On a somewhat related note Marc Andreessen on why software is eating the world and we are not in a bubble.
http://online.wsj.com/article/SB10001424053111903480904576512250915629460.html -- By MARC ANDREESSEN This week, Hewlett-Packard (where I am on the board) announced that it is exploring jettisoning its struggling PC business in favor of investing more heavily in software, where it sees better potential for growth. Meanwhile, Google plans to buy up the cellphone handset maker Motorola Mobility. Both moves surprised the tech world. But both moves are also in line with a trend I've observed, one that makes me optimistic about the future growth of the American and world economies, despite the recent turmoil in the stock market. In an interview with WSJ's Kevin Delaney, Groupon and LinkedIn investor Marc Andreessen insists that the recent popularity of tech companies does not constitute a bubble. He also stressed that both Apple and Google are undervalued and that "the market doesn't like tech." In short, software is eating the world. More than 10 years after the peak of the 1990s dot-com bubble, a dozen or so new Internet companies like Facebook and Twitter are sparking controversy in Silicon Valley, due to their rapidly growing private market valuations, and even the occasional successful IPO. With scars from the heyday of Webvan and Pets.com still fresh in the investor psyche, people are asking, "Isn't this just a dangerous new bubble?" I, along with others, have been arguing the other side of the case. (I am co-founder and general partner of venture capital firm Andreessen-Horowitz, which has invested in Facebook, Groupon, Skype, Twitter, Zynga, and Foursquare, among others. I am also personally an investor in LinkedIn.) We believe that many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses. [SOFTWARE1] QuickHoney Today's stock market actually hates technology, as shown by all-time low price/earnings ratios for major public technology companies. Apple, for example, has a P/E ratio of around 15.2—about the same as the broader stock market, despite Apple's immense profitability and dominant market position (Apple in the last couple weeks became the biggest company in America, judged by market capitalization, surpassing Exxon Mobil). And, perhaps most telling, you can't have a bubble when people are constantly screaming "Bubble!" But too much of the debate is still around financial valuation, as opposed to the underlying intrinsic value of the best of Silicon Valley's new companies. 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. 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. [SOFTWARE2] QuickHoney Why is this happening now? Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale. 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. 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. [SOFTWARE4] QuickHoney 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. 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. 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. 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. Today's fastest growing entertainment companies are videogame makers—again, software—with the industry growing to $60 billion from $30 billion five years ago. And the fastest growing major videogame company is Zynga (maker of games including FarmVille), which delivers its games entirely online. Zynga's first-quarter revenues grew to $235 million this year, more than double revenues from a year earlier. Rovio, maker of Angry Birds, is expected to clear $100 million in revenue this year (the company was nearly bankrupt when it debuted the popular game on the iPhone in late 2009). Meanwhile, traditional videogame powerhouses like Electronic Arts and Nintendo have seen revenues stagnate and fall. The best new movie production company in many decades, Pixar, was a software company. Disney—Disney!—had to buy Pixar, a software company, to remain relevant in animated movies. Photography, of course, was eaten by software long ago. It's virtually impossible to buy a mobile phone that doesn't include a software-powered camera, and photos are uploaded automatically to the Internet for permanent archiving and global sharing. Companies like Shutterfly, Snapfish and Flickr have stepped into Kodak's place. Today's largest direct marketing platform is a software company—Google. Now it's been joined by Groupon, Living Social, Foursquare and others, which are using software to eat the retail marketing industry. Groupon generated over $700 million in revenue in 2010, after being in business for only two years. Today's fastest growing telecom company is Skype, a software company that was just bought by Microsoft for $8.5 billion. CenturyLink, the third largest telecom company in the U.S., with a $20 billion market cap, had 15 million access lines at the end of June 30—declining at an annual rate of about 7%. Excluding the revenue from its Qwest acquisition, CenturyLink's revenue from these legacy services declined by more than 11%. Meanwhile, the two biggest telecom companies, AT&T and Verizon, have survived by transforming themselves into software companies, partnering with Apple and other smartphone makers. [SOFTWARE5] QuickHoney LinkedIn is today's fastest growing recruiting company. For the first time ever, on LinkedIn, employees can maintain their own resumes for recruiters to search in real time—giving LinkedIn the opportunity to eat the lucrative $400 billion recruiting industry. Software is also eating much of the value chain of industries that are widely viewed as primarily existing in the physical world. In today's cars, software runs the engines, controls safety features, entertains passengers, guides drivers to destinations and connects each car to mobile, satellite and GPS networks. The days when a car aficionado could repair his or her own car are long past, due primarily to the high software content. The trend toward hybrid and electric vehicles will only accelerate the software shift—electric cars are completely computer controlled. And the creation of software-powered driverless cars is already under way at Google and the major car companies. Today's leading real-world retailer, Wal-Mart, uses software to power its logistics and distribution capabilities, which it has used to crush its competition. Likewise for FedEx, which is best thought of as a software network that happens to have trucks, planes and distribution hubs attached. And the success or failure of airlines today and in the future hinges on their ability to price tickets and optimize routes and yields correctly—with software. Oil and gas companies were early innovators in supercomputing and data visualization and analysis, which are crucial to today's oil and gas exploration efforts. Agriculture is increasingly powered by software as well, including satellite analysis of soils linked to per-acre seed selection software algorithms. The financial services industry has been visibly transformed by software over the last 30 years. Practically every financial transaction, from someone buying a cup of coffee to someone trading a trillion dollars of credit default derivatives, is done in software. And many of the leading innovators in financial services are software companies, such as Square, which allows anyone to accept credit card payments with a mobile phone, and PayPal, which generated more than $1 billion in revenue in the second quarter of this year, up 31% over the previous year. 