I can’t make this model match reality. Suppose Amir is running a software company. He hired lots of good software engineers, designers, and project managers, and they are doing great work. He wants to use some sort of communications platform to have those engineers communicate with each other, via video, audio, or text. FOSS email isn’t cutting it.
I think under your model Amir would build his own communications software, so it’s perfectly tailored to his needs and completely under his control. Whereas what typically happens is that Amir forks out for Slack, or some competitor, while Amir’s engineers work on software that generates revenue.
I think the success of B2B SaaS over bespoke solutions is adequately explained by economies of scale.
I don’t disagree with most of what you said, maybe I should have been more explicit about some of the points related to that. In particular, I do think “the success of B2B SaaS over bespoke solutions is adequately explained by economies of scale” is true. But I think the reason there are economies of scale is that there are really high fixed costs and really low variable costs. I also think monopolizing talent enables software companies to make sure those high fixed costs stay nice and high.
With AI, engineering talent becomes cheap and plentiful. When that happens, fixed costs will plummet unless firms can control access to AI. If fixed costs plummet, economies of scale go away and the savings from the SaaS model get outweighed by the marginal benefit of bespoke solutions.
what typically happens is that Amir forks out for Slack, or some competitor, while Amir’s engineers work on software that generates revenue.
To push back a little on this, as software companies grow they do try to do this less and less. How much enterprise software do you think Microsoft or Google is outsourcing? As soon as it becomes a little bit of a dependence they usually just acquire the company.
In fairness, I don’t think this process will be rapid, nothing in B2B SaaS is. But I think tech companies see it on the horizon.
I also think monopolizing talent enables software companies to make sure those high fixed costs stay nice and high.
If you disagreed with this, is it because you think it is literally false or because you don’t agree with the implied argument that software companies are doing this on purpose?
Unlike the Ferrari example, there’s no software engineer union for Google to make an exclusive contact with. If Google overpays for engineers then that should mostly result in increased supply, along with some increase in price.
Also, it’s not a monopoly (or monopsony) because there are many tech companies and they are not forming a cartel on this.
Also tech companies are lobbying for more skilled immigration which would be self-defeating of they had a plan of increased cost of software engineers.
If https://outtalent.com/us50/ is to be believed, SWE engineers look pretty concentrated at the top ~5 companies and their subsidiaries. Do you think that data is incorrect?
Concretely, I would claim that >80% of the most skilled software engineers in the US work at <10 companies. Edit: I thought about it more and I think this is actually more like 65% at the 10 biggest companies, but that doesn’t change my central claims.
For those disagreeing-- 1. I continue to believe that tech companies derive much of their economic power from cornering the skilled engineering labor market,
2. this is highly threatened by the advent of AI capable of coding,
3. and thus many big tech companies have massive economic incentives to limit the general public’s access to models that can code well.
If I changed my mind about any of those 3 points, I would change my mind about the main post. Rather than downvoting, or in addition to it, can you please explain which part you disagree with and why? It will be more productive for everyone and I am open to changing my mind.
I think the biggest tech companies collude to fix wages so that they are sufficiently higher than every other company’s salaries to stifle competition
The NYT article you cite says the exact opposite, that Big Tech companies were sued for colluding to fix wages downward, not upward. Why would engineers sue if they were being overpaid?
Sorry, I can elaborate better on the situation. The big tech companies know that they can pay way more than smaller competitors, so they do. But then that group of megacorp tech (Google, Amazon, Meta, etc.) collude with each other to prevent runaway race dynamics. This is how they’re able to optimize their costs with the constraint of salaries being high enough to stifle competition. Here, I was just offering evidence for my claim that big tech is a monopsonistic cartel in the SWE labor market, it isn’t really evidence one way or another for the claims I make in the original post.
I can’t make this model match reality. Suppose Amir is running a software company. He hired lots of good software engineers, designers, and project managers, and they are doing great work. He wants to use some sort of communications platform to have those engineers communicate with each other, via video, audio, or text. FOSS email isn’t cutting it.
