Thoughts on software-defined silicon

While I can't say that I *approve* of Intel's business model, I also can't say that this is an accurate assertion:

> The other thing they're doing - unintentionally - is admitting that their chips are barely worth what the base model sells for and everything else is pure scalping.

It is possible (I haven't run the numbers) that they are running an "airfare-style" business model, where:

1. The cheap seats barely break even on a seat-mile basis, and may even lose money when non-operating expenses are included.
2. The business class seats are the main profit center, because you can sell a fair number of them to business travelers at a healthy markup, and make a decent profit in doing so.
3. The first class seats are essentially "bonus profit" for customers willing to pay extra for premium services. Some airlines don't even do first class, or merge it with business class.

If the airline had the option to do so, they would fill the entire plane with business class seats. But they can't sell quite enough business class seats, at business class prices, for this to make sense, unless they use smaller planes, which have poorer economies of scale, driving the price further up, etc. The purpose of the economy seats, then, is to lose as little money as possible, and *maybe* make a small profit if the economics allow for it. The people sitting in business class are the folks who are actually paying for the plane ride, despite the fact that their seats are only marginally more costly to the airline in terms of operating expenses.*

The question is whether the economies of scale inherent in the silicon market end up working out the same way as they do in the aviation market. I would be very interested in seeing hard data on that point.

* In a properly-run business, opportunity costs should usually be low or negative. Positive opportunity costs indicate misallocation of resources. So if you want to quantify the "cost" of a good or service to the supplier, you probably mean the accounting cost, not the opportunity cost.