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Why don't people realize that 'high software profit margins' are fugazi?

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This is mostly wrong. It's trivial to decompile a large share of contemporary software - the opportunity is there, but it is vanishingly uncommon for competitors to seize those opportunities. Similarly, my company had a large multinational client who availed themselves of the right to purchase our source code and walk after five years of business. They took the source code, then came back into the fold a few years later after throwing resources at their fork, being unhappy with the results, and missing our on all the great stuff we'd added in the same period.

The reason why is that most software is in a state of perpetual improvement.