The smart money knows that, in the Darwinian tech sector, software is vastly more profitable than hardware. After all, a software company can create additional copies for sale with just a few mouse clicks. No additional physical assets are required. Its an exceptionally sweet deal. (This also makes their product easy to pirate, yet the software firms still come out on top.)
In contrast, computer hardware companies are stuck in the old-fashioned hard-goods world. They have to manufacture and assemble actual chunks of silicon and metal into a physical box. The wholesale cost never falls to the disappearing level. Worse, commoditization makes for razor-thin profit margins.
Softwares advantage over hardware is reflected in this years Forbes list of the 400 richest Americans. The richest software tycoons are richer than the richest hardware tycoons. Of Americas ten richest individuals, five earned their fortune from technology. Of those five, only one gained his fortune from hardware. (Two of them, the Google boys, scored their wealth from the Internet. More on them in a moment.)
First, the software crowd. Sitting at No. 1 on the list for the 14th year in a row is William Gates III, 51, with a plump $59 billion. At No. 4 is Oracles Larry Ellison, 63, with $26 billion. The chattering classes always claim that Ellison is jealous of Gates, and with a fortune $30 billion less, we can understand why.
In the hardware sector, the lone titan in the Top 10 is Michael Dell, 42, at No. 8 with $17.2 billion. Not too shabby, but remember that Dell did more than build boxes; his direct sales model revolutionized PC retailing. Steve Jobs criticized Dell for pumping out un-innovative beige boxes" certainly an accurate criticism, yet the sales model for those bland boxes cut out the middleman fat. (And besides, Jobs is all the way down at No. 56 with a mere $5.7 billion, so what does he know?)
Yes, software is the way to go. The Forbes list reveals that the mountains of gold garnered from Microsofts empire are beyond impressive. Paul Allen, 54, holds $16.8 billion (though some of that comes from post-Microsoft investments). Microsoft CEO Steve Ballmer, 51, has $15.2 billion. (Heres a video of Ballmer going bonkers, which illustrates the passion you need to earn $15 billion.) And not mentioned on the Forbes list are all those Microsoft millionaires, employees whose stock options propelled them into seven-figure territory. By one count there were more than 10,000 of them by the year 2000.
(Minor tangent: I wonder how many of the Microsoft millionaires have installed Vista, and how many still run XP? Hmmm )
There are many more piles of cash from software. James Goodnight, 64, earned $8.7 billion from SAS Institute, the maker of business intelligence software founded in 1976. (According to legend, Goodnight, who worked in his fathers hardware store as a boy, first fell in love with computers while taking a course at North Carolina State in his sophomore year.) Fellow SAS co-counder John Sall, 58, also became wealthy, with $4.4 billion. Thomas Siebel, 54, weighs in at $1.9 billion, thanks to Siebel Systems, the application developer now owned by Oracle.
A Hard Life
In fairness to the tech hardware industry, plenty of the fortunes on the Forbes list spring from hardware, though they tend to be the (sniff) lesser fortunes.
Gordon Moore, 78 whos not only rich but also has a computer theorem named after him earned $4.5 billion from Intel. Audio wizard Ray Dolby has $2.7 billion thanks to Dolby Labs. David Sun, 56, and his partner John Tu, 67, both made a killing in computer memory, having co-founded Kingston Technology. Theyre both worth $2.5 billion. Thats a lot of memory.
Other hardware stars who have earned mega bucks: Henry Nicholas III, 48, has $2.3 billion via Broadcom (mixed hardware); John Morgridge, 74, has $2.1 billion from Cisco (networking); Irwin Jacobs, 73, scored $1.6 billion due to Qualcomm (wireless); and Richard Egan, 71, earned $1.4 billion from EMC Corp. (storage). So lets not diss the tech hardware industry too much. Its a tougher road, but it can be done.
Next page: The New Frontier in Tech Wealth