A couple weeks ago I attended a conference held by Pacific Crest, an investment banking firm that underwrites many of the tech IPOs in our market (e.g. Wayfair, Hubspot, Apigee). The keynote speaker was Bill Ruh, Chief Digital Officer of GE, who gave a very engaging talk about the transformation happening at General Electric. The part of his speech that caught my eye was his comment about being “envious” of the Silicon Valley. The envy, he said, stemmed from the fact that his company has enormous physical assets, yet has watched companies with no assets become more valuable than them. He pointed out that the “largest hotel chain in the world” owns no properties (Airbnb), the “largest transportation company” owns no cars (Uber), and the largest provider of applications only makes a handful of actual apps (Apple). His conclusion: having physical assets is meaningless without having a business model to drive their efficiency and a user experience that enables consumers to leverage this efficiency.
While I agree with most everything Ruh said, I think there is broader trend at play here. Over the last decade, hardware in many forms has become commoditized. Businesses increasingly get their infrastructure from the cloud, applications via SaaS, parts through 3D printers, and pre-fabricated materials through in-house machines (e.g. CNC). The hardware we do purchase is often low cost and acquired from one of a multitude of vendors. While we still need these physical assets, their commoditization has made us place our value elsewhere - such as the people who use them and the software that drives them.
So the value for a company like GE is not necessarily in enabling consumers to have efficient access to the assets they own. The software that drives the efficiency is the asset.
Welcome to the Age of Software.
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