What is economies of scale?

Economies of scale are the cost advantages that come with size: as output grows, fixed costs — infrastructure, R&D, brand marketing — spread across more units, so each unit costs less to deliver. Scale is a classic source of cost leadership and a barrier to entry, since a small entrant must match big-company prices with small-company volumes.

In software the economics are extreme: near-zero marginal cost means the scale advantage shows up in R&D and distribution rather than production. The strategic counterweight is focus — a large competitor’s scale is spread across every segment they serve, and within one niche a focused player can out-invest them where it counts.