Perhaps the single most dramatic example of this phenomenon of software eating a traditional business is the suicide of Borders and corresponding rise of Amazon. In 2001, Borders agreed to hand over its online business to Amazon under the theory that online book sales were non-strategic and unimportant.
Today, the world’s largest bookseller, Amazon, is a software company—its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary. On top of that, while Borders was thrashing in the throes of impending bankruptcy, Amazon rearranged its web site to promote its Kindle digital books over physical books for the first time. Now even the books themselves are software.
Today’s largest video service by number of subscribers is a software company: Netflix. How Netflix eviscerated Blockbuster is an old story, but now other traditional entertainment providers are facing the same threat. Comcast, Time Warner and others are responding by transforming themselves into software companies with efforts such as TV Everywhere, which liberates content from the physical cable and connects it to smartphones and tablets.
Today’s dominant music companies are software companies, too: Apple’s iTunes, Spotify and Pandora. Traditional record labels increasingly exist only to provide those software companies with content. Industry revenue from digital channels totaled $4.6 billion in 2010, growing to 29% of total revenue from 2% in 2004.
All true, but none of this software is worth anything — anything at all — without hardware to run on. Which explains why Apple is now the biggest technology company in the world: Apple creates the hardware (iPhones, iPads, iPods, Macs) that people want to run all their cool software on. We’re not any less dependent on manufactured things than we ever were: it’s just that we need fewer kinds of manufactured things now, since we use highly adaptable universal machines. (I don’t carry around a watch, a calendar, a notepad, a radio, or a calculator, because I have an iPhone.)
I think the primary lesson to be drawn from Andreesen’s article is not “Get into the software game” but that there is a ton of money to be made by someone, anyone, who can come up with universal machines (computing devices) beautiful and functional enough that a sizable number of people will prefer them to Apple’s.