Sex, Profit and inverse relationships

I was reading Sigurd Rinde's blog today (we'd been chatting earlier about information flow - see his post on Dubious Information Distribution here) when I saw this post about sexiness vs profitability in software. Sig sez:

From my many years in business I learned one thing about this dichotomy:

Cool and sexy industries attracts a steady flow of new entries, players and investors. A kind of margin influx of money that is willing to be lost and people that are in it for the wrong reason. That makes it extremely hard to earn money, if anything at all.

Boring industries are the completely opposite, the people involved stays and know what they do, the influx of new entries and money is at most a trickle. Margins are stable.

So if you want to earn money, find a boring industry!

This can be drawn as follows (a curve I term the Reverse Cargill Position, in honour of Cargill Ventures, formed in 2000 by an agricultural goods company Cargill to invest in dot.coms)



However, I do think Sig is on less firm territory with respect to software when he notes that:

And now I'm in software. There you have two kinds:

Consumer software: The cool and sexy stuff, especially anything web based and 2.0'ish.

Enterprise software: The boring stuff nobody sees nor gets you anywhere when striking up a conversation at a cocktail party.

The implication being that Consumer = sexy = no margin, but Business software = unsexy = profitable.

What I can say for certain is that business software can be unprofitable as well as unsexy - some markets / competitive positions / business models are just crap, or after time become less competitive etc. Small new business software companies selling complex, non standardised software to large players is a typical example - in theory one can make money, but in my experience there are often 3-4 small players in any sector and in the shakeout process none of them make much money either.

Alternatively, if you can get those precious network effects with consumer software and achive that precious increasing returns economics, you can achieve market dominance and hit the G(oogle) spot.

However, Sig is probably right when he notes that, in order to achieve getting Fairly Laissed as well as Laissez Faire he:

....Would suggest "ski bum" to impress socially and enterprise software to impress financially. With one exception; if you're to see a VC next week, refocus your enterprise stuff to the consumer section and do not forget the colour scheme and Ajax while you're at it!

Maybe VRM is the exception, you can talk Social Networks and Death to Advertising while still exposing your CRM-like back end