Customers pay much more for services than software

90% margins on tiny dollars won't make you rich.

Software revenues and business models are capped and hard to bring to market, especially if there’s never been budget for your product/category before.

Category creation requires a double sale; “we should buy something” has to happen before “we should buy THIS thing.” And ultimately you’ll only ever get paid so much so you need tons of (potential) customers.

But if you sell a service bundled with software, you can fit into a very different (type of) budget by selling something your customers are used to buying and paying a lot for.

Services can trade high gross profit dollars for high gross margin percentages with a smoother glide path to your customers.

As a service provider, you can take versus create budget. And naturally you can charge much higher rates and in more variable ways - after all we value services more highly than products.

Should everyone just build a vertically integrated service? No obviously not.

They’re really hard and you have to be good at more things simultaneously. But for certain categories, customer types, market structures (unsophisticated software buyers with small budgets, limited potential customers, etc.) you’re much better off looking familiar and charging a lot more.

90% margins on tiny dollars won't make you rich.