Rent-extraction threshold

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The rent-extraction threshold is a function of your user catchment, not the total amount of money at stake. If you have large number of users you can take a small rent, each of them will tolerate it, even for low/no value processes. We suck up our Microsoft 365 subscriptions even though you could do most of it for free on Google. Likewise, a rich ecosystem of music software — genuinely staggering software it is too — thrives, at manageable cost, because there are so many home recording enthusiasts prepared to spend a couple of hundred quid to muck around at the weekend with no hope of ever making money.

If there relatively few potential end-users you must take large rent from each one to make money at scale. This is generally not tolerable even for applications that create huge value.

Home recording enthusiasts are a paradigm case of the first kind of renter: numerous — hundred of thousands it not millions, each prepared to pay small amounts to keep excellent products updated, even though they generates little of tangible value over the population. Smokers are another. There the tangible benefit derived from the rent is patently negative.

The paradigm case of the second kind of renter is the financial services institution. There are comparatively few of them - hundreds of potential buyers of specific services, but each has a desperate, ongoing need, to regularise, standardise and automate and meet complex regulation.

The bang for buck they stand to gain is immense, but the number of bucks they are prepared to part with is miniscule.

See also

• Legaltech
• Legaltech start-up conference