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Absolute numbers aren’t useful in this analysis. We know capital is easily available for the expenditure. You have to consider it as a relative number to revenu

Absolute numbers aren’t useful in this analysis. We know capital is easily available for the expenditure. You have to consider it as a relative number to revenue or users otherwise big numbers always look scary.

otterley 26d ago
I agree - however, I was responding to your direct question about whether GitHub's operating cost was high, and there's some data that suggests that it is!
- conductr 26d ago
  If this is one of their major expenses and only represents 5% of annual revenue, it’s not. Often SaaS companies can run at 90%+ gross margins even with a highly utilized free user tier. Their selling expenses and labor/opex and SG&A run rates can be all over the map but these are extremely controllable and represent the operating strategy being executed more than the cost of service.
  - otterley 26d ago
    Would you say that the operating cost of running an airline is high or low?
    - conductr 24d ago
      I don’t know that industry as well. But I can look at it through a similar lens and would guess that it’s high. I say that because every thing that goes into the service is expensive. Large capital expenses (planes, probably a lot I don’t even know about), large variable operating costs (fuel, flight specific labor, airport fees, and all the other stuff that is required for every flight). A large portion of their expenses scale with revenue. Meanwhile, there is high revenue pressure (customers are price sensitive and competition is fierce and often a direct substitute). SaaS is inherently more scalable than practically any other business/industry. Comparing to an industry that is exceedingly financially constrained, often to the point of requiring government subsidies, is frankly a bit silly if you’re trying to make any point here. Let’s also look at it from a risk of growth perspective to highlight how different things are. If GitHub invests in a new server/rack/datacenter to support growth it likely breaks even once it’s at <20% capacity (or could, lots of variables). Even if it takes longer than they expected to use the new capacity it’s not too big of a deal. The unused part is bought but can be powered down until needed. So it’s not burning a hole in their P&L. However, what does an airline have to do to rollout service to a new city? They need to buy new planes, sign contracts with the new airport, hire pilots and crew, launch a marketing campaign informing customers to generate demand, and probably some other sunk costs. Once service begins, they want to be at full capacity immediately. They can’t power down 80% of fuel or labor. It will burn cash until they reach a much higher utilization rate. Closing the city is a major public failure for the airline that will be discussed in media, among customers, and could easily lose people their jobs. It’s very risky in comparison is my point.
      - otterley 24d ago
        I think you're overthinking this. :-) My point is very simple: operating costs are relative. But you didn't ask the relative question, you asked the absolute question ("what suggests GitHub has a huge operating cost?"). Reasonable people will differ on how to evaluate the answer to that. For example, to a wealthy person, $100 might not be a lot of money. To a poor person, that is a lot of money. You yourself said: “Absolute numbers aren’t useful in this analysis.” So perhaps you meant to ask a different question all along.

otterley 26d ago

I agree - however, I was responding to your direct question about whether GitHub's operating cost was high, and there's some data that suggests that it is!

conductr 26d ago
If this is one of their major expenses and only represents 5% of annual revenue, it’s not. Often SaaS companies can run at 90%+ gross margins even with a highly utilized free user tier. Their selling expenses and labor/opex and SG&A run rates can be all over the map but these are extremely controllable and represent the operating strategy being executed more than the cost of service.
- otterley 26d ago
  Would you say that the operating cost of running an airline is high or low?
  - conductr 24d ago
    I don’t know that industry as well. But I can look at it through a similar lens and would guess that it’s high. I say that because every thing that goes into the service is expensive. Large capital expenses (planes, probably a lot I don’t even know about), large variable operating costs (fuel, flight specific labor, airport fees, and all the other stuff that is required for every flight). A large portion of their expenses scale with revenue. Meanwhile, there is high revenue pressure (customers are price sensitive and competition is fierce and often a direct substitute). SaaS is inherently more scalable than practically any other business/industry. Comparing to an industry that is exceedingly financially constrained, often to the point of requiring government subsidies, is frankly a bit silly if you’re trying to make any point here. Let’s also look at it from a risk of growth perspective to highlight how different things are. If GitHub invests in a new server/rack/datacenter to support growth it likely breaks even once it’s at <20% capacity (or could, lots of variables). Even if it takes longer than they expected to use the new capacity it’s not too big of a deal. The unused part is bought but can be powered down until needed. So it’s not burning a hole in their P&L. However, what does an airline have to do to rollout service to a new city? They need to buy new planes, sign contracts with the new airport, hire pilots and crew, launch a marketing campaign informing customers to generate demand, and probably some other sunk costs. Once service begins, they want to be at full capacity immediately. They can’t power down 80% of fuel or labor. It will burn cash until they reach a much higher utilization rate. Closing the city is a major public failure for the airline that will be discussed in media, among customers, and could easily lose people their jobs. It’s very risky in comparison is my point.
    - otterley 24d ago
      I think you're overthinking this. :-) My point is very simple: operating costs are relative. But you didn't ask the relative question, you asked the absolute question ("what suggests GitHub has a huge operating cost?"). Reasonable people will differ on how to evaluate the answer to that. For example, to a wealthy person, $100 might not be a lot of money. To a poor person, that is a lot of money. You yourself said: “Absolute numbers aren’t useful in this analysis.” So perhaps you meant to ask a different question all along.