raman srinivasan's Profile

In a web-based software firm, there isn’t a significant marginal cost of research and development (R&D). Cost of goods sold are often very small (especially in software), and CAPEX on a unit amortized basis is trivial. The biggest marginal expenditure is cost of sales. If a company can figure out how to simplify sales delivery and service by leveraging a self-service model, it can reach a large market segment hungry for better products and services.

Using techniques perfected by consumer web companies, a generation of enterprise IT companies will emerge that deliver a vastly superior user experience to IT professionals and employees alike. Improvements in ease of use will liberate employs from terrible software, server-side software development will increase the pace of product improvements and lower support costs, and the self-service model will change the economics of enterprise IT sales forever. Google’s success is as much about AdWords offering advertising services to the SMB segment as it is about serving consumers search services.

The dominant player in the SMB segment of the IT market today is Microsoft, as it’s been able to drive significant sales by riding Windows OEM agreements. If I were Microsoft, I would be more concerned about software-as-a-service solutions eroding my market share in the SMB segment than the threat of consumer web search, but I digress…

e. Martin Wolf, the world's most respected financial columnist—mainly for the Financial Times —published a book in 2004 called Why Globalization Works.^[2] He saw globalization as a mighty engine for ending global poverty, and was scornful of arguments against it, most of which he dismissed as lacking professional competence. He pointed to the huge success of China in reducing extreme poverty (people living on less than $1 a day). He saw no problem arising from the macroeconomic imbalances that resulted from lopsided trade. As he wrote:

The pattern of surpluses and deficits will create difficulties only to the extent that the intermediation of the flows from the savings-surplus to the savings-deficit countries does not work smoothly.... But no insuperable difficulty should arise. If some people [Asians] wish to spend less than they earn today, then others need to be encouraged to spend more.

As late as mid-2007, he thought that the possibility that "huge calamities" could be generated by world financial markets "looks remote."^[3]

His message just two months later was very different:

Nothing that has happened has been a product of Fed folly alone. Its monetary policy may have been loose too long. The regulators may also have been asleep. But neither point is the heart of the matter.... Today's credit crisis...is also a symptom of an unbalanced world economy.^[4]

The genius of President Richard M. Nixon and Henry A. Kissinger [in their withdrawal from Vietnam]... was to let the victim drown slowly while they steered the world's attention in another direction—to the most dazzling and theatrical display of American power ever.

Machiavelli would have appreciated the sentiment if not the economy of that sentence.