Software is eating the world all right, but is everyone becoming software business?

on

As CTO of CloudBees, and the founder of the Jenkins project, I often take a podium in front of a room full of senior technology leaders and make a pitch that software is eating the world and that every business will have to transform into a software business, or they get eaten by those who transformed.

When I talk about this, I have companies like Uber, Netflix, Amazon, and Google in mind. They all seem to be disrupting some established industries by fundamentally being a technology company. Google is my favorite example of all, because I used to think their core competency is a killer search engine, but it’s actually their software design, engineering, & operation practice.

But I started thinking lately that maybe this is a naive view, biased by highly visible supernovas and their effective engineering branding campaign. Hear me out.

Airline Industry

First, think about Sabre. This is originally American Airlines’ booking system (the thing that connects passengers and airplanes.) Then they spin it off to a separate company, and now it’s used by half the airlines around the world. The other half runs on Amadeus, which came from Air France & Lufthansa. So here is the industry where most business seem to have outsourced the heart of their technology to 3rd party provider, instead of transforming themselves to the technology business like I’ve been claiming. And they seem be doing fine.

And it makes sense. If you are a “small” national airline, like, say Japan Airlines (JAL), they seem to be making a choice that being a part of Sabre and pooling the development cost with other airlines get them better technology cheaper than “transforming themselves into software business.” Presumably JAL won’t be able to offer unique, killer customer experience that technology enables, in ways that UBer can,  but you also won’t get left behind too badly, and that lets you choose something else as a differentiator. And what choice do you really have? It’s going to cost prohibitively to build air booking system from scratch. And the risk it involves!

Core Banking

Next, think about core banking. That’s the part of banking where they safeguard consumers’ money and help us receive paychecks and handle payment to buy groceries. There are ~4000 banks in the US alone, and clearly most of them can’t afford to “transform themselves into software business,” so instead many seem to run software like Flexcube.

And again, it makes sense. It’s a commodity that you have to have as a bank, but it’s not a differentiator. You’d rather pay somebody else to run it for you than you run it.

Insurance Platform

And the last week, the last data point happened in the hallway of Linux Foundation Open-source Leadership Summit. I randomly sat next to a CTO of Allianz spin off where he said insurance companies are getting together to spin off what they consider “the commodity part of their business” into a common open-source platform, so that the industry can pool the cost of developing and maintaining the necessary evil, and divert the resource to what matters, such as providing a great customer experience when they have car accidents. (Notice how car insurance commercials often start with a scene of accident where somebody is making a frantic phone call that gets answered by a calm,  assuring agent? That’s the differentiator!)

Common Thread

I feel like there’s a common trend that connects these. The role that technology plays in any business is going up (aka “software is eating the world”), but there are more and more services like Sabre, Amadeus, Flexcube, and million others in every domain, then not to mention cross-cutting services like LivePerson or Finicity. Collectively they are the turtles growing under every business that raises them higher. It’s like how software development has shifted more toward “just integrating services” so to speak at our level, albeit at a wholly different abstraction altitude.

So it’s not inconceivable for me to imagine a future where more and more software that business relies on come as services from startups, vendors, and industry consortiums, and all that’s left to do is some glueing and wiring, ala “just hook up webhooks from here to that service over there.” Maybe with a bit of serverless thrown in here & there.

That is the world where most business is not software business.

(This is obviously just a combination of guessing, speculating, and over-simplifying based on a small anecdotal experience. But for me, it was an eye-opening thought. I’d love to hear from people who are actually in these worlds on how I’m wrong!)

One Comment Add yours

  1. TYRA RAHMA says:

    It’s going to cost prohibitively to build air booking system from scratch. And the risk it involves!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>