Why do software companies have high profit margins then?
It depends on the software company, many do not have that good of margins. Microsoft is a major outlier in terms of successful software companies. Same for websites. Google and facebook are so successful by leveraging moats and winner-take-all effects, but this does not work for other sites. It is very hard to replicate networks effects, unlike replicating a widget factory.
Why aren't Google and Facebook ads a lot cheaper than they are since it's all built on dirt-cheap software?
the pricing is determined by supply and demand via an auction process by advertisers, which has nothing to do with software. there is only a finite amount of space to display ads
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Notes -
It depends on the software company, many do not have that good of margins. Microsoft is a major outlier in terms of successful software companies. Same for websites. Google and facebook are so successful by leveraging moats and winner-take-all effects, but this does not work for other sites. It is very hard to replicate networks effects, unlike replicating a widget factory.
the pricing is determined by supply and demand via an auction process by advertisers, which has nothing to do with software. there is only a finite amount of space to display ads
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