In August, 11 Marc Andreessen put forward his thesis on software eating the world. Essentially, his belief is that due to pervasive broadband and the high growth of smart phones (5bn by 2020!) software has reached a tipping point of distribution capacity at minimal startup costs, impacting our economies at large.
Weve seen this prove true across 2011, and in the tradition of making annual forecasts this time of year I predict a continuation in the year 2012. We are in the midst of the most significant transformation across the IT industry. IBM got the first mover advantage several years ago by shedding its low margin consumer hardware business to Lenovo and refocusing on the core, profitable businesses of software and supported services. It has since more than tripled its market cap since its low in 2002. What we saw last year was all of the big hardware vendors following suit, at significantly higher costs, consequentially at lower rewards for being late to the game. HP is the most notable example through its shelling out 25% of its market cap for Autonomy, a major UK player in the data analytics space. Additionally, it killed its TouchPad seven weeks after launch and made statements it would sell off its consumer PC business.
Lets look at the other major traditional hardware vendors and see what their acquisitions last year say about their business transformations to focus on software and services through the buzz-word trends of Big Data, virtualization, and cloud computing:
These are just a few examples from some of the largest and most notable players in the hardware space. The story this tells is that software is critical to the strategic growth and fundamental survival of these companies. I look forward to reading the annual reports in the next couple of months of such major leaders in hardware. I can say with measured certainty that the one thing in common across the board is that they will state that Software is a strategic area of focus, and they will continue growing in this area through M&A.