Andreessen’s Non-Sequitur

Marc Andreessen in the WSJ is hard to excerpt. It’s a good article and here is my summary:

  1. Technology companies are in the headlines again.
  2. They aren’t getting awesome valuations in the stock market
  3. Every major industry in the world is being transformed by software
  4. Therefore the software companies should win

I agree with his sentiment and I agree that his investment strategy is probably the only way of trying to make money on this trend, but I see a non sequitur in #4 above.

The problem is that existing companies are pretty bad at software, particularly compared to the young, high-energy Valley startups. The Amazon/Borders story that Andreeseen references will probably prove the exception. It’s a path of much less resistance for incumbent companies to just pick up some Valley Best Practices and change their cultures a  bit over time than the other way around.

Certainly some will acquire their software-only valley doppelganger (if, say, Borders had bought Amazon in 2002) to try to change their culture. Over Andreessen`s macro time-horizon, this is probably the best he can hope for. But a software company just makes software and there aren’t many industries that can actually support SaaS players: not enough scale.

The pardigm will be for companies to keep doing what they do, but with more and more software.

The winners will have top-notch proprietary, internally developed and maintained software wrapped in a traditional business model.


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