Why SW is eating the world

Marc Andreessen, 2011

VC that invested in Facebook, Groupon, Zinga, Twitter, Skype, Foursquare,

LinkedIn

His View

• Internet, SW companies are building real, high growth, high margin, highly defensible businesses

• We are in the middle of a dramatic and broad technological and eco-nomic shift in which SW companies are poised to take over large swathes of the economy

Trends in biz practices

• Major businesses and industries are being run on SW and delivered as on-line services

• Many of winners are Silicon Valley-style entrepreneurial technology companies that invade or overturn legacy industry structures

Why is this happening now?

• Computer and Internet technologies have advanced across some thresh-old – Over 2B people use the broadband In-

ternet– On back-end, SW tools and Internet-

based services make it easy to launch a new global SW-powered startups with low start-up cost

Example 1: Book

• Fall of Borders – Decline of Barnes and Noble

• Rise of Amazon– The world’s largest bookseller

• 2001, Borders handed over its online biz to Amazon

• Amazon virtually sells everything on-line

• Even books themselves are SW

Example 2: Video

• Fall of Blockbuster• Rise of Netflix, Hulu– And more: Amazon Video and iTunes

• Other media companies are increas-ingly more online-service oriented

Example 3: Music

• iTunes, Spotify, Pandora• 2% in 2004 to 29% in 2010• Traditional record companies play a

diminishing role as a content provider– They provide content to the above com-

panies

Example 4: Videogame

• Fastest growing company is Zynga• Rovio, maker of Angry Birds• Traditional game companies like EA

and Nintendo have been stagnating

Example 5: Movie produc-tion

• Pixar, one of the best movie produc-tion companies, is a SW company.

• Disney has to buy Pixar

Example 6: photo

• Photos in cameras and phones are uploaded to the Internet for archiving and sharing

• Shutterfly, Snapfish, Flickr,…• Kodak had been happy with film

cameras, and now…

Example 7: marketing

• Google• Groupon, Living Social, Foursquare

• They use SW to eat the retail market-ing companies

Example 8: telecom

• Skype: the fastest growing company• CenturyLink (3rd telecom company)

has declined fast• AT&T and Verizon have survived by

transforming into SW companies, partnering with Apple and smart-phone makers

Example 9: recruiting

• LinkedIn is the fastest growing com-pany

• Employees edit their resumes, which are directly searched by recruiters

Example 10: autos

• SW is eating much of the value chain in car industries

• SW runs engine, controls safety func-tions, entertains passengers, guides drivers, …

• Hybrid, electric cars will accelerate the shift

• Driverless cars?

Example 11: logistics

• Wal-mart uses SW to power its logis-tics and distribution capabilities

• FedEx is thought of having the best SW network to which trucks, planes and hubs are attached

• Success or failure of airplane compa-nies hinges on SW– Ticket pricing, route optimization,…

Example 12: natural re-sources

• Oil and gas companies use super-computing for visualization and anal-ysis in exploration efforts

• Agriculture is powered by SW; satel-lite analysis of soils for seed selec-tion

Example 13: finance

• Every financial transaction is done in SW

• Financial SW companies allows any-one to accept credit card payments with a mobile phone

• PayPal allows payments and transfers online

Example 14: defense

• National defense is increasingly SW-based

• A modern combat soldier is embed-ded with a web of SW for communi-cations, logistics, and weapons

• SW-powered drones launch attacks• Data mining to detect terrorist at-

tacks

What next?

• Healthcare & Education• They have been resistant to entre-

preneurial change• But fundamental SW-based transfor-

mation is coming

Also,…

• Companies in every industry need to assume that a SW revolution is coming

• Even SW-based companies as well– Oracle and MS are threatened by new SW

offerings like Salesforce.com and Android

• The battle between incumbent com-panies and SW-powered insurgents will be epic

Challenges (1/3)

• Every new company is being built in the face of massive economic head-winds– A successful company will be strong and

resilient and will grow even faster when economy becomes stable

Challenges (2/3)

• Many people lack the education and skills to join new SW-powered companies

• Every company is starved for people with talent

• Qualified SW engineers, managers, mar-keters, salespeople will be invaluable

• While national unemployment will soar• The more SW penetrates the industry,

the less employees will be required

Challenges (3/3)

• The new companies need to prove their worth

• Build strong cultures, delight cus-tomers, establish competitive advan-tages

• Justify their rising evaluations

Conclusions

• Building a SW-powered company is easy

• Making it successful is difficult

• Every industry will be transformed by SW

• That is the big opportunity