In a recent Wall Street Journal article, Marc Andreessen pronounced that "software is eating the world". He went on to explain "we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy. More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense." Marc provides examples of many industries, from music and video distribution to automobiles, financial services and others, that have been transformed by software and how software companies have upstaged industry incumbents in unforeseen ways.
While software-driven innovations are at the heart of Marc's article, business models are also being transformed in parallel, and are, in many cases, just as crucial for the success of companies driving the transformation. For example, reinventing how consumers pay for music was key to Apple's success with iTunes as we pointed out a while back: "One of the keys to iTunes' success was to allow music to be purchased like it was consumed, thus transforming the monetization model in the music industry. The incumbent model in the music industry was to aggregate collections of tracks into albums, which then became the unit of purchase for consumers. iTunes transformed this model to allow consumers to only purchase what they consumed, one track at a time, if desired."
In a telling symptom of all this, we see the lines between "software" and "hardware" companies blurring rapidly, as pointed out in many articles in this blog on virtual appliances, monetizing embedded software in devices and the growing role of the software supply chain within hardware companies.
It should come as no surprise that we see a tremendous opportunity for software companies and device manufacturers to grow revenues by monetizing their software and the value delivered by it. The remaining question is how one goes about it. In our experience, the tenet of a software-driven business transformation requires software companies and device manufacturers to:
- Protect intellectual property. This may be obvious to software vendors. However this is a new concern for device manufacturers, especially for those that are pursuing an "all software, no hardware" approach using virtual appliances.
- Re-think monetization models based on how customers want to use and pay for software. The software business has enormous flexibility here ranging from try-before-you-buy, subscription models, freemium models, pay-by-use, perpetual licenses and so on.
- Automate the entire software, device and entitlement lifecycle from an end user's perspective. These lifecycle processes include processes such as software installation, device provisioning, software activation, subscription management, software updates, upgrades and other changes to entitlements.
Reference: "Why Software is Eating the World", Marc Andreessen, Wall Street Journal, August 20, 2011.