Ben Gilbert: evaluation

Transcript context

…Oof. That’s not good. They had to print the disc, which had actual real costs, especially on floppies. You had to put it in the box, you had to ship it to the retailer, you had to split profits with the retailer, you had to pay the sales and marketing costs. It’s like real material cost. This is not a zero distribution cost, zero marginal costs business in the box software retail world. But when they’re selling through an OEM channel, their gross margin was 75%, because you just ship the bits to the OS once and then the PC manufacturer takes it from there. Not only is it amazing because you get that 75% versus 29% of gross margin, it’s also an amazing way to scale because you do a deal with every OEM, as you’re going down the line, it’s the Visa networks of networks thing that I think we alluded to this last episode too. You just get each of them scaling on their own, can accrue to you without you doing additional work to do the scaling yourself. David, it’s interesting you’re talking about how 85% of the business by 2007 was either enterprise sales of the EA or OEM. They’d basically kicked the can to the curb on that crappy retail box software model. They’re just doing the whale hunting with their sales force and doing these enterprise agreements, which of course have great margin structures and the OEMs. And our annual annuities.…

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