THE TECH DISRUPTION
Software has become the centre of modern innovation and industry disruption. ISHRETH HASSEN writes about the profound implications of software’s inexorable progress.
Over two billion people today access a networked mobile super-computer compared to just 50 million broadband users 15 years ago. Using this infrastructure, technology companies like Google, Amazon, Facebook, Alibaba and Tencent have built complex global data-centre networks to collect, process and derive intelligence from gargantuan volumes of user data.
Today’s media landscape is vastly different from a decade ago. The world’s largest media company is Google. The largest communication platform is Facebook, the largest video business is Netflix and the largest music company is Spotify. While most legacy media businesses were highly localised with clumsy user insight, today’s global software giants own incredibly detailed databases of user data. Data such as location, demographics, purchase habits, searches, likes/dislikes, media preferences and behaviour is used to provide highly targeted content to end users.
Marc Andreessen famously said, “Software is eating the world.” He explained that software is “eating much of the value chain of industries that are widely viewed as primarily existing in the physical world.” Cameras were eaten by mobile phone software long ago. Uber is now the world’s largest taxi company. Priceline is the largest travel agent. Airbnb is one of the largest hotel businesses. Tesla is now bigger than Ford.
Smartphone mobile eco-systems democratised software access. Soon, artificial intelligence (AI) ecosystems will allow a new technology paradigm shift. Futurist Kevin Kelly believes AI will revolutionise our lives just as electricity did in the 19th century. Everything previously “electrified” will become “cognified.” Smartphones, houses, media, retail, banking, manufacturing – all goods and services – will be enhanced by AI.
The $2.5 trillion automobile industry will not escape cognification. Today’s vehicles have engines, infotainment systems, safety features and numerous other functions that depend heavily on software. Autonomous driving, already being tested, will dramatically alter car ownership and fleet utilisation patterns. And inter alia disrupt oil, auto insurance, auto parts, urban planning and logistics industries.
Companies like Google and Baidu have developed neural networks, which get smarter and better with experience, to power driverless cars. Google’s proprietary, self-designed chips that power its driverless software are at least 30 times more effective than Intel or Nvidia’s chips. No leading traditional auto company can compete with Google on software or infrastructure. Google’s advantage is its unique ability to leverage its existing network of data-centres that power its search, Android, youtube, Appstore, chrome and map ecosystems.
“Companies in every industry need to assume that a software revolution is coming,” wrote Marc Andreessen in 2011. “In some industries, particularly those with a heavy real-world component such as oil and gas, the software revolution is an opportunity for incumbents.” Today, the same applies to manufacturing, staples, food retail and healthcare. Management teams with excellent technical executives will fare better than others.
These structural software trends are not only of interest. They assist in shaping Foord’s macro investment view, stock selection and portfolio construction as we focus on identifying quality businesses in all industries that can grow earnings ahead of expectations and the market.