I agree that it is a market failure, but it is for sure a marketing success. I cannot help but feel that there must be dozen competitors to his simple products that gather more "honest" profit margins (aka are cheaper or more feature rich) but have a hard time with marketing.

This is obviously something Tony put a lot of time and effort in, and it paid off. Good on him!

It’s not the same as profit margin in other business it doesn’t take into account labor costs. How much is his time worth?

Pick some random full-time developer salary, say $100k per year, and cut this in half as he says he works four hours per day.

Have you ever heard of a company called Apple?

I have no idea how high Apple's profit margins are, but I am quite sure they are not small. But what is your point, that is also a market failure.

Why don’t you exploit that market failure?

Not interested. I would feel bad for overcharging people and getting rich from that. And if I would charge them the actual costs, then I would mostly just destroy that guy's business and save some thousand people each a couple of bucks on some utilities that they almost certainly do not really need and are voluntarily paying for.

How are you able to tell with that much certainty of the users needs?

If those people had only access to overpriced water, then yes, making this market failure go away would be a worthwhile undertaking with a meaningful positive outcome. But people getting overcharged on a progressbar around their Twitter profile picture, who cares? And who could not live without that or do it manually with Paint at the cost of some additional time?

My original comment was just meant as a general comment that this kind of profit is not supposed to exist. I am not sure if I want to call it unethical but I am really tempted to do. You make yourself a nice life and others do the work.

> But people getting overcharged on a progressbar around their Twitter profile picture, who cares?

evidently, these people, who are paying money are finding value in it and they care.

> And who could not live without that?

What does this even mean? What difference is it from people who want their landscaping or house look a certain way so they pay money to others to do that for them. at the

> or do it manually with Paint at the cost of some additional time?

time is valuable or they just dont want to do it.

I don't understand the logic of all of these. What???

Sound like the market is working just fine then.

How do you come to that conclusion?

The price reflects the availability of the product and the willingness of the customers to pay. What more do you want?

Clearly there are factors affecting the willingness of competitors to provide a cheaper offering, you just listed them.

90% never lasts for long. Its called the law of attractive profits. The more attractive your profits are, the more competition you attract.

Sure, that's the theory. In theory someone cleaning toilets should also earn more than software developers or CEOs. People doing badly paid unpleasant jobs should all learn to program or manage a company and then drive down the salaries until cleaning toilets pays a premium because it is unpleasant work no one wants to do.

No they shouldn’t. There is a large supply of people capable of cleaning toilets. And a relatively smaller supply of people capable of writing software.

Under idealized conditions they would all take some training and learn to program.

What’s stopping them? You can learn to program with free information from the Internet. How much more ideal does it need to be?

Do you think all the people cleaning toilets for little money prefer their job over sitting in a comfortable office and getting well paid? If not, then there have to be barriers.

Here are some. You need time, you may need additional education before you can even start to tackle programming. You might have to move. You might just not be smart enough. You might not be an autodidact and need a teacher which might cost money. You need a computer for which you might not have the money.

Most people have computers. You don’t need to be in any particular place to learn to program as long as you have internet access.

But yes, you might not be smart enough. Which was the point. The supply of people smart enough to program is smaller than the supply of people smart enough to clean toilets. Programming is a more complex and difficult skill than toilet cleaning, which is why it’s more highly compensated. So is being a CEO. Like these are clearly not equivalently difficult things, so why do you think they should be compensated equivalently?

As I said, in theory. Maybe I should better have said in a naive theory, but it does not seem to uncommon that the argument is made that people will just find other job if their current job disappears which, at least to some extent, implies flexibility in what kind of jobs someone can do.

Ignoring everything, I also think it would be natural that everyone has the same wage - if you work for an hour it costs you an hour of your lifetime, no matter what you do. You get a bonus for unpleasant, physically demanding, or dangerous work. Every deviation from that due to supply and demand seems generally undesirable. For unskilled labor the abundance of supply - everyone can do unskilled labor - is used to bring the wages down to the bare minimum, often in combination with those jobs being unpleasant work. On the other end a lack of supply allows workers to demand inflated salaries compared to their time investment taking money away from everyone consuming products and services they are involved in.

And I am aware that we need some differential in wage levels to steer what kind of jobs people want to take and that some jobs need longer education and therefore should pay more to compensate for the time spend in education and whatnot. This is just what I think should be the ideal situation under completely idealized and unrealistic circumstances. Or phrased in another way, I think it would be good to make policies that try to make everyone earn the same amount as long as they do not compromise important signaling functions of wage differentials.

