Developing A Software Vs. A Physical Product?

The decade of the 80’s saw the rise of computer program industry or more prominently known as “software” industry. Within a short span of time, many of the world’s top billionaires came from the ranks of the software industry.

I think Bill Gates who is the founder of MicroSoft would forever be known as the longest running top billionaire in the world. For a while, in the decades of the 80s to the 2000s, it was wildly believed that all the top billionaires in the world would come from the software industry.

Mark Zuckerberg of Facebook seems to prove this when he became the world’s youngest billionaire. With every software now being ported to the Google Play and Apple Store ecosystems, it seems that the right business to be was in softwares.

But seemingly out of nowhere, Apple came from the brink of bankruptcy to become the world’s biggest electronics company with their exclusive software and hardware ecosystem. Suddenly, the electronics industry took the limelight again.

As of 2022, Elon Musk has become the richest man in the world, surpassing even Jeff Bezos of Amazon. As it turns out, Science Technology and Logistics are the new most crucial avenues for becoming a billionaire.

Elon Musk’s electric cars, battery technology, solar panels, space logistics, internet connectivity have made him the richest man globally. While Jeff Bezos became a billionaire with his e-commerce software, his physical logistics network is an integral part of his business.

But enough of Jeff Bezos for the moment, let’s concentrate on how Elon Musk became the world’s richest man. He is a Caucasian South African by descent who immigrated to the United States because he was convinced that the country offered the best opportunities for him to become rich.

He and his brother worked odd jobs while trying to figure out what sort of business they would go into that could make them a lot of money. I think even Elon Musk never dreamed that someday he would become the world’s richest man.

This is probably one of the reasons why Elon Musk is so popular. He financially struggled during his early days in America and became the richest man in the world largely through his brilliant mind or ambition.

I think I understand why Elon Musk started out in the software business. During those days, the software industry was the hottest industry around. Investors were literally throwing money at software companies and startups, hoping that these software companies and startups would become the next MicroSoft or Oracle.

But without funding and while working odd jobs, Elon Musk was able to create a mapping program which he eventually sold for millions. With one software program he became a millionaire.

It was widely reported that one of the first things he bought when he became a millionaire was a sports car. This must be the reason why decades later he would build cars, because he loved cars.

But we’re getting offtrack. Now that he’s a millionaire, he can invest in companies and startups. One of the software startups he invested was PayPal which became one of the largest online payment processing software in the world.

Elon Musk might not be a programmer now but an investor, but he must have a mind of what kind of softwares would become very profitable. He became even more richer thanks to his good business sense in the software industry.

It is an understatement to say that the likes of Bill Gates, Larry Ellison, Elon Musk, Mark Zuckerberg and so on have inspired a lot of people to enter the software industry. This is because there’s a low barrier to entry in this industry.

All you need is a computer, internet connection and programming knowledge. You can even remove the programming knowledge requirement if you have the money to pay computer programmers who are sometimes called “code monkeys” in a disparaging way.

The reason for this monicker is simple, nowadays, it is so easy to have a computer, an internet connection and to learn computer programming that many computer programmers are now being paid sweatshop wages despite their advanced technological skills.

If you are like Elon Musk who at first doesn’t have money for a full fledged business and has to support yourself by doing odd jobs, a software business is certainly something you can try for the mere fact that you could start this business on an almost zero budget.

What separates Elon Musk from your average wannabe software billionaire is that he has million dollar software ideas and savvy business skills. Computer programming skills is not the top skill needed.

It is to be noted that Elon Musk now manufactures high technology physical products. While there is still software involved in his products, they are not the only key technology in his products.

And by the looks of it, there is more demand for his physical products than his software products if he has any in the works. The software alone for his electric cars are worth money, but what really sells are the electric cars themselves.

The same is true for his rockets. They are also run by complicated software but what makes his space courier service sell is the logistics service and physical rocket technology he sells. It is to be noted that the US and China have the largest software industries.

The rest of the world’s billionaires still produce physical products. It could be in the form of energy such as oil, coal or renewables. It could be in the form of agriculture, logistics, finance, manufacturing and so on.

It is safe to say that although you can become rich by making softwares, you can also by being involved in physical products. In fact, the hottest industries venture capitalists are investing on are in the fields of medicine, food, and energy.

If you have no money and is not lucky like Elon Musk who was able to sell his software program for millions of dollars, you’ll likely need funding at some point in your business to make it grow or just for it to survive financially.

The good news is that softwares still attract a lot of funding from both angel investors and venture capitalists. But take heed that since software products are easily duplicated these days, some investors do not invest in software products anymore.

It could be because of the “me too” mentality of many software entrepreneurs. When Facebook became popular, a lot of investors invested money on many social media software startups hoping that they would become the next Facebook.

As it turned out in the software industry, the first software to gain critical mass wins. This essentially means that the first unique software who is able to gain a lot of repeat users would probably dominate the business and any “me too” softwares would just fail.

This software industry reality is already well known in the software industry by both startups and investors. A lot of investors won’t even invest in a software that has no strong intellectual property protection like patents.

Let us now consider the issue of patents which are essential if you want a product to sell for decades. If you have ever considered patenting a software or a physical product, one of the biggest concern you would probably have would be the cost of patents.

Many online resources for example in the US recommend that you prepare a budget of approximately US$ 15,000 to US$ 20,000 if you want to have your invention patented. There would be outliers who recommend that you can file your own patent.

However, even government patent agencies like the USPTO (United States Patent and Trademark Office) advise that you desist from doing so. This is because patent drafting requires expertise that only a patent attorney or agent can provide.

Another thing you would need to consider is that depending on the country, a software cannot be patented. India for example would not issue a patent on softwares although it would provide copyright protection.

This is probably one of the bad points in developing a software product, your inability to protect your software from being copied. But remember the “me too” reality of the software industry, deploy your unique software fast and hope to gain critical mass before others copy it.

If your products become successful in your own country, perhaps by this time you would be looking at the overseas market. Is a software product really much better than a physical product because it can easily be transferred from one computer to another on a global basis?

Yes, this is true. A lone computer programmer for example can develop a video game and upload it to the Google and Apple app stores. The very minute this is done, the computer programmer’s video game is available to anyone with a mobile phone.

This is different from a physical product which besides needing to be manufactured in a factory, needs to be physically transported by ship or by plane to the destination country of its customer.

Another thing you must consider is that global reaching patents cost in the millions of US dollars and usually, it is only the biggest companies in the world who are able to afford this. If you are a startup business, your entire funds may just end up being eaten by international patent filings.

But, as Elon Musk’s electric cars have proven, done correctly, making your products global can be done profitably. His electric cars are not only available in the US, but in China and Europe too. To date, he has successfully sold more than 500,000 of his electric cars globally.

As Elon Musk has shown, it is possible to be profitably involved in both software and physical products. He has shown us that one should seriously consider developing a software product first when one is usually financially challenged when starting a business.

What he has also shown us is that making non-software products might actually be more profitable. Even Bill Gates and Jeff Bezos have businesses that are not software-centric but are related to science and services. Even many of the world’s top billionaires have earned their money in non-software related industries.

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