamonds needed to produce a chip that your software needs to run on - such a dependency would still mean that software can never be as much of a 'primal' industry as oil is/was.

adventured 11y ago
It's an interesting consideration. Software is clearly not a primary layer, but neither is oil. Energy, land, machinery, labor, transport - a few of the things you need to extract and then process oil. The same goes for creating and making a microchip useful. The first oil tower at Titusville didn't use oil as its energy source. Is oil a layer two product, and software a layer three product? Perhaps, however oil is definitely not primal, it just seems like it is. The vast effort and industry required to make oil useful, along with a century of science, is mostly hidden away from view.

roymurdock 11y ago

I think it makes more sense to say that data is the new oil, and software is the machinery used to extract, refine, store, and convert it into energy. AWS, Azure, etc. will be the Shell and BP of the data world. But not all data is created equal, and we still haven't gotten the refining process down. Hopefully we'll be able to use digital oil to fuel more than just the great engine of personalized advertising, which seems to be where most of the revenue is coming from right now.

jefe_ 11y ago

I like the analogy, and eagerly await the arrival of a software rentier state.

mtgx 11y ago

So what's the renewable alternative to software then? And are we going to make wars over software, too?

sharemywin 11y ago
open source?

jasode 11y ago

I'm not convinced by this blog post that "software" is the new oil. To me, it's the top talent of "software PROGRAMMERS" that's the "oil". Let's pretend that Google Inc opensourced their entire software stack. Now, anyone can just spend money on hardware and datacenters and "replicate" what Google does in a certain sense. But did you really duplicate their abilities? Would intelligent and visionary investors fund such copycat endeavors? I say no because smart people would realize you didn't replicate Google Inc's "hiring pipeline" of the best minds from Stanford/MIT/etc. Yes, we may have gotten a snapshot of Google's source code but we didn't duplicate their ability to attract desirable workers who can build <<the next future thing that's NOT in that source code dump>>. Even Bill Gates had noticed this point: Google's ability to poach top talent from Microsoft was better than Microsoft's ability to attract Google defectors. Same analysis can be done for Amazon inc. A person could take all their source code for ecommerce and warehouse logistics and I'm not confident he could outcompete Jeff Bezos. First, you must prove that you're hiring a better pool of candidates than Amazon. Lastly, the "software" advantage leaks outside of the organization because others copy it (open source) or ex-employees with knowledge leave and reimplement it (legally) at their next gig. On the other hand, it's not as simple to make top compsci graduates switch their career aspirations from Google/Facebook/Apple in SV to SmallPotatoesInc in Alabama.

dlsx 11y ago
Lol, Google can do what it did with Isreali programmers, you think the brightest minds are in college? Wake up man, please. College is an institution where creativity goes to die. Google's best employees never went to college. I'm talking about the people who make a difference.
toptalentscout 11y ago
>> To me, it's the top talent of "software PROGRAMMERS" that's the "oil". So does that make all the rest of us plain programmers the grease?
- doyoulikeworms 11y ago
  I think all programmers are the "oil". Some are higher quality that others, just as is the case with oil. Maybe tech companies are like refineries? This analogy is getting strange, but I like it.

pjc50 11y ago

One of these is a capital-intensive industry that extracts finite resources from the particular areas of the earth that happen to have them. The resource is consumed on a continuous basis. The other is entirely dependent on skilled labour, and once deployed continues to deliver value. Software is much more like real estate: the first entrants erect a patent barrier around the best bits and use it to charge rent to everyone that clusters around the core. It's subject to gearing-driven bubbles.

tacos 11y ago

And posts like this are why I hold shares of Berkshire Hathaway instead of Tumblr.

dlsx 11y ago
Take your pills gramps.

sharky93 11y ago

I feel 'data' or rather big data is the new oil. There are big monopolies which control a lot of it and are trying to make sense out of it, the likes of Amazon, Google, Palantir et. al. and similarly there are companies like ExxonMobil in the energy sphere. We could in fact extend this analogy to smaller players in the renewable energy zone which are trying to make better qualitative use of their resources and similarly you will find small startups trying to make qualitative sense out of whatever lesser data they have but with niche applications.