> Ignoring everything, I also think it would be natural that everyone has the same wage - if you work for an hour it costs you an hour of your lifetime, no matter what you do.

And you would be incorrect that this is natural. If two monkeys are gathering bananas and one is faster or cleverer than the other, why would it be natural that they end up with the same amount of bananas? Yes, it's still an hour of your life, but some people use their hours better than others and get more done with them.

We have to make 100 widgets to satisfy demand, you can make 75 per hour, I can make 25 per hour.

I would say we both worked for an hour, so we both get half of the revenue. You want three quarters of the revenue because you made three quarters of the the widgets?

I of course understand that we would want something like that in practice as an incentive, otherwise I could be very lazy and make you do all the work. But let us forget about practical aspects, let us assume we both work to the best of our abilities, we can not find a more productive replacement for me, and so on. We are also not competing, you could of course offer your widgets cheaper than me and put me out of business.

Why do you think it would be more natural or better that we get compensate based on the amount of widgets each of us produced instead of what it cost each of us to produce them, an hour of work?

Because people don’t pay for the cost of goods, they pay for the value they provide. If you need heart surgery that takes four hours, would you pay someone the same amount to take a four hour nap instead? Probably not, but why not? According to your logic the person performing heart surgery and the person taking a nap are both using up four hours of their life, so they should get paid the same amount, right?

Consumers will pay up to the value the product provides to them [1] and producers will sell down to the costs of producing the product. So why do we have economy? We have it in order to provide consumers with goods and services they need or desire as efficiently as possible, not to make producers rich. Profits are a mechanism to steer behavior in an economy, they are not the goal. So in general the price should always get pushed towards the costs of production, that is the role of competition. In case of scarcity the value attribute by different consumers will pull the price up in order to decide the allocation of the available products. [2] This should also encourage the creation of additional supply because the costs of production are below the price so there are profits to be made and the additional supply should then drive the price down further towards costs of production.

Long story short, the price should equal the costs of production, that is the goal. Any deviation from that just exists as a signaling mechanism to steer the system and decide the distribution.

[1] Actually up to the smaller of the value the product provides to them and the money they have available, see also [2].

[2] Note that the available products do not go to the consumers valuing the products the most, they go the consumers capable to pay the highest price. With enough money I could buy up all the heart surgeries because I like collecting them and deprive everyone else of heart surgeries even though they actually need them and value them much higher than me but just do not have the necessary money to outcompete me.

Not being stuck behind a desk IS a major career motivator for many people. They often go into fields like forestry, hospitality, and, yes, janitorial.

Don't knock the power of a job where you can 100% turn your brain off at work, and 100% turn work off at home, either.

" In theory someone cleaning toilets should also earn more than software developers or CEOs."

everyone wondering if you have a cogent point should read this first to realize you have no idea what you are talking about

Are you saying you prefer cleaning toilets over developing software, are you denying that the theory says that people will seek the best paying jobs or are you denying that supply and demand will regulate compensation? Keep in mind that I started my sentence with in theory, I am well aware that in reality there are all kinds of barriers that will prevent people from quickly retraining and seeking jobs where the payment is the highest, that was the whole point of my statement.

yup yup. cc Why don't people realize that 'high software profit margins' are fugazi?(https://buttondown.email/tZero19e/archive/why-dont-people-re...)

I'm not an expert in this but I think that generally price is determined by what the upper limit of what the users are willing to pay and the lower limit of what the vendors are willing to charge. As a new software vendor it only makes sense to look at the price of similar software in your space. And is it really bad - how many would want to be a software vendor otherwise? I'm not saying that some physical products do not come with risk, but the article is mentioning water - what are the chances that a company selling water will have a product market fit problem? What are the chances that the app you have worked on for so long without getting paid for it will not net more than a day job would 2 years after launch?

And Google, Facebook - they are something entirely different, they have a monopoly on their ad machine so they can charge whatever they want - and give something back in R&D in exchange - a company that struggles to keep its lights on can't innovate much (Zero to One is a nice take on this). For the latter, I'm not saying it is good or bad, it has benefits and drawbacks and it's the way it is and it's certainly not limited to virtual products. The Train Monopoly Co in my country has made the tickets practically 2x as expensive in just 1 year and what can I do? They could increase the price even further and I would still be riding with them because there are no other options.

