It is almost two and a half years since Marc Andreessen famously quipped in the Wall Street Journal that software is eating the world. It was a nice line from a venture capitalist intent upon justifying the valuations of his portfolio which included such clunkers as Zynga and Groupon – but in fairness also Facebook, Twitter and Skype.
Andreessen was trying to explain why IT companies were actually undervalued and to derail the gathering chatter of the time that another technology bubble was inflating.
But while his argument was most certainly self serving, he was also right. And for evidence look no further than the hardest of hardware businesses – heavy industry.
Four companies globally dominate heavy industry; ABB, GE, Schneider Electric and Siemens. These are the companies which the research outfit Gartner describes as operational technology mega vendors due to their scale (plus $40B US) and all of them are reframing their businesses around the Andreessen doctrine.
Operational technology is Gartner’s term for systems which drive engineering or industrial processes and is analogous to GE’s “industrial internet.”
Gartner Research Fellow, Kristian Steenstrup who has spent the last eight years building up his company’s capabilities in this field, told Which-50 this week that the evolution of the information systems and operational systems worlds has been largely coincident, but these two vast fields are now conflating.
What makes this all the more remarkable is that unlike in other fields such as banking, media or entertainment, in the industrial world it is the incumbents who are driving disruption.
According to Steenstrup, towards the end of the last decade all four mega OT vendors reached the same conclusion; “They were bad at software and had to get good at it quickly.”
Long before Andreessen made his famous quip, they had already realized that software was eating their world.
The interesting thing is what happened next. Having independently arrived at the same point each company has since traveled a different path.
“Schneider created a software technology group. They hired a CTO named Pascal Brosett from SAP who was basically someone who knew how to do software. That is a pretty important step for a 100 year old French engineering company to say ’we are going to hire someone because we don’t know what we’re doing’.”
Schneider gave Brosset autonomy, authority and budget and told him “Make us good at software,” says Steenstrup.
The company is not getting into the software business in the sense of a traditional applications house – that’s an important distinction according to the Gartner analyst. “From Schneider’s perspective they are not going to be selling things like ERP systems but they understand that software now matters and that they have to be good at it.”
(Image: Schneider Electric’s Pascal Brosset. Source Linkedin)
“Brosset is bringing people in and creating technology frameworks and middleware layers designed around OT and he is building an applications portfolio designed around OT.”
In contrast GE – the company that coined the phrase ‘industrial internet’ – took a slightly different path when they established a software centre of excellence in California, although says Steenstrup many of the threads are common.
“They hired a guy a from Cisco called Bill Ruh. The slightly different wrinkle to this is that where Schneider have actually gone out to change the embedded software in their products GE’s approach is more of an analytical overlay at this time.”
He believes that GE may eventually follow Schneider’s lead but for now the focus is on drawing together all the information they have in their systems to provide better services.
ABB’s strategy is different again – Unlike GE and Schneider they have decided to enter the software business directly, and have spent billions in recent years buying up utility and mining software businesses (including Australia’s Mincom) bringing them all together under the Ventyx brand.
“It’s a case of saying ‘let’s buy IT companies but keep them at arm’s length until we know what we are capable of’. We know we are bad at it and we need someone to fix that for us,” he says
“For ABB the advantage of having IT and OT in house is that they can build those skills themselves. And we are starting to see the evidence of that. There is a downside – it takes a lot longer. But the upside is that they own both ends of the screen.”
Of the four companies, Siemens’ strategy is the most opaque says Steenstrup. “They are doing it much more division by division.”
“They are giving a degree of autonomy to the divisions,” he says. “They are looking at it by industry and by product line and allowing them to do what they think is best in the belief that they will get there quicker.”
According to Steenstrup, “Having a lot of agility is harder to come at for a company the size of Siemens. So by slowing everyone down and going at the same pace they judge that they would lose something.”