Thursday, September 18, 2014

Innovation Prevails When Synergy of Two Elements (Hardware and Software) Becomes Relevant

The notes do not exceed five, but the changes of the five notes can never be fully heard. The colors do not exceed five, but the changes of the five colors can never be completely seen. The flavors do not exceed five, but the changes of the five flavors can never be completely tasted. In warfare the strategic configuration of power (shih) do not exceed the unorthodox and orthodox, but the changes of the unorthodox and orthodox can never be exhausted. The unorthodox and orthodox mutually produce each other, just like an endless cycle. Who can exhaust them?  
                                                                                                                                                                 - The Art of War, 5

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Following is an abridged version of a Wall Street Journal's 2011's article by Marc Andressen's on the emergence of the impact of software in the information economy

Today, the world's largest bookseller, Amazon, is a software company—its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary. On top of that, while Borders was thrashing in the throes of impending bankruptcy, Amazon rearranged its web site to promote its Kindle digital books over physical books for the first time. Now even the books themselves are software.
Today's largest video service by number of subscribers is a software company: Netflix. How Netflix eviscerated Blockbuster is an old story, but now other traditional entertainment providers are facing the same threat. Comcast, Time Warner and others are responding by transforming themselves into software companies with efforts such as TV Everywhere, which liberates content from the physical cable and connects it to smartphones and tablets.
Today's dominant music companies are software companies, too: Apple's iTunes, Spotify and Pandora. Traditional record labels increasingly exist only to provide those software companies with content. Industry revenue from digital channels totaled $4.6 billion in 2010, growing to 29% of total revenue from 2% in 2004.
Today's fastest growing entertainment companies are videogame makers—again, software—with the industry growing to $60 billion from $30 billion five years ago. And the fastest growing major videogame company is Zynga (maker of games including FarmVille), which delivers its games entirely online. Zynga's first-quarter revenues grew to $235 million this year, more than double revenues from a year earlier. Rovio, maker of Angry Birds, is expected to clear $100 million in revenue this year (the company was nearly bankrupt when it debuted the popular game on the iPhone in late 2009). Meanwhile, traditional videogame powerhouses like Electronic Arts and Nintendo have seen revenues stagnate and fall.
The best new movie production company in many decades, Pixar, was a software company. Disney—Disney!—had to buy Pixar, a software company, to remain relevant in animated movies.
Photography, of course, was eaten by software long ago. It's virtually impossible to buy a mobile phone that doesn't include a software-powered camera, and photos are uploaded automatically to the Internet for permanent archiving and global sharing. Companies like Shutterfly, Snapfish and Flickr have stepped into Kodak's place.  ... 
Today's fastest growing telecom company is Skype, a software company that was just bought by Microsoft for $8.5 billion. CenturyLink, the third largest telecom company in the U.S., with a $20 billion market cap, had 15 million access lines at the end of June 30—declining at an annual rate of about 7%. Excluding the revenue from its Qwest acquisition, CenturyLink's revenue from these legacy services declined by more than 11%. Meanwhile, the two biggest telecom companies, AT&;T and Verizon, have survived by transforming themselves into software companies, partnering with Apple and other smartphone makers.
Software is also eating much of the value chain of industries that are widely viewed as primarily existing in the physical world. In today's cars, software runs the engines, controls safety features, entertains passengers, guides drivers to destinations and connects each car to mobile, satellite and GPS networks. The days when a car aficionado could repair his or her own car are long past, due primarily to the high software content. The trend toward hybrid and electric vehicles will only accelerate the software shift—electric cars are completely computer controlled. And the creation of software-powered driverless cars is already under way at Google and the major car companies.LinkedIn is today's fastest growing recruiting company. For the first time ever, on LinkedIn, employees can maintain their own resumes for recruiters to search in real time—giving LinkedIn the opportunity to eat the lucrative $400 billion recruiting industry.  ... 
...  Oil and gas companies were early innovators in supercomputing and data visualization and analysis, which are crucial to today's oil and gas exploration efforts. Agriculture is increasingly powered by software as well, including satellite analysis of soils linked to per-acre seed selection software algorithms.
The financial services industry has been visibly transformed by software over the last 30 years. Practically every financial transaction, from someone buying a cup of coffee to someone trading a trillion dollars of credit default derivatives, is done in software. And many of the leading innovators in financial services are software companies, such as Square, which allows anyone to accept credit card payments with a mobile phone, and PayPal, which generated more than $1 billion in revenue in the second quarter of this year, up 31% over the previous year.
Health care and education, in my view, are next up for fundamental software-based transformation. My venture capital firm is backing aggressive start-ups in both of these gigantic and critical industries. We believe both of these industries, which historically have been highly resistant to entrepreneurial change, are primed for tipping by great new software-centric entrepreneurs.
Even national defense is increasingly software-based. The modern combat soldier is embedded in a web of software that provides intelligence, communications, logistics and weapons guidance. Software-powered drones launch airstrikes without putting human pilots at risk. Intelligence agencies do large-scale data mining with software to uncover and track potential terrorist plots.
Companies in every industry need to assume that a software revolution is coming. This includes even industries that are software-based today. Great incumbent software companies like Oracle and Microsoft are increasingly threatened with irrelevance by new software offerings like and Android (especially in a world where Google owns a major handset maker).
In some industries, particularly those with a heavy real-world component such as oil and gas, the software revolution is primarily an opportunity for incumbents. But in many industries, new software ideas will result in the rise of new Silicon Valley-style start-ups that invade existing industries with impunity. Over the next 10 years, the battles between incumbents and software-powered insurgents will be epic. Joseph Schumpeter, the economist who coined the term "creative destruction," would be proud.

