Hardware was the foundation of the electronics industry but over the last decade software has taken over the furnishing of the household. Where hardware innovation once defined winners and losers, the reverse is the case today. The high-tech business names on the tips of everyone’s tongues today – aside from Apple Inc. – aren’t the likes of Cisco, Dell, Hewlett-Packard, IBM or Intel but social media and marketing enterprises like Amazon, Facebook, Google, LinkedIn, Pinterest, Sina (Sina’s Weibo.com is really big in China, trust me) Twitter and Zynga.
These aren’t like traditional software vendors in that they don’t really market software programs. Instead, they offer users unique experiences that include social media, marketing and online trading platforms. The entire experience is based on the innovations offered in their software applications rather than on the hardware. The hardware isn’t even on the minds of most user when they are engaging with these companies. It’s there, it’s expected to work but nobody thinks about it, except in the mobile handset market.
What this translates into is the primacy of form over substance. It is reflected in the profit margins of the new breed of high-tech companies compared with their hardware counterparts and it’s also seen in how society relates with and values these enterprises, the owners/founders and employees as well as the premium we are willing to pay for a slice of their promises. As societies worldwide elevate software-based enterprises over hardware companies, we may be killing off the very institution that not only gave these new companies life but that are also essential to their continuing prosperity and survival.
Hardware companies are trying their best to fight back. They are tackling costs head on, shaving off manufacturing, selling and administrative expenses and shifting production to lower wage zones. They are also evolving their offerings by trying to infuse their products with software applications. The result is that electronics hardware has never been more closely coupled with software in the history of the high-tech sector.
Electronics manufacturers -- components suppliers and OEMs alike – are building more software into their offerings with the aim of enabling or facilitating productivity enhancement tools such as remote management, monitoring, repairs, updates and security. By doing these they’ve become more relevant, more competitive and are able to make a profit. However, these actions have also raised the cost of competing and made it much harder for new hardware-focused companies to emerge. The cost of entry is so prohibitive today that most entrepreneurs are not going into the hardware business; for a fraction of the cost investors can get higher return from the software side.
Software Hot, Hardware Not so
Software firms have fueled most of the high-tech industry’s torrid growth over the last decade and together account for a disproportionate number of the start-ups that now dominate the global economy. In developed and developing economies, software companies are sparking growth and attracting investors who see opportunities in the bits and bytes they produce. Even in the engineering profession – the cornerstone of the high-tech industry – more of today’s university graduates are specializing in software and prefer opportunities at companies like Google to traditional electronic hardware vendors.
Of course, there are good reasons why software seem dominant today. The start-ups in the software space are typically more in tune with what the younger generation desire; they develop apps and not programs. To an old-time engineer, programs and apps are essentially the same but to Gen-Y, they are night and day apart. Programs reside on big clunky devices while apps are in the cloud, floating above our heads and available anywhere, anytime and at the speed of light.
If you are in the high-tech world and you don’t know the extent to which software is fashioning a new economic system and disrupting the old order just search the web for bitcoin – If you’ve never heard of or need someone to explain what bitcoin is, I suggest you consult the teenager down the hall or click on this link below to watch the video. Bitcoin is representative of the disruptive impact of software on our hardware comfort zone and its impact is spreading like wildfire.
This morning, news broke that more traditional companies are beginning to accept bitcoin as legal tender for people who want to pay for hardware. Yes. Tesla Motors Inc. reportedly said it sold one of its vehicles to a buyer who used bitcoin to seal the transaction. Educational institutions are next, according to the report.
Hardware companies are trying to fight back with great innovations. In the electronics components market, companies in markets once considered boring – capacitors, cables and connectors, for example – emphasize the proprietary nature of their offerings. They roll out new products on a quarterly basis and court engineers zealously to ensure their products get designed into the OEMs next equipment.
At the same time, though, pricing pressure is only intensifying in the hardware market. Commoditization is eroding value at most companies and the never-ending race to earn and keep premium pricing is giving industry executives heartburn. Consolidation has become a staple of the hardware market as companies fight to add new intellectual property to their portfolio and remain relevant.
The hardware market is also seeing fewer and fewer startups. Although new semiconductor companies can use foundries and thereby avoid spending billions on new fabrication plants, the reality is that these fresh enterprises must fight for production capacity with bigger and more financially muscular rivals that have also opted for the fabless or fab-lite strategy.
Yet, all the innovations in high-tech software must be delivered via hardware to consumers and users who also use hardware to translate and experience the apps. Hardware vendors and members of their supply chain may be the only endangered economic species that have given birth to enterprises that are killing them even though the newbies can’t exist without them. Somehow, the electronics and high-tech industry must figure out a way to resolve this dilemma.