Software may be eating the world, as Marc Andreessen famously put it in 2011, but he may have been looking at things too narrowly. FinancialForce CEO Tod Nielsen prefers to one-up Andreessen’s observation to a whole new level: “services are devouring the entire galaxy”, he recently proclaimed.
What does that mean?
In a chat with Michael Krigsman in the latest installment of CXOTalk, Nielsen explains as digitization encompasses greater swaths of organizations – fueled by cloud and analytics – the relative value of digital assets eventually catches up and surpasses that of physical assets. Delivery of digital assets requires greater service excellence and innovation than ever before. This requires a dramatic rethinking by executives of what business they are in and making the necessary transformations so their organizations are ready.
“The idea of having assets and owning physical goods is actually going to go away,” Nielsen explained. “There’s going to be a day when people literally won’t own anything.” To illustrate his point, Nielsen points to WhatsApp, purchased by Facebook for $19 billion. “It was sixteen developers and then, 30 million users,” something that “we’re now seeing as reality.”
This structure – billion-dollar enterprises built by handfuls of people, armed with information technology – isn’t just seen among the funky online set working out of converted lofts in Brooklyn, Nielsen adds. It’s happening within the most industrial parts of the economy as well. For example, Boeing, one of the world’s premier aerospace manufacturers, has evolved into a service company. “Boeing used to be known building jet planes,” he says. “They buy their parts, and they’re jet engines. And they’re finding from their suppliers that they actually are selling to Boeing the engines at cost and they’re making their money on the maintenance and the upkeep and all this stuff. Any classic hardware companies are now realizing they’re really a services company, and the hardware is simply a delivery vehicle for them to enhance their services.”
This sector abounds with examples of heavy manufacturers transforming to service providers. A little while back, I had the opportunity to chat with Dr. Richard Soley, president of the Industrial Internet Consortium and chairman of the Object Management Group, about the implications of this shift. “The ability of manufacturers to keep long-term connectivity with the products they build and thus provide better service has created entirely new business models, operationally-oriented rather than capital-oriented, and provide their manufactured products ‘as a service, to reuse a cloud computing term,” he says. “Jet engine manufacturer General Electric, for example, is now happy to lease its jet engines on a propulsion-as-a-service basis, taking advantage of their vast amount of historical performance data to keep the engine running in tip-top condition.”
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