Indeed during the recent dotcom mania a bunch of quack business writers suggested that the company of the future would be totally virtual -- just a trendy couple sipping Chardonnay in their living room outsourcing everything. What these hyperventilating "visionaries" overlooked is that the market pays for value added. Two yuppies in a living room buying an e-commerce engine from company A and selling merchandise made by company B and warehoused and shipped by company C, with customer service from company D, isn't honestly adding much value. In fact, if you've ever had to outsource a critical business function, you realize that outsourcing is hell
To make peace I would suggest that, this approach is perhaps doable at a smallish scale by eccentric individuals, but not on a wider scale. The proverbial $25k p/m T shirt business.
Keep in mind that Joel was talking about a business with zero value added by the founders. For a SaaS business, 100% of the value is added by the software written by the founders.
If it's worth $50/month to the customer when manned by a guy doing a thousand tasks by hand and answering every email that comes in within 10 minutes, it's still worth $50/month to that customer once that guy gets organized.
But you're right, you probably won't earn much more than $25,000 per month for that half day's effort. Really puts a crimp in my yacht buying budget, that does.
Indeed, you are relying on the inefficiencies of the market you are currently operating in. If you find a niche where that works, milk it while it last, but any serious competition will remove the middleman.
There is however a value added that can be overlooked: cashflow. If you have enough cash to smooth the various money transfer between client and provider A,B,C,D that may be enough to keep you in business.
I thought of selling some product on Amazon that makes you a shitload of money initially and has massive margins and a big market (for example, wool) but Amazon will destroy you ASAP.
I've listened to a podcast or two by people whose full-time job is, essentially, Walmart-to-Amazon arbitrage. (Hit up every big box store in your town twice a week for items which your noggin and Amazon app suggest are currently substantially more dear on Amazon than they are at the store; clear the shelves at the store if you find any; ship to Amazon and have them do fulfillment; buy more inventory when the money comes back.)
It feels to me like it's one of those things that shouldn't work in a world with perfectly efficient pricing and spherical cows but apparently it does actually support a handful of people in the real world.
Arbitrage specialists continue to this day when you'd think every pricing disparity has been dealt with. But they keep finding more.
I don't think there will ever be a day when there is not arbitrage opportunities to be exploited.
In any case arbitrage specialists are adding value by eliminating pricing discrepancies and clearing the market. It's a legitimate practice and you get paid for your smarts and risk.
It's pretty interesting. We work with many of these folks, who are buying discounted gift cards to save even more on the purchasing side. Seems to be working very well for some folks.
To be fair, in those models that assume "perfectly efficient pricing" this would not be considered arbitrage because of the obvious inventory risk and cash flow implications.
In models that don't assume perfect efficiency this economic activity is the driver of the pricing parity. That is, the market is efficient because there are very good & usually professional businesses that drive these differences in price away.
Indeed during the recent dotcom mania a bunch of quack business writers suggested that the company of the future would be totally virtual -- just a trendy couple sipping Chardonnay in their living room outsourcing everything. What these hyperventilating "visionaries" overlooked is that the market pays for value added. Two yuppies in a living room buying an e-commerce engine from company A and selling merchandise made by company B and warehoused and shipped by company C, with customer service from company D, isn't honestly adding much value. In fact, if you've ever had to outsource a critical business function, you realize that outsourcing is hell
http://www.joelonsoftware.com/articles/fog0000000007.html
To make peace I would suggest that, this approach is perhaps doable at a smallish scale by eccentric individuals, but not on a wider scale. The proverbial $25k p/m T shirt business.