Opprtunities, challenges and getting rich
A reader wrote to me: “Why so many people are getting rich in software but not hardware or something else? How could young people who have nothing, just “empty hand” can get rich so quick? How do you create the billionaire list? Please explain."
Answer: The list of billionaires is published by Forbes Magazine and Hurun company in China who did the study. Both investigated assets of rich people and published the list for many years. The young billionaires may start with “empty hands” but their “minds are not empty”. They are full of good ideas based on their passions for technology.
Throughout history, people are getting rich based on social demands at that time. Economist called it: “The law of supply and demand”. During the industrial age, society needs factories that use equipments run on oil. Countries build offices and transportation systems, people need banking and finance etc. The millionaires and billionaires at that time were people who know about these needs and seized the opportunities such as John Rockefeller (Oil), Andrew Carnegie (Steel), Leland Stanford (Railroad), James Duke (Tobacco) J.P Morgan (Finance, Stock market) and John Astor (Housing). As we are moving into the knowledge age, society demands are shifted to technology and we have millionaires and billionaires who know about these needs and seize the opportunities such as Carlos Slim (Mobile phone), Bill Gates (Software), Larry Ellison (Software),), Mark Zuckerberg (Software), Steve Jobs (Hardware) and Sergey Brin (Software) etc.
Do you want to know why Bill Gates is a billionaire? Look at your personal computer and determine what kind of software it operates from. If it is Window then you already paid money to Mr. Gates. Today most computers in the world are using Window that means a lot of people already paid money to Mr. Gates. Do you want to know why Mark Zuckerberg is a billionaire? Today almost half of people on earth already have a Facebook account. That means over 4 billion people are using Facebook and as the number of users is increasing each day. The prediction is by the end of this year, Mark Zuckerberg could bypass Mr. Gates and become the youngest and richest person on earth.
Today many things are automated by software, from airplanes to mobile phones, from stock markets to factories. Your TV has a lot of software in it. Your video games are written in software. Your mobile phone has hundred thousand lines of software codes in it. If you using these things, you are paying for software, directly or indirectly. That is why software is the business that dominates our society and people who know how to capture this opportunity made a lot of money.
Today, hardware companies either have to change their business or go out of business. IBM, the largest computer company in the world has switched into providing “software services”. Digital Equipment, the second largest computer company was out of business. HP, the largest hardware company is also moving into “Software as a service”. A Wall Street stock broker explains: “If your company is not in software business, we are not invest in you. If you are in software business, you do not need to call us because we will come to your door”.
Why software business is so attractive to investors? The secret is “It is soft” which means it can be changed quickly. Since technology changes very fast, software is the only thing that can change and keeps pace with technology. You cannot change hardware but software can be updated every day. Since software is easy to change, software companies know how to take advantage of this. If they change few lines of code then they have a new software product. That is why companies continue to update, add, change, modify their software and create pressure for customers who depend on them have to buy newer versions. If you look closely in software business, you will notice that software companies do not make money by selling the product but make money by maintenance and update over time. When a company installs and uses a software, they have to pay more to keep it updated else it will not work. If you use MS DOS, your computer does not work anymore. If you use Window 2000, you must update to Window 7 and next year, you must pay to update to Window 8. Imagine that each year, every computers must update their software. That is why Microsoft is the largest software company and Bill Gates is the richest technology billionaire.
Another secret of software is “low production cost”. Software may requires a lot of efforts to design and build but once it completed, it is very cheap to made. Software company can copy it into thousands, million or billion copies and sell it throughout the world. The “real” software product requires minimum cost. a CD for example, costs less than a dollar and sell for hundred or thousand dollars. If delivery over the Internet for download, it costs only a few cents. That is why the combination of “easy to change” and “low production cost” have made software company highly profitable and attract so many investors into this business.
Create a software company is also relatively easy. You do not need a lot of money to start. There is no requirements for factory, machinery or equipments but a few personal computers, laptops and a passion for technology. That is why “empty hands” but “Full of ideas minds” people, many are college students, have become millionaires and billionaires in a short time. Today, the U.S is not the only country that has young billionaires like Bill Gates, Marc Zuckerberg, Steve Jobs but India and China now have more “Software” millionaires than any country in the world. The interesting fact is it seems that these millionaires are much younger than their counterparts in the U.S. Among the list of “Software” millionaires in China and India, 78% of them are under the age of 25. Some are only 19 years old. You may not know them yet but in few more years, they will be well known. In China, there are Robin Chan (XPD), Zafka Zhang (Youthology), Jian Wang (Kijiji), Si Shen (Papaya). In India, there are Sasikanth Chelamudi (Habits), Rama Gaddipati (Bridle), Vikas Kedia (Mobiletrail) and Atul Khekade (innovationtrips). These millionaires represent the younger generation, who are very familiar with technology. They understand the society needs than most people from the older generation. They are willing to take risks, they are not afraid of failures, they think of things that older generation consider impossible and they make it happens.
Since technology changes fast, it puts a lot of pressures on software companies. The rapid change means that it is difficult for anyone or any company to maintain a strong position in this industry. The technologies that are “hot” few years ago are no longer useful anymore and have to be replaced. People who cling to those technologies will realize that their skills are obsolete. Company that does not change with newer technology will be out of business. Today, Microsoft is the largest but it is seriously threaten by Google. Google is now threaten by Facebook. Next year, who know that there may be another who can threaten Facebook too. May be it is your company?
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
