Why Software is Eating the World and What it Means for Digital Media

In 2011, Marc Andreessen penned a wonderful Wall Street Journal op-ed titled, "Why Software is Eating the World."

Marc argues the following factors make the rise of software across industries an inevitability

  • 2 billion people on-line today with 5 billion expected to have access via mobile 
  • foundation laid by the CPU, broadband, mobile and PC industries
  • power of cloud computing to drive down operating costs (factor of 100 in ten years) and the global availability of Internet services and APIs
  • relative strengths of Amanzon vs Borders, Skype vs POTS telcos, Pixar vs old line studios, LinkedIn vs the recruiting industry, iTunes vs Tower Records...

He notes "companies in every industry need to assume that a software revolution is coming" and that "Schumpeter's creative destruction" will be felt across all sectors of the economy.

My first job in the Valley was with Infinity Financial Technology, a Sequoia-backed financial services software company that rode Marc's thesis to great success.  Prior to Infinity, Wall St trading (front office traders, middle office risk managers, and back office settlement managers) worked via completely manual processes rife with expense, error, and long cycle times.

The Basel accords forced banks to deliver straight-through-processing, manage Value-at-Risk, and next day settlement.  Now, the cadence of operation demanded that banks automate a previously completely manual workflow. Enter...software.  First, banks bravely worked to build their own systems and JP Morgan bragged that it had more software developers than Microsoft. Next, bank systems failed to match the progress of the overall market and pure play vendors emerged to provide the software that "ate" the old world way of business.

Today, as CEO of Flite the parallels between Wall Street in the 1990s and digital marketing in the 2010s are powerful and instructive.  The cadence of business demands cycle times and speed of operation that is simply beyond human scale.  People, no matter how good, will not be able to operate with millisecond latency, 24x7, every day, without fail, nor should they.

I believe that just as Wall St turned to software companies and trusted them to develop the "ERP systems" of execution, record, and workflow, so too will brands and publishers turn to software companies to power the services critical to demand generation and supply generation. While technology is by definition part of today's digital media landscape, too often companies buy the output of technology rather than use it for daily operation and execution.  Companies buy "ad units," receive Excel reports, transact with partners via email, manually create ad units on client-side software vs cloud-based technology, email tags, RFP responses. While we operate in a "digital world," the customers and suppliers in our ecosystem are not user-buyers - ie they rarely operate the actual run-time systems but rather email each other the output of the systems. We are not connected, on-line, and leveraging the true power of today's web.

Manual will become automated, email workflow and the distribution via SMTP of tags, assets, etc will be replaced by software systems that improve performance and collaboration, reduce error, and, most importantly, scale to the speed of today's market (seconds not days). The critical to revenue and demand generation systems will be software drvien. As the market moves to placing value on the "operating systems" that power digital marketing from solely placing value on the output, I believe that pricing will shift from CPM-centric to SaaS models, whereby companies buy access to software systems with which to operate their businesses. The value will be in the software and business processes rather than in the individual impression.

The irony of how manual digital marketing is speaks to the need for Marc's vision to take hold in our industry. With Oracle's purchase of Vitrue, the mainline industry is waking up to the opportunity to "eat" the digital marketing industry. Salesforce followed with the $800m purchase of Buddy Media and I am sure the next year will see more consolidation from software companies looking to "eat" into a world bloated by manual processes, inefficiencies, and ripe for change. As with many industries before from financial services, to supply chain, logistics, etc, digital marketing is ready to be Schumpetered!

Flite is working hard to ensure that software does indeed "eat" our world.