rm_-rf_slash 11y ago
The difference between data and oil is that you aren't going to drive to the oilfields one morning and find that it's all been hacked and stolen. Data is collected. Oil is sold.
- saryant 11y ago
  > The difference between data and oil is that you aren't going to drive to the oilfields one morning and find that it's all been hacked and stolen. Ask Western oil workers in Libya or Nigeria or Venezuela or Mexico (depending on the decade) how accurate they feel that sentence is. Oil concessions have been regularly expropriated.
  - rm_-rf_slash 11y ago
    Fine then, stolen at the click of a button. Oil is a finite resource, software isn't. We create our own scarcity. Oil = software is a lazy metaphor.
    - saryant 11y ago
      As opposed to the stroke of a pen?
- sharky93 11y ago
  I guess saying 'oil' is being a bit too specific. It is more like the 'energy' that drives the modern economy? and that is sold and you find new avenues everyday of collecting(producing) it. But yeah, it digresses a bit too much from this post I guess.

mathgeek 11y ago

"Facebook could have $20bn of cash in the next year and could be producing $20bn of cash a year soon." Came here hoping to find a "Facebook could..." line when talking about revenue. Was not disappointed. :)

adventured 11y ago
Why? They're tracking to a likely $18+ billion in sales in the next four quarters. That's obviously an extremely substantial business. By comparison SAP is Europe's largest tech company and does $21 billion in sales. Facebook will surpass them within eight quarters (at a mere ~14 years old as a company).
- mathgeek 11y ago
  It's just the common line that you see when people talk about revenue possibilities and Facebook. There's a tendency to talk about Facebook's potential (rather than their current state) because they're a company with a lot of it.

kriro 11y ago

Another interesting related perspective that we used to give our (business information systems) students to argue about is "IT doesn't matter" by Carr (2003). Can be found online at: https://hbr.org/2003/05/it-doesnt-matter https://hbr.org/2003/05/it-doesnt-matter

dear 11y ago

So California Is the New Texas.

doczoidberg 11y ago

Very vague comparison. Software is a technology and oil is a commodity. you can't copy oil, you can't open source oil, software isn't limited

pcurve 11y ago

It's a grabby headline, but after reading it, it came across as an attempt to create a new business meme, rather than compelling arguments. All these companies make money through very different means, not just software. Most of them are valuable because they've monopolized sizeable chunk of consumer space through combination of good planning, products, designs, marketing, and a little bit of luck. Also, there are other wildly profitable companies in other sectors that have been around for decades.

tempodox 11y ago

“We are long software” Of all the suit babble I ever heard, this must be the most incomprehensible. Juggling stock options apparently wreaks havoc on the speech center of your brain.

jasode 11y ago
The author just inadvertently left out the word "on" as in "we are long on software", or "long on gold", "long on the euro", etc. It's typical phrasing that describes a long-term bet on something going up in value.
- elsewhen 11y ago
  saying phrases like "i am long gold" or "i am short oil" (without the "on") are commonplace in investor circles.
- harryc2011 11y ago
  FWIW, the duration has nothing to do with it - you could be 'long APPL' etc. for only a few minutes (or even seconds, microseconds etc.) - see [0] An alternative phrasing here might be "We are bearish on software" [1] [0]https://en.wikipedia.org/wiki/Long_(finance) https://en.wikipedia.org/wiki/Long_(finance) [1]https://en.wikipedia.org/wiki/Market_sentiment https://en.wikipedia.org/wiki/Market_sentiment
gaius 11y ago
It's a sentiment , not a distance.

Spooky23 11y ago

Oil is fundamentally rent-seeking. You're pumping money out of the ground. Software platform companies are the real equivalents. I think the difference is that the state of the art shifts so quickly, long term survival for platforms is questionable. There's always a new player.

refurb 11y ago
How is oil "rent seeking"? They are pumping something out of the ground and producing a product for sale.

jmnicolas 11y ago

Oil is finite, one day there won't be anymore. Software is potentially infinite as long as you can produce electricity ton run it.