Why are you on this forum if you hate capitalism? It’s an advertising funnel for a VC firm, in case you don’t know.

People have different ideas what capitalism exactly means, but free matkets are generally part of it. And properly working free markets would ensure that profits are zero and that to a first approximation everyone earns the same. Making profits and getting rich is against the spirit of capitalism.

Your understanding of the practical and philosophical backing for capitalism is limited and reads more like an Econ 101 description of perfectly competitive markets than anything else. If you would like to learn more you could read Joseph Schumpeter’s Capitalism, Socialism and Democracy[1] or Deirdre McCloskey’s Bourgeois Virtues[2]

[1] http://libgen.is/book/index.phpmd5=21EE8F203D5C3F9530D55985B...

[2] https://press.uchicago.edu/ucp/books/book/chicago/B/bo375063...

Read a book is not a very helpful response in a discussion. Why do you not just state your position or point out a concrete flaw in mine or a disagreement with it? Until now you have not actually said anything substantial. Do you think the system is working well if 90 percent of your revenue is profit? Do you think competitive markets are not an important part of a capitalistic system? Do you want to say that zero profits only holds in equilibrium?

You have confused the equilibrium state of perfect competition and knowledge in frictionless markets with how dynamic markets work. In a properly working market in real life there will sometimes be large profit opportunities. Then someone will notice them and exploit them and eventually someone else will enter the same market niche and compete, eventually reducing economic profits to something approaching the rate of interest. This is very far from profits should be zero and everyone earns the same. In a market with no market imperfections, completely interchangeable goods and no market power from either buyers or sellers there will be no economic profits. Even in this toy market participants will earn more or less depending on how much capital they have.

Zero economic profit holds only in equilibrium and there are no markets where equilibrium ever holds for long because the global and local economy is constantly in flux and entrepreneurs are constantly trying to find new ways to solve old problems cheaper or new markets or ways to solve a problem when one of the inputs suddenly dectupled in price.

The system is working well if 90% of revenue is profit at pip squeak levels, yes. If Microsoft could manage 90% profit margins on billions of dollars of working capital that would be concerning. Individuals or small companies finding tiny market imperfections and becoming wildly rich exploiting them is the system working, incentivising people to produce value.

Schumpeter: Entrepreneurs make new things and that’s great. Outside capitalism those people turn that energy into taking more of the pie, as warlords or tax farmers. Capitalism is better.

McCloskey: Capitalism is good because it inculcates patience, diligence and tolerance in people.

if you talk economics make sure you know what you're talking about.

profit happens when I can give you 10 units of value that costs me 1 unit of value. depending on risk factors, we split the difference. ie: if I give you the tool that does it for you, I get all 9 units because all risk is mine. if I tell you how to do it I get maybe 1 unit because most risk is yours.

what you're referring to is arbitrage. efficient markets kill arbitrage (zero risk profit)

No. Profits should not exist in working markets in equilibrium. If they exist, competitors are supposed to show up to also collect some of the profits eventually driving them to zero. If there are no competitors driving the profits to zero, that is a market failure.

It is the efficient market hypothesis. If it really were 100% efficient why would anybody start a company? In reality there are pockets of inefficiency, and they are still working markets.

You can see how this interpretation clashes with another dogma of economics: that the price of sth is the price that someone is willing to pay for it.

I read your message as saying that this software should be cheaper (arguing working markets but I think it is really a moral argument). This seems like the opposite of markets determining its worth.

Another argument against 90% being a market failure is that this will inspire competition of copycats with lower margin over time. Corrections and competition are not instant.

The efficient market hypothesis is something different, that one just says that prices reflect all available information. I was talking about competition which should ensure that there are no profits, i.e. that consumers do not pay more than the costs of production, including risk adjustment and development costs and so on, but that are mostly uneccesary details for this discussion.

You can see how this interpretation clashes with another dogma of economics: that the price of sth is the price that someone is willing to pay for it.

There is no conflict here. On the one hand the price can be as high as what customers are willing to pay, but on the other hand competitors should show up in order to take some of your profits by offering a lower price.

I read your message as saying that this software should be cheaper (arguing working markets but I think it is really a moral argument).

Sure, there is also a moral aspect to this, overcharging your customers in order to be able to relax on the beach is not the most ethical thing, but the economy cares relatively little about ethics. So the best one can do is to hope that market forces will correct this.

