Software Has Never Been Capital Light

Ask an investor why enterprise software is the greatest business model ever conceived, and you will receive a speech about “capital lightness.”There are no blast furnaces, no warehouses of unsold inventory waiting to rot, and no fleet of diesel vans depreciating in an industrial estate in Slough. You write the code once, upload it to the internet, and sell it an infinite number of times at a marginal cost that rounds cleanly to zero. The gross margins sit comfortably north of 80%, and a generation of investors whose predecessors analysed railways, paper mills, and oil refineries fell head-over-heels in love with an industry that seemed to produce compounding cash flows without ever demanding capital reinvestment.This is a wonderful bedtime story. It is also an optical illusion manufactured entirely by the quirks of double-entry bookkeeping. Software businesses consume vast rivers of capital at industrial rates; they simply hire accountants who file the machinery under general…