Evolving Margin Profile and Capital Intensity in Software Business

The margin profile of software businesses is evolving, with gross margins decreasing due to AI's impact on cost of goods sold within products, while service margins are increasing due to automation and AI. Despite converging to a similar level, software business faces higher barriers to entry and scale compared to service businesses. For non-technical founders, starting a software business differs significantly from technical founders who can leverage AI and engineering expertise. Previously, software businesses were more appealing due to the necessity of pounding the pavement for customers in other industries.