- 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 Salesforce.com 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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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.
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.
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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.
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."
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
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... 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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