"First of all, every new company today is being built in the face of massive economic headwinds, making the challenge far greater than it was in the relatively benign '90s. The good news about building a company during times like this is that the companies that do succeed are going to be extremely strong and resilient. And when the economy finally stabilizes, look out—the best of the new companies will grow even faster.

Secondly, many people in the U.S. and around the world lack the education and skills required to participate in the great new companies coming out of the software revolution. This is a tragedy since every company I work with is absolutely starved for talent. Qualified software engineers, managers, marketers and salespeople in Silicon Valley can rack up dozens of high-paying, high-upside job offers any time they want, while national unemployment and underemployment is sky high. This problem is even worse than it looks because many workers in existing industries will be stranded on the wrong side of software-based disruption and may never be able to work in their fields again. There's no way through this problem other than education, and we have a long way to go.  ... 
Finally, the new companies need to prove their worth. They need to build strong cultures, delight their customers, establish their own competitive advantages and, yes, justify their rising valuations. No one should expect building a new high-growth, software-powered company in an established industry to be easy. It's brutally difficult.
I'm privileged to work with some of the best of the new breed of software companies, and I can tell you they're really good at what they do. If they perform to my and others' expectations, they are going to be highly valuable cornerstone companies in the global economy, eating markets far larger than the technology industry has historically been able to pursue.
Instead of constantly questioning their valuations, let's seek to understand how the new generation of technology companies are doing what they do, what the broader consequences are for businesses and the economy and what we can collectively do to expand the number of innovative new software companies created in the U.S. and around the world.
That's the big opportunity. I know where I'm putting my money. "
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Click here for the entire essay's on "Why Software is Eating The World."

Side Note 
Software is not the singular cause of the dramatic change in our information economy. One needs to have the right software tools that works with the hardware systems.   ...  Luckily, many of the popular tool kits are quite sophisticated and are able to operate under many different systems. Concurrently, the programming skills of software engineers are 

Connecting the integration of software and hardware to the right marketing niche, is a good example of a force multiplier- a product that is in the right place and in the right time. 

Leading the Innovation Wave
United States companies is the bellwether in the innovation game for the various reasons. 

One of their secret components is the emphasis of innovation as one of the alpha objectives.

iPhone, Tesla cars, Amazon's Kindle's e-book device are some of the well-known examples of software and hardware integrating in a positive constructive mode. 

As Software and Hardware Advance Together, the Next Innovation Wave Rises
... The U.S. has a chance to win bigger with the rise of smarter, software-driven machines. Silicon Valley remains a hub for the most sophisticated software and creative uses for processing power. Tesla's cars and GE's jet engines have begun to fit this model. Now the factories that produce them are being computerized. A startup called Sight Machine taps into cameras and sensors on factory floors and uses software to analyze data and spot flaws; it's also been hired to monitor fast-food assembly lines, said CEO Jon Sobel. "When you think about combining the innovation that's available with the physical world, it implies some major changes to how we do things," he said.

Some glitches

America isn't guaranteed victory. Nest recalled smart smoke detectors after a software glitch. Economists including Cowen and Annunziata also point out that this era might not be great for everyone; an automated car factory cranking out self-driving vehicles stands to put plenty of people out of work. Cowen predicts a massive labor shift from taxis and factories toward housekeeping and child care.
Annunziata's take is more optimistic - that smart equipment can help drive the global economy for years to come. "There is no limit to human beings' hunger and desire for new things and services," he says. "This will create wealth."
Click here for the rest of the Bloomberg's article.

As software and hardware advance together, so does innovation.  ...  Software works as long as the right hardware is there.  The brain is worthless without the body and vice-versa

...  Thus [none of] the five phases constantly dominates; the four seasons do not have constant positions; the sun shines for longer and shorter periods; and the moon wanes and waxes.                                                                                                                  - The Art of War, 6

While technology is constantly evolving, certain behavioral patterns and economical matters are the attributes that drives the ever-changing marketplace.

Side Note
Some people believed that culture prevails over strategy.  However, it could only go so far without the right organizational attributes.

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