It was a throwaway line in a post from last week:
Oil, its linkages, its by-products, and its enabling nature is what attracted Dhirubhai to oil as a business. It wasn’t just about oil itself – it was always about all of what oil allowed one to get into as a business. And it is the same now – it’s not about telecommunications and data. That just enables Reliance to get into – well, everything, really.
https://atomic-temporary-112243906.wpcomstaging.com/2020/07/23/really-understanding-jio/
…but it deserves deeper analysis.
Software has eaten up the world
We’ll begin by taking a look at what is by now a very old essay, but it remains an eminently readable one: Why Software Is Eating the World,
by Marc Andreessen.
Here’s an excellent excerpt:
More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
Remember, this was written in the year 2011. We’re talking Indian winning the World Cup, Obama as the President of the United States of America, and the biggest threat to the global economy was the worry that 2008 would somehow erupt all over again. Or something like that.
And to help you understand quite what this means in practice, let’s talk, um, boogers. It’s bad enough that we’re talking about them, I agree. Imagine having to eat them, and imagine they were not even yours!
When two Domino’s Pizza employees filmed a prank in the restaurant’s kitchen, they decided to post it online. In a few days, thanks to the power of social media, they ended up with felony charges, more than a million disgusted viewers, and a major company facing a public relations crisis.
https://www.nytimes.com/2009/04/16/business/media/16dominos.html
In videos posted on YouTube and elsewhere this week, a Domino’s employee in Conover, N.C., prepared sandwiches for delivery while putting cheese up his nose, nasal mucus on the sandwiches, and violating other health-code standards while a fellow employee provided narration.
As you might imagine, things weren’t looking good for Dominos. So what did they do?
BILL TAYLOR: So this is the part of the Domino’s story that struck me more than anything, when he simply declared for all to hear, we no longer think of ourselves as a pizza company. We think of ourselves as a technology company. I said, excuse me? Well, turns out, they’re headquartered in Ann Arbor, Michigan. They’ve got 800 people working in headquarters. Fully 400 of those, half of their headquarters employees, are engaged in software analytics and big data. They really– once they finally got the product right, they really are, from this point going forward, as much a technology company as they are a food company. And many of the initiatives have to do with making it as easy, as convenient, as kind of natural and impulsive almost to order Domino’s, much more so than any other pizza company.
https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/
So it began very early on with the Domino’s smartphone app. They then went to the capacity to order a Domino’s over text messaging. Now you can literally tweet an emoji of a pepperoni pizza, and a pepperoni pizza will appear at your doorstep within 30 minutes. You can order it through Facebook messaging. They’re simply saying to themselves, we understand that a big piece of our customer base are young people, millennials, or what have you. And he knows where those people are and where they’re spending their time, and that capacity while you’re on Facebook to simply go over to Messenger and pop in an order or while you’re sitting there, you know, tweeting out various things to also tweet out a Domino’s emoji, because you’ve pre-registered, it’s really a very powerful thing.
They decided to become a software company. Yes, that’s right, Dominos is not a pizza company that uses software, it is a software firm that happens to deliver pizzas.
Dominos is one of the best examples I can think of that helps you understand what Andressen was getting at when he said software is eating the world. It was literally eating up a pizza (company, that is)!
Amazon and Jeff Bezos
As you may have heard, Amazon and it’s owner are doing fairly well:
Jeff Bezos added $13 billion to his net worth on Monday, the largest single-day jump for an individual since the Bloomberg Billionaires Index was created in 2012.
https://www.bloomberg.com/news/articles/2020-07-20/jeff-bezos-adds-record-13-billion-in-single-day-to-his-fortune
Amazon.com Inc. shares surged 7.9%, the most since December 2018 on rising optimism about web shopping trends, and are now up 73% this year.
Why are they doing so well? Because the global pandemic has accelerated what was already a very obvious trend: online shopping is here to stay.
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.
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
Oops.
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.
Like Dominos, Amazon is a software company that happens to sell books, and just about everything else you can imagine. The stock market is simply acknowledging in 2020 what Andreessen had predicted in 2011.
