What do software development and gold mining have in common?

Image by landio | Bigstockphoto

When we talk about Silicon Valley and California, we often make references to the California Gold Rush. How many times have we heard that only a few gold miners made good money? But the same gold rush spurned companies like Levi Strauss, Wells Fargo and Ghirardelli Chocolate that started to offer products and services to gold miners. Today’s comparison is not the abundance of developers out there but the companies developing tools for them that are the big success stories. What could be the next area offering successful ‘tools’ to find gold? 

Think companies like Github, AWS, Snowflake, Stripe, Databricks, Plaid or Segment. They are not so well known among consumers, but they are all big tech unicorn success stories. All of them are tools for people software development, data pipelining or build IT services. They are tools for professionals, not consumers.

From an investor’s point of view, it’s a no brainer to invest in a shovel store near gold miners or building sites, in preference to an individual miner who tries to find gold amongst thousands of others. It is a much more predictable business, and the risk is better diversified.

Software development, cloud services, data pipeline and open-source tools have been a hot area in tech investments for at least 20 years. With software going to the cloud, and there are now tools to better collaborate and share components in software development, get enterprise data from one system to another one and integrate external services. This has made software development, data utilization and software distribution much more effective.

Software developers and data scientists are the gold miners of our time.

But it is never that easy to build success stories for the future based on the past. It should be evident that when miners can’t find significant new gold in an area, it is no longer a good business to sell shovels, jeans or banking services there, either. You must find a new location where those tools are needed and help those miners improve their business or make new products that allow them to do something else. You must operate in areas where enough miners or developers are seeking their fortune, and enough of them believe they can make money with your tools.

Where are we now? Can we see some new areas where developer tools are needed, where developers are starting to find gold? We can see some areas are quite crowded, and there are already lots of shovel stores. For example, enterprise data solutions, enterprise IT integration tools, game engines, or low-code tools are all growth areas. It doesn’t mean that one can’t make money there, but the competition is fierce. Nevertheless, some lazy investors are still ready to bet on those areas.

So, what could be the new areas needing new tools? Even if you knew, you probably wouldn’t want to make the information public. But it does make sense to evaluate the underrated areas. Today, it seems that sharing information and collaborating is a better way than operating alone and in secrecy.

So, let’s try to evaluate some areas where it could make sense to go and sell shovels:

1. Distributed solutions – including blockchain, distributed ledgers, edge computing, distributed data models and decentralized marketplaces.

2. Personal data – the focus on data tools and pipeline solutions has been on enterprise data, but when individuals produce, collect and utilize personal data, a vast market will emerge that will need tools to utilize it.

3. Automation with AI – AI is quite a crowded market, but its tools focus on data modelling, not on building end-to-end solutions, i.e. having AI brains and hands.

4. User-friendly security – data security, trusted communications, privacy and system security often mean restrictions, an unpleasant user experience and limited services. A real breakthrough would be tools to develop new services with better security, control, and user experience.

These are some examples of potential areas to find significant new gold and build developer tool companies that become unicorns. Of course, the most visionary and risk-taking investors have already become active in these areas. And, as always, some tools will work better than others, and not all miners will find gold.

The complex phase is introducing a new tool to the market as it can be challenging to get the first buyers, or if people have previously used another tool for the same purpose. However, if your tool is better, you need examples that some miners are finding more gold with your tool.

That’s why in the early days with a new tool, you must cooperate with some miners to generate success with your tool, and you must be able to demonstrate that you can find more gold with your tool. If you put all your money into building a big store that can serve hundreds of customers and wait for people to turn up, you might run out of money. You can always expand your store after customers start flowing in after hearing stories of how people have made money with your tools. In the tech business, it seems to be just like 1849, Groundhog Year. Developers or miners are looking for new precious metals in new areas, and many startups try to offer them new and better tools to make their work more effective. In the end, the money comes from those who buy and use tools, applications and services. Developer tools are a great business, but it is not a sustainable business if developers can’t find the gold with them. 

Related article:

Software innovation will be crucial for post-pandemic recovery

Be the first to comment

What do you think?

This site uses Akismet to reduce spam. Learn how your comment data is processed.