Constellation Software & The Long Tail

On this thread of Long Tails, does that mean Constellation Software, with its 500+ software companies is an acquirer of long-tail niches? 

Frequent readers will be used to how often I write about Constellation and its reference in many of my learnings. It would be apt to add the disclaimer that Constellation’s family of companies make up ~50% of my net worth. 

Consider companies like Netflix and Amazon, both businesses that acquire long tail niches with their inventory of shows and products. They acquire small niches that are uneconomical for competitors at a low cost (i.e. customer acquisition cost - CAC). But these niches are important for the users because of how scarce it is and usually result in higher lifetime value (LTV). The result is a higher return on invested capital for the business as you acquire customers for low cost, they stay on longer and so the return from the low cost keeps on compounding. 

Is this not the case for Constellation with all the niche software companies they acquire? The weird mission-critical software for livestock auctions, traffic control, notary, legal court systems, hospital administration, all in different languages are all too niche for any VC-backed company to justify pursuing. 

Constellation has no inventory cost either since they are a completely decentralized company that doesn’t even centralize most finance, HR, and back-end operating systems either. 

The question has long been the number of companies available in the world for Constellation to acquire. But the world is always growing. There will be more people, which leads to more entrepreneurs, and more niches to uncover as the cost of building software companies goes lower. 

Doesn’t it make sense that there will be more niche software companies in the future? If the Long Tail is fattening for content (i.e. TV shows, music, movies, books) then wouldn’t that apply to companies like software, food, etc. as well? 

I think we will see a greater number of small niche software companies instead of large enterprise software companies in the future. I don’t think we’ll have other Salesforces, Workdays or Oracles. I think it’s possible to see a world of more smaller ones. 

Everyone thinks all the $10b software companies can get huge but what if we liven a world with hundreds of $1bn companies? I think the niche software market has only just started getting bigger for Constellation. Today, they are still acquiring companies started in the 90s when AWS and Azure didn’t exist. Being a developer was not cool back then either. Imagine how many more niche software companies will exist in a world where everyone can be a developer, it’s a job with decent pay, the barrier to entry is lower to be a developer and bootstrap a software business? 

Applying the Long Tail of content to software businesses, it appears that Constellation is able to acquire niche software at low CAC, high LTV for high ROIC. That’s my grain of salt.