bluegrape 11y ago

This is a fascinating analogy and shouldn't be written off, even though the OP is missing many of the parallels. Michael O. Church wrote about this in a recent blog post ( https://michaelochurch.wordpress.com/2015/10/17/the-four-stages-of-a-company-the-resource-extraction-culture-and-silicon-valleys-cultural-hayflick-limit/ https://michaelochurch.wordpress.com/2015/10/17/the-four-sta... ). The core argument is that Silicon Valley is now a resource-extraction culture. Ultimately, I’ve come to the conclusion that the source of Silicon Valley’s ethical failure is pretty simple: it’s a resource-extraction culture. I doubt that its culture is any more negative than, say, the oil or gas industries. What is this resource? There are two key resources that drive Silicon Valley. The first is the flow of passive capital into an oligarchy of careerist bureaucrats (venture capitalists) who invest other peoples’ money into supposedly technological companies. The second is self-undervaluing talent, which arrives in waves each summer in Northern California. The combination of these resources, along with optimistic overvaluation (worst of all, not only by investors but by the workers) of the companies and the career opportunities they will provide, creates an environment in which a small number of individuals can become very wealthy. He concludes that the finite resource being extracted is the good will of the American middle class. To that, I would also add the prestige of the U.S. abroad, since the country remains a destination for hard-working immigrants. As the Valley runs out of its ability to run on middle-class American good will, as people eventually learn that their startup equity isn't going to make them millionaires, it will instead run on third-world desperation through the H1-B program. So it has a long way to go before it dies out entirely, but the observation that VC-funded technology is a resource-extraction culture is spot-on accurate.

vezzy-fnord 11y ago

More specifically, it seems that he's referring to software as a service (or service as a software substitute, depending on your POV) as the one netting the surplus value. Distributed server-side applications with intrinsically limited client-side interaction and no standard release model or auditability so to speak of. That's actually a rather different beast than just "software".

blobbers 11y ago

Amazon made 17 cents per share and that was enough to convince you? "strong profits"? Drink the koolaid much? I'll sell you some shares in my software company at the same multiple. We've even got better margins. It'll be great. I promise.

adventured 11y ago
They generated a billion in operating profit between AWS and retail. Specifically what's so amazing, is that AWS is set to produce perhaps $2.25 to $2.5 billion in operating profit in the next four quarters. With the growth curve it's on, it'll very rapidly become one of the most valuable companies in the world, buried within Amazon. They'll hit $20 billion in sales in just three years, assuming slower growth. By comparison, AWS is already generating 2.5 times the operating profit of VMWare. It has greater sales than either Salesforce or Netflix, and is generating a drastically greater operating profit than either of those two.

beambot 11y ago

So when is "peak software"?

crpatino 11y ago
I don't know when, but it certainly seems to abide by the diminishing returns rule: "Programming today is a race between software engineers striving to build bigger and better idiot-proof programs, and the Universe trying to produce bigger and better idiots. So far, the Universe is winning."

grflynn 11y ago

Assumes that software is a tangible item, when a more suitable term for it is the wetware between the CPU and a user's screen? This connotation of software with some form of product is analogous to selling sand to The Arabs. There is more than enough to go around, and it is not scare. Soo leave it alone and create products borne from soft, not make the soft the product.

liveoneggs 11y ago

software is definitely a lot of snake oil.

douche 11y ago

Apparently acknowledging the existence of Michael O. Church is still verboten around here...

pg_is_a_butt 11y ago

hacker news is the new pile of shit

theworstshill 11y ago

The physical analogy isn't even close. The volatility at the present time may be applicable. Software is a product of someone's imagination, while oil is pumped out of the ground. Without invention of the combustion engine (also a product of someones imagination), all the oil in the world would be nearly worthless.

k__ 11y ago

Isn't it more like the new "Movies"?

peter303 11y ago

I've heard the exobyte data centers called the 21st century's "refineries" or industrial plants. They are physical plants consuming large amount of electricity (and nearly no labor). Although valiant attempts are made to minimize environment costs, the overall energy consumption increases and data creation rapidly grows.

ryanmarsh 11y ago

Hydrocarbons are something companies buy in order to burn or use to make other molecules they can sell. Explain to me again how this is an analog for software?

penglish1 11y ago

I just know there is a "There Will be Blood" joke in here somewhere..