I think under your model Amir would build his own communications software, so it’s perfectly tailored to his needs and completely under his control. Whereas what typically happens is that Amir forks out for Slack, or some competitor, while Amir’s engineers work on software that generates revenue.
I think the success of B2B SaaS over bespoke solutions is adequately explained by economies of scale.
I don’t disagree with most of what you said, maybe I should have been more explicit about some of the points related to that. In particular, I do think “the success of B2B SaaS over bespoke solutions is adequately explained by economies of scale” is true. But I think the reason there are economies of scale is that there are really high fixed costs and really low variable costs. I also think monopolizing talent enables software companies to make sure those high fixed costs stay nice and high.
With AI, engineering talent becomes cheap and plentiful. When that happens, fixed costs will plummet unless firms can control access to AI. If fixed costs plummet, economies of scale go away and the savings from the SaaS model get outweighed by the marginal benefit of bespoke solutions.
To push back a little on this, as software companies grow they do try to do this less and less. How much enterprise software do you think Microsoft or Google is outsourcing? As soon as it becomes a little bit of a dependence they usually just acquire the company.
In fairness, I don’t think this process will be rapid, nothing in B2B SaaS is. But I think tech companies see it on the horizon.
If you disagreed with this, is it because you think it is literally false or because you don’t agree with the implied argument that software companies are doing this on purpose?
I think it’s literally false.
Unlike the Ferrari example, there’s no software engineer union for Google to make an exclusive contact with. If Google overpays for engineers then that should mostly result in increased supply, along with some increase in price.
Also, it’s not a monopoly (or monopsony) because there are many tech companies and they are not forming a cartel on this.
Also tech companies are lobbying for more skilled immigration which would be self-defeating of they had a plan of increased cost of software engineers.
If https://outtalent.com/us50/ is to be believed, SWE engineers look pretty concentrated at the top ~5 companies and their subsidiaries. Do you think that data is incorrect?
Concretely, I would claim that >80% of the most skilled software engineers in the US work at <10 companies.Edit: I thought about it more and I think this is actually more like 65% at the 10 biggest companies, but that doesn’t change my central claims.I also disagree with your claim that they are not a cartel. I think the biggest tech companies collude to fix wages so that they are sufficiently higher than every other company’s salaries to stifle competition, while also limiting race dynamics to maintain profits. I think this is done in the form of selectively enforced non-competes, illegal non-poaching agreements, and other shady practices. This has been alleged in court and the companies just settle every time, e.g. https://www.nytimes.com/2014/03/01/technology/engineers-allege-hiring-collusion-in-silicon-valley.html?unlocked_article_code=1.uk4.A5Sn.q5fVDfF_q8Wk&smid=url-share
For those disagreeing--
1. I continue to believe that tech companies derive much of their economic power from cornering the skilled engineering labor market,
2. this is highly threatened by the advent of AI capable of coding,
3. and thus many big tech companies have massive economic incentives to limit the general public’s access to models that can code well.
If I changed my mind about any of those 3 points, I would change my mind about the main post. Rather than downvoting, or in addition to it, can you please explain which part you disagree with and why? It will be more productive for everyone and I am open to changing my mind.
The NYT article you cite says the exact opposite, that Big Tech companies were sued for colluding to fix wages downward, not upward. Why would engineers sue if they were being overpaid?
Sorry, I can elaborate better on the situation. The big tech companies know that they can pay way more than smaller competitors, so they do. But then that group of megacorp tech (Google, Amazon, Meta, etc.) collude with each other to prevent runaway race dynamics. This is how they’re able to optimize their costs with the constraint of salaries being high enough to stifle competition. Here, I was just offering evidence for my claim that big tech is a monopsonistic cartel in the SWE labor market, it isn’t really evidence one way or another for the claims I make in the original post.