Who buys new hardware?

27 Jun 2025

New physical technologies—hardware things—often have high fixed costs. Venture capitalists and such can fund the initial expenses, but in a real sense their return expectations only add to fixed costs. Absent harvestable complementarities elsewhere, new hardware tends to need relatively certain initial demand to pay those fixed costs. Those initial demands tend to come from “people who find the new technology cost effective” and “people who really want to be first to have the new technology.”

When the initial demand is mostly driven by cost effectiveness, successful technologies are oriented toward larger consumer markets. Often the function of the technology is performed by something that existed earlier, making adoption largely a matter of design and distribution. Examples include goods like computer peripherals, kitchen appliances, and four-door sedans. “Market success” is driven by products being cheap enough for enough people to pay the technology’s fixed costs and generate suitable economic profits. Success selects for products with low costs, high desirability, and durable or predictable rents.

When the initial demand is mostly driven by the need to be exceptional—e.g., the first to have a technology or having the best instance of it—cost matters differently. “Market success” is about achieving something novel, or previously thought impossible, or both. Successful technologies must of course fit within relevant budgets, but success does not generally select for cheapness beyond that. There tend to be few funders and they tend to watch and compete with each other. Within the limits of funding, success selects products and teams for various manners of pushing against performance and other boundaries. Examples include pursuits like basic science, space exploration, high-performance race cars, and weapons systems. Successful entrepreneurs often manage to get other people to allocate more funding to these activities or capture a greater share of it.

How an organization orients their technology around these demands is an important strategic choice, and much has been written about how to successfully commercialize new technologies. I’m more interested in the inverse: how to support commercialization of specific technology portfolios.¹

In principle, this is the kind of strategic advisory and (where possible) influence function a good capital allocator would perform: connecting new technology promoters with resources, information, and access.² When venture capitalists do this, it can include introductions, advice, and public and private advocacy. When state entities do this, it can include subsidies, favorable regulations, permissions and preventions. The American technology entrepreneurship meta has long recognized the utility of convincing state entities to support commercialization.

Demand Creates Its Own Supply

Initial production of successful new technologies is selected for its ability to serve initial demand.³ When price-sensitive consumers are dominant early buyers, early production is optimized for cost and scale. When initial buyers want something exceptional, early production may be relatively costly and constrained.

Sometimes traditional purchasers of the exceptional—funders like militaries, research and development agencies—try to get price-sensitive consumers to be early or earlier buyers of technologies that deliver firsts and bests. Ideally, the pressure of seeking broader consumer appeal selects for products that are cost effective and scalable, and the consumer market pays for some of the burden of being exceptional. The funder wins twice: once in getting lower unit prices and production less sensitive to their decisions, once in getting some of the development costs paid for by others.

This works well enough when “exceptionalness” comes from novel combinations of products with larger markets. Then the funder’s presence expands the market without imposing significant costs. What if the funder’s demands do impose significant costs? Things like management overhead, labor supply constraints, and compliance activities interact as they accumulate. New requirements and goals drive products apart in supply space quickly, even if they stay nearby in demand space. What buyers of firsts and bests want, particularly out of very advanced hardware, often sits in different parts of supply space than what best serves price-sensitive consumers first.