Another argument against 90% being a market failure is that this will inspire competition of copycats with lower margin over time. Corrections and competition are not instant.

Yes, I did not spell this out precisely enough, it is of course only a market failure if it persist. But given that many of those projects seem relatively simple, how long should one wait before declaring a market failure? Maybe there are already cheaper alternatives but people do not know about them? That is itself a market failure.

Seems like the disconnect stems from the definition of market failure. In your interpretation, persistence of profits is what makes a market failure. Economic theory is a bit more nuanced than that: market failure means inefficient allocations of goods and services on free markets. Inefficient means that there exists another conceivable outcome where an individual may be made better off without making someone else worse off.

If we accept the notion that whether a market efficient vs inefficient depends on whether there is another conceivable outcome that is not zero sum, we can summarize your argument to this:

there are no profits in efficient, free markets, therefore the existence of profits can be deemed market failures.

so, what other reasons can there be to the existence of profits while achieving maximum efficiency on a market? inelastic demand comes to mind for one which in itself has nothing to do with market failures. there are others, like high barriers to entry or innovation advantages or economies of scale. none of them are indicators of market failure HOWEVER they do suggest further analysis into the market conditions and more importantly the behavior of the players as some companies might be more exposed to act in a way that leads to market failure if these parameters persist. however we would need to assess whether markets with persistent high profit margins are more prone to failure than markets with persistent low or mid margins.

which captures my argument: the persistence of 90%+ profit margins in itself are not a good indicator of market failure. while this is true, we can see that market failure can be present in software markets but that has to do with the market structure due to the behavior of the players not the size of the profit margins.

this is why I think your argument while sounds sensational and a great catchphrase for a political rally, it lacks substance and cannot adequately capture reality.

> including risk adjustment

Right. Are you sure you haven't switched definitions in the discussion? Did the original 90% profit margin you quoted include costs of risk (assuming it can be quantified)?

> but that are mostly uneccesary (sic) details for this discussion.

LOL

Then why don’t you make the same thing for 85% margin?

If, then I would have to do it at zero profits. But I already have a job.

Oh, so you won’t work to provide something for free, but you lament that someone else also won’t work for free. I see.

I did not say this. If I build it in five days - and for simplicity assuming no future maintenance, support or service costs - than I would want to make say $5k for five days of work. Profit is revenue minus costs and costs include salaries. So I never said anyone should do anything for free.

But I have a problem with making money without doing any work. If you put in a week of work, then you should be paid for a week of work, you should not profit from indefinitely selling the result of that work again and again. Or even worse, make it into a subscription so that you do not even have to sell it again and again but can just repeatedly extract money from your customers.

> I would want to make say $5k for five days of work

You completely ignore expected value. The most likely outcome is that you make nothing for your five days of work. A functioning market requires outsized returns to compensate for the huge failure risk that goes unseen.

90% chance of making nothing, 10% chance of making 10x your salary is a stable state that is not exploitable.

Utterly insane. If you write a piece of software you can only sell it once? That makes no sense.

And a subscription means you are administering a server (or some menagerie of “serverless” resources) which is an ongoing service that requires maintenance and cost, so that’s what people are paying for, a premium to not have to do that administration themselves.

Like you just want people to suffer? It pains you if people make money without a sufficient amount of hardship?

Not sell it only once. Nobody would ever have bought an Office license if it would be priced at development costs. But lifetime revenue should be in a reasonable relation to development costs. And everything gets more complicated with expected support cost and updates and whatnot. I can not possibly mention all imaginable complications.

Just take the general gist, if you are not working, then you should not be making money. And I do not want people to suffer, I want them to be better off. There are many people that actually do hard or badly paid work, software development is not one of them.

If you overcharge your customers to be able to hang out at the beach half of the week, then you are just taking money away from them that they could otherwise spend on say higher priced vegetables improving the wages of seasonal workers.

Maybe another way to see it is that I dislike people that are already well off not being satisfied. What if everyone wanted to only work four hours a day and earn $45k per month? Does this sound like an sustainable idea?

You are extremely confused about how markets work. People are not going to willingly pay above-market prices for vegetables just because they have extra money. The pay for seasonal workers is not going to change if someone is able to buy Devutils for $3 instead of $30. A year ago the software didn't even exist, so nobody was able to buy it and guess what, the pay for seasonal workers was pretty much the same.

