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 compa-nies 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