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. Even national defense is increasingly software-based. The modern combat soldier is embedded in a web of software that provides intelligence, communications, logistics and weapons guidance. Software-powered drones launch airstrikes without putting human pilots at risk. Intelligence agencies do large-scale data mining with software to uncover and track potential terrorist plots. Companies in every industry need to assume that a software revolution is coming. This includes even industries that are software-based today. Great incumbent software companies like Oracle and Microsoft are increasingly threatened with irrelevance by new software offerings like Salesforce.com and Android (especially in a world where Google owns a major handset maker). In some industries, particularly those with a heavy real-world component such as oil and gas, the software revolution is primarily an opportunity for incumbents. But in many industries, new software ideas will result in the rise of new Silicon Valley-style start-ups that invade existing industries with impunity. Over the next 10 years, the battles between incumbents and software-powered insurgents will be epic. Joseph Schumpeter, the economist who coined the term "creative destruction," would be proud. [SOFTWARE6] QuickHoney And while people watching the values of their 401(k)s bounce up and down the last few weeks might doubt it, this is a profoundly positive story for the American economy, in particular. It's not an accident that many of the biggest recent technology companies—including Google, Amazon, eBay and more—are American companies. Our combination of great research universities, a pro-risk business culture, deep pools of innovation-seeking equity capital and reliable business and contract law is unprecedented and unparalleled in the world. Still, we face several challenges. First of all, every new company today is being built in the face of massive economic headwinds, making the challenge far greater than it was in the relatively benign '90s. The good news about building a company during times like this is that the companies that do succeed are going to be extremely strong and resilient. And when the economy finally stabilizes, look out—the best of the new companies will grow even faster. Secondly, many people in the U.S. and around the world lack the education and skills required to participate in the great new companies coming out of the software revolution. This is a tragedy since every company I work with is absolutely starved for talent. Qualified software engineers, managers, marketers and salespeople in Silicon Valley can rack up dozens of high-paying, high-upside job offers any time they want, while national unemployment and underemployment is sky high. This problem is even worse than it looks because many workers in existing industries will be stranded on the wrong side of software-based disruption and may never be able to work in their fields again. There's no way through this problem other than education, and we have a long way to go. Finally, the new companies need to prove their worth. They need to build strong cultures, delight their customers, establish their own competitive advantages and, yes, justify their rising valuations. No one should expect building a new high-growth, software-powered company in an established industry to be easy. It's brutally difficult. I'm privileged to work with some of the best of the new breed of software companies, and I can tell you they're really good at what they do. If they perform to my and others' expectations, they are going to be highly valuable cornerstone companies in the global economy, eating markets far larger than the technology industry has historically been able to pursue. Instead of constantly questioning their valuations, let's seek to understand how the new generation of technology companies are doing what they do, what the broader consequences are for businesses and the economy and what we can collectively do to expand the number of innovative new software companies created in the U.S. and around the world. That's the big opportunity. I know where I'm putting my money. —Mr. Andreessen is co-founder and general partner of the venture capital firm Andreessen-Horowitz. He also co-founded Netscape, one of the first browser companies. On Wed, Sep 14, 2011 at 12:55 PM, Udhay Shankar N <[email protected]> wrote: > The first people to come to mind on reading this are Thaths and Cheeni - as > this has significant overlap with one of our collective favourite > hobbyhorses: "work" vs. "life". > > This is an interesting speculation (if deliberately framed to get the > maximum number of page views). My personal opinion is that a lot of people > are likely to be forced to learn how to work with their hands soon [1], so > this may be moot. But it is still an important discussion. > > Thoughts? > > Udhay > > [1] Peak oil / climate change / economic meltdown etc. > > http://www.cnn.com/2011/OPINION/09/07/rushkoff.jobs.obsolete/index.html > > Are jobs obsolete? > By Douglas Rushkoff, Special to CNN > > Editor's note: Douglas Rushkoff is a media theorist and the author of > "Program or Be Programmed: Ten Commands for a Digital Age" and "Life Inc: > How Corporatism Conquered the World and How We Can Take it Back." > > (CNN) -- The U.S. Postal Service appears to be the latest casualty in > digital technology's slow but steady replacement of working humans. Unless > an external source of funding comes in, the post office will have to scale > back its operations drastically, or simply shut down altogether. That's > 600,000 people who would be out of