> What if everyone wanted to only work four hours a day and earn $45k per month? Does this sound like an sustainable idea?

With sufficient automation, sure. The goal should be that we all have everything we need without anyone having to work.

I completely agree with your last sentences but I guess this is still quite a bit in the future and I am not convinced that everyone would get what they need even if we would completely automate the economy. Even with complete automation there will still be limited resources and I would almost bet that some people will use all their powers to get some more stuff for themselves and the expense of everyone else.

With regards to the seasonal workers, you are of course right. I replied to so many comments that probably most of them ended up not very clear. What I had in mind was that if you would not overpay in some area you would have more money left for other things, so you could more easily decide to buy things produced under better conditions with more fair wages or whatnot.

You would probably also see less need to push back in case of price increases, say you could be more supportive of seasonal workers unionizing to demand better wages or whatever. So I did not want to say that wages have to increase, but not throwing money out of the window for app subscriptions would give you more freedom for other buying decisions that could lead to an improvement.

> If you put in a week of work, then you should be paid for a week of work, you should not profit from indefinitely selling the result of that work again and again

do you think the same for authors and musicians?

The first question is, do I have to? If not, then I will have to deal with all kinds of intermediate cases, say an industrial designer or film music composers. But ad hoc I tend towards making a difference and accepting that there will be a whole lot of cases that are not obvious how to deal with them. Sports professionals would be another tricky category.

I would say it lies in the nature of being an artist that the products are unique and unpredictable. Competition applies to a much smaller extent. You write one great novel at age 20, should you be able to live on the royalties for the rest of your life? In the end the consumer decides anyway, if they buy enough books at a high enough price, then you can.

As I wrote in another comment, there is also a moral aspect to this. If people willingly pay your subscription fee, then this is what it is. But do you find it good to sell your software at an inflated price in order to make yourself a nice life? How would you feel if everyone else did the same, if the supermarket staff would all only work half a day, make $45k a month and put the bill for that onto your grocery prices? I bet you would hope that competition solves the issue, otherwise your subscription income will no longer afford you a nice life.

> In the end the consumer decides anyway, if they buy enough books at a high enough price, then you can.

Why is this different from software?

The software priced here is very cheap. DevUtils costs lifetime less than what an hourly wage of SWE intern costs.

I don’t even know what logic is implied in here regarding the supermarket staff.

If you make $40k profits per month, the price is not as cheap as it could be, that is probably around the median yearly income in the USA. My point is just that this is not a sustainable thing, not everyone can take $40k home each month and only work 4 hours per day. Here it is just a single guy and the result of that is not noticeable, a few thousand people pay a handful bugs more each month than they could. But just imagine what would happen if we would cut the total working hours of the entire economy in half and gave everyone half a million dollars per year.

All the money you make based on work is really free-riding on earlier investments in knowledge anyway.

Why should you make $100/hr just because you did some studying 10 years ago? If you do a week of work, you should just be paid for that week of work, not for your 10 years of past experience and your week of work, right?

It seems like you're taking a pretty weird stance against market economics, made more strange by not proposing socialist/egalitarian policies as a potential improvement ("I have a problem with making money without doing any work")

I already got paid for the past ten years. If you had to attend university to get ready for your job, then you can have a bit more to compensate for that time without income.

I have nothing against market economics in general, I would welcome competitors driving those outsized profits down. When I say everyone should earn roughly the same, then this is what I think would be a desirable state, but in this case market dynamics are unlikely to yield this result because not everyone can switch to doing every possible job for all kinds of reasons.

This is what makes unskilled jobs pay relatively bad despite this work being important and often hard or unpleasant, but the mechanism to change that, leaving for better payed higher skilled jobs to reduce supply is just not available to many.

So I would think that I am in general in favor of market dynamics, but it has to be a working market.

Gross profit, operating profit or net profit?

If you mean the latter please show us some examples of public cos with a 90% net profit margin. I don’t think there are many.

Ask that guy. I would guess it is none of the three, i.e. he did not deduct a salary for him, but I really do not know.

If there are any, they're private and keeping an extremely low profile to increase their run time before potential competitors catch on and come to eat their lunch.

People with a lucrative gold mine don't talk about it until the mine has run dry and their winnings are secure in the bank.

That comma is a punctuation failure.

Most code editor and compiler are free, why someone else not built it ?

Drop your LinkedIn I wanna see something