20 Dec The Ever Decreasing Cost Of Software (The Truth)
While we did experience serious inflationary pressure during the pandemic, and we may continue to see this inflation on certain products, in the software business, what I am envisioning over the next 20 years is actually mass deflation. In fact, this mass deflation has already mostly taken place in the software business, and we are a good 20 years into this deflation now.
DEFLATION HAS ALREADY HAPPENED!
Deflation has already been around for many, many years. We just take it for granted. In fact the US public has developed a bad habit, a malaise, whereby the next generation comes to accept low prices are just a given. But as we experienced during the pandemic, $1 for a dozen eggs in the US can just as easily be $6, and $2.50 gas prices can just as easily be $7 a gallon. Just depends on the events, timing and economics.
Many of us, used to be able to buy a pair of jeans for $10 at Marshalls or TJ MAX today would have seemed insane to me back in 1990. Back then, a pair of jeans cost $39 or even $59. I can buy T-Shirts at CVS for $7. I have bought 6 T-Shirts at Target for $6 a piece and I have bought many a thing on Amazon Prime at even more insane pricing.
The US overall is fat and happy and take for granted this 75% decease in clothing pricing. With normal inflation, a pair of jeans should be $100, not $10. Yes, you may be buying $300 jeans at Nordstroms, but that’s a choice. You could have gone to Old Navy, Target or Marshalls and gone right to the clearance rack. That is a choice. The fact is that low cost labor, technology (the 2 big ones) are important here. Maybe that deflationary software cost is helping drive the costs down as well. Bottom line everybody living in the poorest neighborhoods in the US dresses well today. That was not true in 1974.
HOW MUCH DOES IT COST TO BUILD SOFTWARE THESE DAYS?
A lot of this deflationary talk came to me during a startup pitch event I was running in Boca Raton, Florida, when a person asked a question, a very dumb question of a multi-million $ proptech real estate software startup. But the question was not dumb in the end.
The question was what is the cost per developer of the project?
The project is a real estate investment platform.
Back to the question.
What is the cost per developer of the project?
It’s not that it’s a dumb question, it’s that if you were standing in the same room in 2003, the question would make more sense.
For instance to build this same real estate software platform back in 2003, you would have required 20 people from IT, Software, QA, dev ops, designers and others, besides the managers and the HR to hire the team members. I’ve worked in those organizations. So back in 2003 a team of 20 was working for 2 years at $100k a person, that would have been around a $4 million budget for the build out.
Not that the world is that different since then, but it really is! And not that software is any more easier to develop since then, it’s that all the other jobs are not really required anymore. And I am not even calculating the off-shore value we get with developers in India, Serbia, Ukraine, even Kenya.
We used to have to use an IT person, a guy who runs the wires, moves the PCs around.
Bam, that job is no more! (yeah, it exists, but it is not a part of this project)
We all have our MacBooks we take with us everywhere, and nobody needs a printer.
You don’t need dev ops to manage your servers.
AWS will suffice, and even AWS is not necessary. We use a company called Liquid Web for cloud based servers, and trust me I don’t need a devops guy.
What is a devops guy?
He’s the system administrator who has hardware or software experience in managing servers in hosting companies. But it is all not important to me anymore. It hasn’t mattered in the last 10 years.
I basically use WHM/Cpanel, which does it all, and if I need support, I have a support contract. Liquid Web is Amazing. I have support at 3AM EST!
The QA team, the database admins, and the content writers are no longer needed in this dev project.
Nor is the dev manager or any HR person.
The skillsets of software developers are much broader and everybody knows how to build a database schema or work with GitHub. And a lot of these types of costs were already crushed by 2013.
My estimate is by 2013 the same dev project which cost $20 million in 2003 was only a $1.5 million dollar project. That’s over a 90% cost reduction already… We are just all on the same path, we just never knew it.
Fast forward 10 years later and this project to get to a Real Estate Platform MVP is more like $250k. That’s an 84% reduction in costs from 2013 to 2023. (quite close to 90%)
And so on, and so on.
And now for the pièce de résistance.
There is an onslaught of Saas (Software as a Service), Cloud Software and now what we call No Code and Low Code providers about 5 years in the making. This movement is already underway, and the early winners are Bubble and Adalo. These are systems where coding is no longer necessary.
No code solutions are more about understanding sales, market forces, product managers, business developers with some tech skills and good graphic skills. And you bang out your choices in a “builder” platform.
Using no code solutions you can throw together an app within a week or several weeks, with no dev team. I have done it. Trust me, I have seen a few challenges with no code. But these are simply minor challenges. They will all be overcome… rapidly. I’d say by 2030 No Code will start to be the next Crypto craze, or AI craze, etc. It will be the future.
The answer to your question (I know you are going to ask it) is what will the cost savings be by 2033? The answer is another 90% cost reduction, which means the same project in 2033 will cost $25k to build a live version. And I won’t be surprised at $2,500 in 2043, and that’s because almost every possible way software can be developed will be a simple easy to pop together solution. AI will write and make the software for you based on a conversation. This has happened and it’s all inevitable…
Now that is some serious deflationary pressure.
Inflation Is As Much Political As It Is A Reality
But yet year after year on multiple fronts we hear there is inflation. Sure there is inflation, look at home prices. And year after year software developers need to get paid more, and more. And the big guys are paying them more and more. But what they do, how they do it, in languages and systems like Artificial Intelligence are doing more and non-software-like parts of the solution. And startups seems to need a lot more sales and marcom tech help in the startup. Trust me, startup founders still find a way to require $20 million to build a company. But after reading this, having your eyes open to the truth behind this mass deflation in software pricing, you may be questioning the tech budget a little more often!
I know there is someone out there that will counter everything I have stated. That’s because the world is not perfect and these changes and movements take time. For one, legacy code will need to be maintained pretty much forever, in our lifetimes. I am talking new tech projects mainly here.
Hi, my name is Dan Gudema, and I run StartupPOP. StartupPOP started out as a Tech Startup Pitch Event in Boca Raton Florida as well as NYC, NJ, Orlando, Fort Lauderdale and Aventura. After 10 years, 40 events, 500 startups pitching and many a network event, we have evolved into a co-working tech startup membership space called StartupPOP Spaces at The Greenhouse in Boca Raton. We also do startup marketing services, stuff that helps startups get ready for capital, and build teams and audiences for their products. Please follow me as I start to document our journey into a startup co-working space.
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