What does software allow one to do that one could not earlier?
Andreessen answer the question in his essay by pointing out two factors, the first of which I read as unlocking demand:
Over two billion people now use the broadband Internet, up from perhaps 50 million a decade ago, when I was at Netscape, the company I co-founded. In the next 10 years, I expect at least five billion people worldwide to own smartphones, giving every individual with such a phone instant access to the full power of the Internet, every moment of every day.
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
And the second is the disintermediation of technology. That’s a big word, but it is simply explained: the elimination of the middle man.
Consider this post you’re reading right now. You’re reading it on your device (laptop/tablet/smartphone). Much more impressive is the fact that I was able to put up a website, set up an email subscription service, have a personalized email address – and all of this without paying anybody else a single penny to have all this done for me. Don’t get me wrong, I pay Google and WordPress money every month, but at my end, it was a one man show. No IT department, no IT consultant, nothing.
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. In 2000, when my partner Ben Horowitz was CEO of the first cloud computing company, Loudcloud, 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.
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
So whether you want to write a blog (yours truly), order food (Zomato), buy groceries (Bigbasket), learn stuff online (Byju’s), get your leaky faucet fixed (Urban Company) – or anything else you can think of really – it is all enabled by the fact that everybody has a device that enables them to connect to the Internet, and the fact that building out a company is cheaper than ever before.
So Who Are The Winners?
Well, I find it pretty cool that I am able to write a blog that a lot of people choose to read daily, and the local pizza delivery place is quite happy that is is able to compete with somebody like Dominos. And hopefully you are happy that you get to read this post while chomping on a slice of pizza.
But the real winners? The intermediaries.
But wait, you might say. Didn’t the internet enable disintermediation? Well, no, not really. It replaced a lot of inefficient middlemen with a few super efficient ones.
If, in the pre-internet era, I wanted to write a series of essays that people could read, the barriers to entry were quite significant. They could be published as a book, or as a series in a newspaper, or in a magazine. But then would come the difficult job of publicizing the fact that I had written these essays. People would send in their comments (maybe via mail, maybe in conferences/book launches) and I would reply to them, but these would be available for everybody to see.
Today? Hit publish, and people who follow me on Twitter/LinkedIn/Facebook get to not only read the essay, but they also get to work as my marketing team, and they get to comment right away. Said comment can be replied to near instantaneously, and that conversation is also available for everybody to view and ponder on.
What allows this to happen? Well, I pay WordPress money to keep this blog up, and I pay Google so that I have a personalized email ID. Without these two companies (and their competition), this blog is well nigh impossible.
What the intermediaries have done is the following:
Earlier, a select group of people could get in touch with a select group of customers at very high costs. Today, anybody can get in touch with anybody at very low costs
A restaurant (let’s call it Vaishali) can get in touch with a potential customer (let’s call him Ashish) and online delivery of food can happen, even in times such as these. I get my upma and filter coffee, Vaishali gets its money, but in the long run, the real winner is Zomato.
A homeowner in Paris (let’s call her ABC) can get in touch with a potential traveler (let’s call him Ashish) and I and my family can stay in said homeowner’s apartment during our trip to France. The homeowner gets money for a home she isn’t currently occupying, I get a memorable holiday, but the real winner is Airbnb.
And so on.
Uber, Oyo, Swiggy, Urban Company – there’s no end to these examples, and these, as per Andreessen’s essay, are the real winners.
The coup de grace
What if these intermediaries were either owned by one entity? What if that entity, because it knew what you were doing in n separate transactions across n different platforms, could flawlessly predict what you needed next, on the n+1th platform? And could provide you that need at the lowest price possible?
Let’s go back to the beginning of this post:
Oil, its linkages, its by-products, and its enabling nature is what attracted Dhirubhai to oil as a business. It wasn’t just about oil itself – it was always about all of what oil allowed one to get into as a business. And it is the same now – it’s not about telecommunications and data. That just enables Reliance to get into – well, everything, really.
https://atomic-temporary-112243906.wpcomstaging.com/2020/07/23/really-understanding-jio/
EconForEverybody 