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How do people get filthy rich in the tech field?
The smart money knows that, in the Darwinian tech sector, software is vastly more profitable than hardware. After all, a software company can create additional copies for sale with just a few mouse clicks. No additional physical assets are required. It’s an exceptionally sweet deal. (This also makes their product easy to pirate, yet the software firms still come out on top.)
In contrast, computer hardware companies are stuck in the old-fashioned hard-goods world. They have to manufacture and assemble actual chunks of silicon and metal into a physical box. The wholesale cost never falls to the disappearing level. Worse, commoditization makes for razor-thin profit margins.
Software’s advantage over hardware is reflected in this year’s Forbes list of the 400 richest Americans. The richest software tycoons are richer than the richest hardware tycoons. Of America’s ten richest individuals, five earned their fortune from technology. Of those five, only one gained his fortune from hardware. (Two of them, the Google boys, scored their wealth from the Internet. More on them in a moment.)
First, the software crowd. Sitting at No. 1 on the list – for the 14th year in a row – is William Gates III, 51, with a plump $59 billion. At No. 4 is Oracle’s Larry Ellison, 63, with $26 billion. The chattering classes always claim that Ellison is jealous of Gates, and with a fortune $30 billion less, we can understand why.
In the hardware sector, the lone titan in the Top 10 is Michael Dell, 42, at No. 8 with $17.2 billion. Not too shabby, but remember that Dell did more than build boxes; his direct sales model revolutionized PC retailing. Steve Jobs criticized Dell for pumping out “un-innovative beige boxes" – certainly an accurate criticism, yet the sales model for those bland boxes cut out the middleman fat. (And besides, Jobs is all the way down at No. 56 with a mere $5.7 billion, so what does he know?)
Yes, software is the way to go. The Forbes list reveals that the mountains of gold garnered from Microsoft’s empire are beyond impressive. Paul Allen, 54, holds $16.8 billion (though some of that comes from post-Microsoft investments). Microsoft CEO Steve Ballmer, 51, has $15.2 billion. (Here’s a video of Ballmer going bonkers, which illustrates the passion you need to earn $15 billion.) And not mentioned on the Forbes list are all those Microsoft millionaires, employees whose stock options propelled them into seven-figure territory. By one countthere were more than 10,000 of them by the year 2000.
(Minor tangent: I wonder how many of the Microsoft millionaires have installed Vista, and how many still run XP? Hmmm…)
There are many more piles of cash from software. James Goodnight, 64, earned $8.7 billion from SAS Institute, the maker of business intelligence software founded in 1976. (According to legend, Goodnight, who worked in his father’s hardware store as a boy, first fell in love with computers while taking a course at North Carolina State in his sophomore year.) Fellow SAS co-counder John Sall, 58, also became wealthy, with $4.4 billion. Thomas Siebel, 54, weighs in at $1.9 billion, thanks to Siebel Systems, the application developer now owned by Oracle.
A Hard Life
In fairness to the tech hardware industry, plenty of the fortunes on the Forbeslist spring from hardware, though they tend to be the (sniff) “lesser” fortunes.
Gordon Moore, 78 – who’s not only rich but also has a computer theorem named after him – earned $4.5 billion from Intel. Audio wizard Ray Dolby has $2.7 billion thanks to Dolby Labs. David Sun, 56, and his partner John Tu, 67, both made a killing in computer memory, having co-founded Kingston Technology. They’re both worth $2.5 billion. That’s a lot of memory.
Other hardware stars who have earned mega bucks: Henry Nicholas III, 48, has $2.3 billion via Broadcom (mixed hardware); John Morgridge, 74, has $2.1 billion from Cisco (networking); Irwin Jacobs, 73, scored $1.6 billion due to Qualcomm (wireless); and Richard Egan, 71, earned $1.4 billion from EMC Corp. (storage). So let’s not diss the tech hardware industry toomuch. It’s a tougher road, but it can be done.
Next page: The New Frontier in Tech Wealth
Beyond Software: a Bold Frontier
But forget the hardware vs. software dichotomy. In a sense it’s old news. A slew of the fortunes listed on the Forbeslist – indeed, some of the biggest – come from the Internet. There’s a bucket of gold in the World Wide Web.
The mightiest and the greatest, of course, is the ultra-deep wealth of the Google boys, Sergey Brin and Larry Page, who are tied for No. 5 on the list. They’re both 34 years old and each is worth a tidy $18.5 billion.
In fact, compare the nouveau riche of the Google twins with the comparatively old money of the Wal-Mart scions. On the Forbeslist, the wealth of founder Sam Walton (who went to discount heaven in 1992) is divided up between four inheritors, for a total of some $65 billion. That’s a whopping sum, but now total up the Google wealth. Brin’s and Page’s combines to $37 billion, add CEO Eric Schmidt’s $6.5 billion, senior VP Omid Kordestani’s $2.2 billion, and early investor Kavitark Shriram’s $1.8 billion: you get somewhere around $47 billion.
Given the trend lines of the two fortunes (Brin’s and Page’s having quadrupled since 2004, Walmart’s relatively stable) it appears that Google will soon claim a bigger presence on the hallowed Forbeslist than does America’s most beloved retailer. When you’re richer than Wal-Mart, you’re filthy rich. (And Google pays its employees a lot better than Wal-Mart.)
The Internet, of course, has generated many massive bank accounts beyond the Google fortunate.
Pierre Omidyar, 40, scored $8.9 billion from founding eBay, and Meg Whitman (the only women on the tech portion of the Forbeslist) earned $1.4 billion from being its president and CEO.
Mark Cuban, 49, proved that being a first mover counts. He now has $2.6 billion from doing something as modest as founding Broadcast.com, believe it or not. His co-founder Todd Wagner, 47, enjoys a fortune of $1.5 billion.
The fact that Yahoo agreed to buy Broadcast.com for a mind-boggling $5.7 billion may partially explain why the Yahoo fortunes haven’t risen to the stratospheric level of Google’s. Co-founders David Filo, 41, has $2 billion, while Jerry Yang, 38, has to make ends meet on a mere $1.9 billion. (He probably eats a lot of Hamburger Helper.)
Microchips and Potatoes
Then there’s the unlikely story of John “Jack” Simplot, who sits at No. 89, with $3.6 billion. Born in 1909, young Jack had better things to do than listen to teachers, so the Iowa boy quit school at age 14 and went into the potato business. By the 1940s, his company was the top potato supplier in the country. (The firm is one of McDonald’s biggest spud suppliers.)
Not content with his first fortune, in the early 1980s Simplot provided seed money for Micron Technology, an Idaho-based supplier of computer chips. That stroke of genius earned Simplot yet another bundle. He will, almost certainly, be the only person in history to make fortune from both potatoes and microchips.
At age 98, he's the oldest person on the Forbes list, and quite likely one of the smartest. Think about him the next time you eat a French Fry in front of a PC.