The World of Software: Connecting Scarcity and Demand

The World of Software: Connecting Scarcity and Demand

Technology has revolutionized the way we live, work, and interact with the world. The phrase "Software is Eating the World" perfectly captures this phenomenon. The world is now organized around scarcity, and technology has played a crucial role in increasing access to scarce resources. It has helped us do more with less, enabling a larger number of people to enjoy something for a fraction of the cost.

In this world of abundance, new forms of emergent scarcity have emerged. These scarcities are hard to predict in advance, but they are nonetheless important to understand. While in a world of scarcity, supply constraints were paramount, in a world of abundance, demand becomes the driving force. This shift in dynamics is beautifully explained by Ben Thompson's idea of aggregation theory.

Pre-internet, capturing profits meant controlling supply. However, in the post-internet era, profits are captured by aggregating demand. This is evident in every industry influenced by software. The unbundling and rebuilding of various products and services has become a common trend. Songs were unbundled from CDs and then rebundled into playlists, while articles were unbundled from newspapers and rebundled into social media feeds. Curation has become more important than ever.

Education, housing, healthcare, and many other sectors have also experienced the transformative power of technology. The world of bits has fewer barriers to communication, product discovery, and productivity. In this context, the unit of demand becomes the fundamental variable, rather than the unit of production or capital.

Moving on to Andrew Chen's perspective on startups, he emphasizes the importance of understanding human nature and fulfilling people's inherent desires through technology. While technology rapidly evolves, human behavior remains relatively constant. This presents an opportunity to create valuable products that align with these fundamental human needs, combining them with modern technology.

An example of this is the Michelin Guide, which cleverly packaged restaurants as destinations, giving people a reason to drive. By making the experience appealing to friends, family, and oneself, word-of-mouth promotion became possible. This illustrates how a century ago, consumer packaged goods companies used advertising and coupons to stimulate demand and solve the chicken-and-egg problem. Today, startups leverage mobile apps to generate demand and solve the same problem. The underlying principle still holds true.

When it comes to startups, three critical elements intersect to create significant opportunities. Firstly, new technologies and platforms provide a foundation for growth. The marketplaces, B2B solutions, mobile apps, and other categories present reliable opportunities. However, one or two breakthrough innovations are necessary to truly capitalize on these opportunities.