You’ll Make More Money If You’re In The Software Business

When looking at the difference between countries with emerging and developing economies and those with advanced economies, a big area that sticks out is the way in which they make money.  In looking at different countries, what type of industries are strongest?

First level:  Sell raw materials

Selling raw materials is easy.  Grow the trees, harvest the crops, mine or extract the minerals, chuck them onto a truck, train or boat and sell them to some other company (often in a different country).  There’ll always be demand for raw materials like wood, stone, coal or raw food products but the problem with this industry is the return on investment will always be at it’s lowest.  The best way for a raw materials company to make a lot more money is to go to the next level.

Second level: Adding value before selling the raw materials

Even-length planks of wood are worth a lot more than tree trunks that have just been chopped down.  Businesses that originally start by selling logs will soon learn to go the extra mile and cut the wood into more usable pieces which allow them to sell their products for many times more than they’d get for raw logs.  This applies to any raw material – take it to the next step of the product creation chain and you’ll make more money selling it (usually exponentially more).

What you see in developing countries is that they’ll slowly move from selling raw materials, onto manufacturing and end up selling the actual consumer products.  The amount of wood used to build a nice table or desk is tiny compared to the price at which you can sell the furniture.

Third level: Selling information/data

The amount of profit a company would pocket by selling desks instead of planks of wood doesn’t compare to the profit levels available to companies that are selling information instead of physical products.  The world’s leading economies are no longer selling raw materials or even finished consumer goods.  The money is now in selling information.

Creating a good software product may take many months of development, but once that has been done the finished product can be sold on CD/DVD or downloaded off the Interent for almost 100% profit (yes, there are still overhead costs but the thing to realise is it’s information that’s being purchased, not physical goods which require raw materials and labor for each and every sale).

Take-home message: Start selling information products!

More and more successful businesses are being started these days on the Internet by selling information not physical products.  The start up costs are low, the scalability is huge and the market is only growing larger as more and more countries enter this new sphere.

NOTE: Information products can be software as mentioned, but they can also be text, audio or video – anything that can be transmitted via the Internet and requires absolutely no raw materials.

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