“Why software is eating up the world” is the visionary essay written by tech entrepreneur and venture capitalist Marc Andreessen in 2011 and published in the Wall Street Journal. In the essay, Andreessen says, “My own theory is that 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.” Today, a mere seven years later (2018), we are seeing the acceleration of this shift to a software-first economy where companies in virtually every industry are either reinventing themselves as software companies or are being disrupted by software-first startups.
Airline companies like Delta and American Airlines, advertising, and media companies like Facebook and Google, logistics companies like UPS and FedEx, car manufacturers like GM and Daimler-Benz are today almost indistinguishable from traditional software companies like Microsoft and Oracle. Through massive investments in software capabilities, these companies and others have reinvented themselves to become software companies, which is the main reason they are currently leading in their respective industries. Is your company ready for a software-first global economy? Can you imagine your company as a software company that happens to do what you are currently doing?
These are questions we help companies answer through our Leading Digital Transformation Program. The program, targeting senior company executives, seeks to create context and incite urgency to take up a digital transformation agenda. In our last Leading Digital Transformation program that took place in July 2018, senior executives from some of the top companies in the world went through the five-day program. During the program, they interacted with leading Silicon Valley companies like Amazon, Slack, and IBM and attended interactive talks with Silicon Valley digital transformation thought leaders. In this article, we highlight three key areas they received insights on during the first day of the program.
Digital Transformation Through Cloud Systems
For most corporate executives, the term cloud is synonymous with software-as-a-service and often denotes the deployment of services over either a private or public network. Cloud, today, is a far more expansive term than this. Consider that today Amazon Web Services (AWS) offers over 200 high-level services on its cloud infrastructure. On a granular level, this translates to over a thousand services and microservices deployable via the cloud. This rapid growth in availability of such cloud services, including the invention and advancement in containerization solutions like Docker and Kubernetes, has created a monumental opportunity for businesses to move services to the cloud.
Oracle is leading the charge in enterprise cloud computing. A senior director, Cloud Global Trade Management at Oracle was on hand to offer key insights into the disruptive opportunities these rapid advances in cloud computing offer companies today. Massive companies like Apple, Pixar, eBay, BMW, Netflix, Alcatel-Lucent, Adobe Systems, AOL and others today use third-party cloud service providers like Oracle, AWS and Microsoft Azure to accelerate their digital competencies at a fraction of the price they would if they used their own infrastructure. This has helped them deliver services faster and more efficiently while spending less on server infrastructure. Companies targeting digital transformation must include cloud in their innovation agendas if they are to pivot into 21st century digital-first companies successfully.
Business Model Innovation as a Tool for Digital Transformation
In the day’s second interactive session, Gregory LaBlanc, a lecturer at the Haas School of Business at Berkeley explained how Wal-Mart, using software, eliminated the need for a back-room to store inventory at store level. Instead, software enables the company to make just-in-time inventory deliveries, triggered by point-of-sale software integrated with warehousing and logistics software. Similarly, UPS algorithmically calculates delivery routes, a task that would be infinitely difficult if left to the individuals doing the deliveries. These examples demonstrate how companies thought of as operating in conservative non-tech industries use software to build massive competitive advantages.
All successful companies today are tech companies, all other companies are dead companies, says LaBlanc. His argument for this tough statement aligns with Marc Andreessen’s sentiments on software eating the world. LaBlanc believes that as industries become digitized, companies that do not reinvent themselves as software companies are nothing more than the walking dead. For organizations to avoid this zombie fate, they must understand the ongoing shift to everything-as-a-service. GE understood this and today sells aircraft engines-as-a-service, smart engines that generate terabytes of data, data that is more valuable to GE now than the very engines they build and sell.
Tesla, the electric car maker, is poised to win the race to build viable autonomous cars because of the millions of miles of autonomous car data its vehicles collect each day compared to those collected by competitors. LaBlanc ended his talk by asking attendants a poignant question, “What would it mean for your company to become a software company, a services company, and a data company?” This is a question every company, regardless of what industry they are in and whether they sell goods or services, will do well to focus on if they are to survive in today’s rapidly digitizing market landscape.
The Secret Sauce and Main Principles of Amazon Innovation
Amazon has been called the most innovative and customer-centric company on the planet and for a good reason. The behemoth has not only disrupted the retail industry but is on course to disrupt multiple other industries including entertainment, home management, shipping, and logistics, among others. To wind up the day, executives attending the Leading Digital Transformation program visited Amazon to learn what makes the company so innovative. In 1996, Amazon opened its doors as an online seller, but Jeff Bezos, with a background in finance, understood that the future of commerce would be built on efficiency, not inventory. Having a massive book wholesaler in Seattle was one of the main reasons Bezos opted to start with books, as it gave Amazon the ability to maintain a massive digital inventory without having to maintain any physical inventory.
Today, the tech company, as indeed it is, continues to follow this philosophy by entering markets that are ripe for disruption through more efficient processes underpinned by software capabilities. Whether cloud computing (AWS,) shipping and logistics (Prime and Now,) or retail (Marketplace), Amazon continues to aggressively seek ways to become more efficient and disruptive. Casualties of this innovation agility not only include competitors but Amazon’s own products, such as is the case with the Kindle cannibalizing Amazon’s physical book business, or the Amazon Echo, which sprouted from the epic failure that was the Fire Phone. What companies can learn from Amazon is the impermanence of any competitive advantage and the need to build a customer-centric organization. As Bezos says, “Our customers are loyal to us right up until the second somebody offers them a better service.”
Day 1 Conclusion
Besides the three experiences outlined above, program attendants also got the opportunity to test drive Tesla vehicles and experience the future of transport or transport-as-a-service. Through the day’s experiences, attendants were challenged to rethink their organizations’ innovation agendas considering what they had learned. They came away with a fresh perspective and deeper insights into how software is indeed eating the world, and the urgent need for companies across all industries to embrace digital transformation. In day two of the program, attendants learned about the next generation of digital technologies like blockchain, AI, and IoT and how these technologies are fueling the rapid realization of the 4th industrial revolution.