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Software Profit Margins: What Really Brings Revenue in Tech?

  • Rating — 5 (3 votes)
  • by Igor Zviagin
  • Updated on March 10, 2020
  • Read —
    5-6 minutes

Tech business is a risky venture even though high risk often brings in high revenues. But what exactly makes money in software development? Is it certain technologies itself or new approaches to the existing problems? How to calculate the demand and minimize the risk of going out of business? What makes some big tech companies profitable and others not? Just why WeWork and Uber are failing despite hundreds of millions of dollars in revenue? Spend the next 10 minutes of your time to get to know the answers on these and related questions if you want your business to profit from tech innovations too.

The Idea How to Analyze Software Profit Margins

The idea matters, a lot. But the idea itself is nothing without its precise realization. The idea may change over time like it often happens, especially with software development and tech innovations. Your idea should bring something of value to the end users and benefit client in ways unimaginable before. It may not be only the idea itself but how it is executed that decides whether your future client will go with your solution or pick the next best option offered by your competitors. Take, for example, drone delivery or autonomous vehicles. The idea is clear but every major tech company and a bunch of little ones compete in its realization that will be effective and safe for consumers. 

Technologies

Our company deals exclusively with PHP back end development. Why? Because this is the best decision when it comes to commercial software development. PHP is very cheap technology but it allows doing complex projects and then upgrade them on the way. PHP developers are easy to come by and for the last 5 years PHP shows leading positions among the most widely used programming languages. To choose Python or Ruby will cost you more and it is more difficult to find suitable developers that have necessary experience. PHP shows stable ROI rates and companies like Facebook, MailChimp, Flickr, Baidu and Wikipedia use PHP in their development cycle.  

Marketing and Promotion

Big tech provides optimization to the workflow and platforms for many established businesses. Product companies like Google and Amazon deliver platforms and solutions that increase user engagement levels, attract more clients, manage content, etc. Nevertheless, even the best technologies should be promoted and forced into the existing markets. In some cases a groundbreaking product creates the market from zero. But there are always competitors. Google competes with Baidu and Uber competes with Lyft. So, the technology itself is not the only thing affecting profit margins.  

Market Status

Tech business often results in big and rapid growth. There is a tendency for a quality product to go viral and become internationally popular which happened with tech companies like AirBnB, Amazon, Netflix and many others. As there are no limits in digital world, to expand your client base globally is very real when dealing with tech business. You should analyze the existing demand or create it artificially. Practically any human owns a mobile device and that means that you have a direct access to as many people as are out there if you’re able to compete and provide customers with a great offer. 

What’s wrong with WeWork and Uber ? 

You may think that Uber simply cannot be unprofitable. And office leasing unicorn startup WeWork should definitely have a solid business model. Unfortunately, even if something is big, it doesn’t necessarily follow it is successful. Both Uber and WeWork announced major layoffs this year and founders of these 2 companies stepped off as CEOs. Why? It is one thing to survive on money influx from venture investment but it is a completely different case to bring in real revenue, secure stable growth and the price of stock shares. 

Weak business model of the two mentioned companies proves that the ideas behind them weren’t that revolutionizing in the first place. Uber didn’t invent taxis but presented low-cost transportation because it made drivers themselves responsible for vehicle maintenance. 

WeWork isn’t a tech company at all, since it is first and most of all a real estate company. But it used tech-hype and huge venture investments from SoftBank to simulate growth artificially without providing real tech value. Both WeWork and Uber disrupted the market, using apps but failed to deliver, since they bring little to no value per se.

On the examples of Uber and WeWork you can see that technology itself cannot succeed without a great idea. Idea and value + proper realization = success and high profit margins. A wheel is great because it can go round which can be used. Without that it is worthless. And its form is dictated by its purpose while at the same time its design allows it to do what it does. It’s as simple as that. 

How do you plan to monetize your app?
7 votes · 9 answers
Vote

MVP Development  

Startup rule #1 – develop MVP as fast as you can and release it. Upgrade and update later, based on user feedback. Boost your software solution with clever niche promotion and a thorough marketing campaign. All successful platforms be it Booking.com or Twitter started with a lot of bugs but their core idea attracted clients and they stayed through to the phase where product was shaped perfectly with a guaranteed further expansion. 

Same happened with Facebook that started so small but expanded rapidly because it mixed a great idea with superb realization (so much for Zuckerberg himself being a coder, let’s give him that). 

Conclusion

So, what do we have to say to sum it all up? Choose a technology pack (a PHP web platform or an iOS app) that targets your niche. Release MVP as fast as possible and let your product monetize itself with little dependence on external investment. Years and years of artificial growth won’t do you any good if the idea is worthless and doesn’t bring value to the clients. And to pick the best technology ask the experts. Always keep in mind that fail to plan is a plan to fail. Good luck!   

Do you need a profitable app?

Igor Zviagin I'm a tech journalist and market analyst. Software development, apps, tech trends, and digital innovations are all among my interests. Why? Simply, because it's the future. You can have more of that future in my blog entries. I have 5+ years of experience in online journalism and blogging but I've been a tech enthusiasts and even something of a geek my whole life. It is my pleasure to share with you the knowledge I have. Reading my articles, you can be sure to find expert opinions of senior developers, market tendencies, design tips, and info on outsourcing, business industries or specific Web and Mobile projects.

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