Why Software Is More Profitable Than Content

Author: Adam Keesling (Napkin Math) URL: https://napkinmath.substack.com/p/why-software-is-more-profitable-than One-line: Software and content share the same economics (free distribution, high fixed / near-zero marginal cost, fast iteration) — but content products decay while software products don’t, because content talks to humans (who seek novelty) and software talks to computers.

Highlights #Investing 101 2.0 #Open Source #Wikipedia #Open Source Knowledge

• https://napkinmath.substack.com/p/why-software-is-more-profitable-than
• Read every day. It doesn’t matter what. It doesn’t matter if you “finish the book”. Just read. #Reading
• Invest in relationships. Your community matters more than you think.
• I too have done this countless times. I’ve assumed that a single utterance or idea would neatly occupy a spot in my brain like a plug fills a socket. But that’s not how we humans work.
• Reframing information to the right context is what the media is all about.
• Software vs. Content
  • Distribution. For both software and content businesses, there are no distribution constraints. Both products are delivered over the internet and there are no physical or digital gatekeepers. This helps for two reasons: it doesn’t take very long to scale, and there are basically zero incremental costs for spreading the product to more people.
  • Investment. A piece of software and a piece of content have the same investment profile: lots of fixed costs to create something, then almost no costs to use it over and over. You can write a program one time and it will perform the same function the exact same way, no matter how many times it’s been executed. Similarly, you can write one article and it will read the exact same way, no matter how many times it’s read.
  • Iteration. Both software and content benefit from short feedback loops. Both can be adjusted on the fly; both can rapidly test and iterate ideas. It’s easy to tell people about your service. Then, it’s easy for people to try it. Quickly, creators or developers can learn if their customers like the product or not. With software, customers will use it more. With content, customers will share it more.
• Software companies typically have higher margins and lower customer churn. Why is this the case?
• Instead, I frame the difference like this: content products decay while software products don’t.
  • You use the same search engine, but you don’t ask the same questions.
  • You use the same CRM, but you don’t pitch the same customers.
  • You use the same streaming service, but you don’t watch the same movies.
• The first one is ephemeral because the world changes. The latter two are ephemeral because once we’ve consumed a piece of content, we move on. We have an innate impulse to seek novelty. We get bored of predictability. And so humans need to be reminded of what to do and why we should do it. We need context.
• Content products talk to humans, while software products talk to computers. That’s why the value of content decays faster than the value of software. And it’s also why software is the better business.

Connections

• Software / Content — the core dichotomy: same cost structure, different decay curve.
• Investing 101 2.0 — Kyle tagged this to his investing thesis; the “content decays, software compounds” framing feeds the durability-of-value lens.
• Open Source Knowledge / Wikipedia — knowledge that compounds rather than decays, the open-knowledge counterpart to the software side of the argument.
• Bundle Magic — the same week’s read on the economics of digital goods (bundling software and content because marginal cost is zero).