Benefit From Marc Andreessen's Internet Predictionb : 'Software Is Eating The World'
April 30, 2012 |
Marc Andreessen is a former entrepreneur (Netscape, LoudCloud) and now a very successful venture capitalist at Andreessen Horowitz. The firm made many home-runs investments in tech companies such as Skype, Facebook (FB), Groupon (GRPN), Zynga (ZNGA), Twitter, Airbnb, Instagram and Foursquare. Andreessen Horowitz's investments span the mobile, gaming, social, e-commerce, education and enterprise IT (including cloud computing, security, and Software-as-a-Service) industries. An article by Wired magazine reports that Andreessen saw five Internet trends before most experts:
1- 1992, Everyone Will Have the Web
2- 1995, The Browser Will Be the Operating System
3-1999, Web Businesses Will Live in the Cloud
4- 2004, Everything Will Be Social
5- 2009, Software Will Eat the World
In an interview with CNET and in an article for the WSJ, Andreessen explained in more details his latest Internet prediction: Software Will Eat the World:
In 2009, Andreessen and his longtime business partner, Loudcloud cofounder Ben Horowitz, created a venture capital firm called Andreessen Horowitz. Their vision today: an economy transformed by the rise of computing. Andreessen believes that enormous technology companies can now be built around the use of hyperintelligent software to revolutionize whole sectors of the economy, from retail to real estate to health care.
I expect vertical specialization to continue and there to be killer Silicon Valley style software companies in all kinds of verticals and categories in 2012 and 2013 that weren't viable three or five years ago.
E-commerce was the hotbed of vertical personalization of 2011, and big fat vertical expansion goes into other categories other than e-commerce in 2012. It could be content. It could be new kinds of service providers….Vertical slices or category slices can be available via smartphones and hooked to really powerful networks with cloud computing on the back-end. We're just seeing a pattern of companies doing this over and over.
He suggests that 2012 is the year that retail--retail stores--really starts to feel the pressure of disrupting competition. He thinks electronics and clothes are going to be at a real pressure point. On the other hand, e-retailers such as Amazon will continue to create huge value because these firms are providing a very differentiating customer experience that is much more like shopping as entertainment.
Companies such as Groupon and Foursquare and a whole new generation of these local e-commerce platforms are bringing online the gigantic number of businesses in the world that aren't on the Internet today at all. In a previous article, I mentioned some the opportunities and threats of Groupon.
For Andreessen, "People have really underappreciated what Groupon has done, which is they've created a way for small businesses that aren't online to spend money online and be able to dial up customers on demand. That's a really big deal….A lot of small business owners are going to start running their businesses from their smartphones."
Andreessen believes that many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses: "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."
The winning conditions
Over two billion people now use the broadband Internet, and it could go up to five billion smartphones consumers in the next 10 years, giving every individual with such a phone instant access to the full power of the Internet, every moment of every day.
On the back end, software programming tools and Internet-based services make it easy to launch new global software-powered start-ups in many industries-without the need to invest in new infrastructure and train new employees. For instance, in 2000 the cost of a customer running a basic Internet application was approximately $150,000 a month. Running that same application today in Amazon's cloud costs about $1,500 a month. With lower start-up costs and a vastly expanded market for online services, the result is a global economy that for the first time will be fully digitally wired-the dream of every cyber-visionary of the early 1990s, finally delivered, a full generation later.
A good example of the 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. Borders went bankrupt last year and Amazon's worth is now $103 billion.
These companies are software-centric: Netflix (NFLX), Apple's (AAPL) iTunes, Spotify, Pandora (P), Pixar, Google (GOOG), Skype, Groupon, LinkedIn (LNKD), eBay-Paypal (EBAY) and Shutterfly (SFLY).
"Health care and education, in my view, are next up for fundamental software-based transformation. My venture capital firm is backing aggressive start-ups in both of these gigantic and critical industries. We believe both of these industries, which historically have been highly resistant to entrepreneurial change, are primed for tipping by great new software-centric entrepreneurs," said Andreessen.
Marc Andreessen proposes that over the next 10 years, the battles between incumbents and software-powered insurgents will be fierce, demonstrating a "creative destruction" like economist Joseph Schumpeter found in the history of innovation waves.
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