work, and another 480,000 pensioners > facing an adjustment in terms. > > We can blame a right wing attempting to undermine labor, or a left wing > trying to preserve unions in the face of government and corporate cutbacks. > But the real culprit -- at least in this case -- is e-mail. People are > sending 22% fewer pieces of mail than they did four years ago, opting for > electronic bill payment and other net-enabled means of communication over > envelopes and stamps. > > New technologies are wreaking havoc on employment figures -- from EZpasses > ousting toll collectors to Google-controlled self-driving automobiles > rendering taxicab drivers obsolete. Every new computer program is basically > doing some task that a person used to do. But the computer usually does it > faster, more accurately, for less money, and without any health insurance > costs. > > We like to believe that the appropriate response is to train humans for > higher level work. Instead of collecting tolls, the trained worker will fix > and program toll-collecting robots. But it never really works out that way, > since not as many people are needed to make the robots as the robots > replace. > > And so the president goes on television telling us that the big issue of our > time is jobs, jobs, jobs -- as if the reason to build high-speed rails and > fix bridges is to put people back to work. But it seems to me there's > something backwards in that logic. I find myself wondering if we may be > accepting a premise that deserves to be questioned. > > I am afraid to even ask this, but since when is unemployment really a > problem? I understand we all want paychecks -- or at least money. We want > food, shelter, clothing, and all the things that money buys us. But do we > all really want jobs? > > We're living in an economy where productivity is no longer the goal, > employment is. That's because, on a very fundamental level, we have pretty > much everything we need. America is productive enough that it could probably > shelter, feed, educate, and even provide health care for its entire > population with just a fraction of us actually working. > > According to the U.N. Food and Agriculture Organization, there is enough > food produced to provide everyone in the world with 2,720 kilocalories per > person per day. And that's even after America disposes of thousands of tons > of crop and dairy just to keep market prices high. Meanwhile, American banks > overloaded with foreclosed properties are demolishing vacant dwellings Video > to get the empty houses off their books. > > Our problem is not that we don't have enough stuff -- it's that we don't > have enough ways for people to work and prove that they deserve this stuff. > > Jobs, as such, are a relatively new concept. People may have always worked, > but until the advent of the corporation in the early Renaissance, most > people just worked for themselves. They made shoes, plucked chickens, or > created value in some way for other people, who then traded or paid for > those goods and services. By the late Middle Ages, most of Europe was > thriving under this arrangement. > > The only ones losing wealth were the aristocracy, who depended on their > titles to extract money from those who worked. And so they invented the > chartered monopoly. By law, small businesses in most major industries were > shut down and people had to work for officially sanctioned corporations > instead. From then on, for most of us, working came to mean getting a "job." > > The Industrial Age was largely about making those jobs as menial and > unskilled as possible. Technologies such as the assembly line were less > important for making production faster than for making it cheaper, and > laborers more replaceable. Now that we're in the digital age, we're using > technology the same way: to increase efficiency, lay off more people, and > increase corporate profits. > > While this is certainly bad for workers and unions, I have to wonder just > how truly bad is it for people. Isn't this what all this technology was for > in the first place? The question we have to begin to ask ourselves is not > how do we employ all the people who are rendered obsolete by technology, but > how can we organize a society around something other than employment? Might > the spirit of enterprise we currently associate with "career" be shifted to > something entirely more collaborative, purposeful, and even meaningful? > > Instead, we are attempting to use the logic of a scarce marketplace to > negotiate things that are actually in abundance. What we lack is not > employment, but a way of fairly distributing the bounty we have generated > through our technologies, and a way of creating meaning in a world that has > already produced far too much stuff. > > The communist answer to this question was just to distribute everything > evenly. But that sapped motivation and never quite worked as advertised. The > opposite, libertarian answer (and the way we seem to be going right now) > would be to let those who can't capitalize on the bounty simply suffer. Cut > social services along with their jobs, and hope they fade into the distance. > > But there might still be another possibility -- something we couldn't really > imagine for ourselves until the digital era. As a pioneer of virtual > reality, Jaron Lanier, recently pointed out, we no longer need to make stuff > in order to make money. We can instead exchange information-based products. > > We start by accepting that food and shelter are basic human rights. The work > we do -- the value we create -- is for the rest of what we want: the stuff > that makes life fun, meaningful, and purposeful. > > This sort of work isn't so much employment as it is creative activity. > Unlike Industrial Age employment, digital production can be done from the > home, independently, and even in a peer-to-peer fashion without going > through big corporations. We can make games for each other, write books, > solve problems, educate and inspire one another -- all through bits instead > of stuff. And we can pay one another using the same money we use to buy real > stuff. > > For the time being, as we contend with what appears to be a global economic > slowdown by destroying food and demolishing homes, we might want to stop > thinking about jobs as the main aspect of our lives that we want to save. > They may be a means, but they are not the ends. > > The opinions expressed in this commentary are solely those of Douglas > Rushkoff. > > > -- > ((Udhay Shankar N)) ((udhay @ pobox.com)) ((www.digeratus.com)) >
