When Every Company Is a Software Company, No Company Is a Software Company

It seems to be fashionable to be a software company. In fact, we hear statements that every company must be a software company. The logic is that software is allowing companies to do business faster than in the past. Software-driven design and manufacturing allow faster product development and shorter time to market. This last part is undoubtedly true: businesses are reaping great benefits from new software techniques. But are they really software companies?

Businesses are always looking for ways to gain an advantage over their competitors. That is the nature of business. During the Industrial Revolution, water wheels were one of the first sources of power for factories. Factories were built close to rivers for their power source. Later, coal and steam power became available, so factories could be located either close to the raw materials or close to the market for finished products. These new factories were steam businesses; steam was the key to their market differentiation. Are the factories steam companies now? No. Steam became the standard and was no longer a differentiator. When steam became a commodity, the factories had to compete on the product they produced. Then along came cheap electric power, and everyone started to become an electricity company. Again, that phase passed when every company had become an electric company. Shortly after manufacturing standardized on electric power, the companies went back to competing on some other aspect of their product.

Once every company became a steam company, no company was a steam company.

There is another parallel that I think is worth thinking about. When electricity was a new source of power, many businesses built their own power stations. They built their own to provide a reliable supply of exactly the power they needed. This is the phase of software-driven we are in now: lots of businesses are building their own solution that suits their exact needs. Very few companies now have their own power generation. Most companies rely on specialist power generators that generate vast amounts of power. There is a market for a standardized power supply. We will get to a similar model for software. The clouderati believe that the public cloud, usually typified by AWS, will be that standardized supply. Personally, I think public cloud (in IaaS, PaaS, and SaaS models) will be one aspect. Another aspect will be “packaged” software deployed on-site to solve some of the same problems. One way or another, I expect that what is currently custom-developed software and solutions will only take a few years to become a commodity. Then, only the developers of the commodity software will be software companies.

Now, don’t get me wrong: the progress is good. I do not advocate water power as being better than electrical power for most businesses. I also do not suggest that we go back to paper ledgers, writing with quills, and lighting with candles. Software-based product development is enabling amazing advances in all manner of industries. I love that 3D printers are allowing customization of products to suit far smaller subsets of the market. My favorite example is the 3D printer cast for a broken arm. It is lighter and stronger than a plaster cast, provides better support, and allows itches to be scratched without a knitting needle. I just think it is important to understand that this differentiation is temporary. When every hospital or medical clinic can 3D-print custom casts, then it is not a differentiation.

The real danger is in not being a software company when all of your competitors are software companies. The reason why there are no factories run by water power is that electric power gives a competitive advantage. Businesses that fail to take up the innovation end up failing to compete in the market. Software-driven design and manufacturing is definitely a huge competitive advantage, in the same way that business process automation was huge in the 1980s. Software-driven companies will outcompete their non–software driven counterparts. Then, only software-driven businesses will remain, and they will seek new ways to compete.

All the talk of every business being a software company is really an expression of the excitement of developing something new. For a little while, every company will need to become a software company to stay competitive. Quite soon, every company will be a software company, and so no company will be a software company.

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