Shape-shifting software innovations and the new value proposition
We’ve long claimed that software will change the world. But for the most part, so far we’ve just automated the human bookkeepers and assistants. Now, however, software is on the cusp of truly transforming the world as we know it, particularly as the Internet of Things (IoT) emerges. A system wherein even everyday objects are identifiable and readable by the Internet, IoT plays a key role in influencing trends and ideas that will dominate this transformation.
The IoT extends its presence.
In the next few years, the huge expansion of the IoT can only significantly alter the size and scope of the software market, as companies scramble to support all those “things” as they did for all those smartphones. Naturally, the IoT demands an enormous and revolutionary effort in terms of software development. People will buy products not only for the products themselves, but also for the advantages provided by services embedded in those products. Running shoes, for example, already feature the added value of sensors that enable performance tracking, competition with friends and even virtual worldwide marathons. The value of a product rests not so much in the product itself but in its capacity to be networked.
The nature of software value keeps shifting.
Even today, most software is transactionally oriented, an outgrowth of business needs to reduce transaction costs through scale and to drive efficiency focused on a single unit of work. But now studies indicate that we’ve pulled existing productivity levers as far as we can; the next step is to focus on productivity and efficiency at the group level. The CEB study, “The Future of Corporate IT, 2013–2017,” covers the productivity issue extensively.1 We will see a continuing explosion in software that enables people and machines to collaborate, orchestrate and choreograph their work nondirectionally. This is a whole new value proposition beyond reducing costs and increasing efficiency: These new ways of using software promise to change the nature of work to directly create value for enterprise customers, suppliers and partners, but primarily drive innovation.
The paradigm shift from ownership to rental continues.
The new generation of consumers would rather rent a product than own it. We’re already seeing this in transportation — for instance, Zipcar, Uber and public bike sharing — and we’re going to see it soon in software. Software as a service (SaaS) will increasingly become the norm. For example, consumers will hire a company to manage their calendars and contacts rather than buy software for the same purpose.
Context plays an expanding role in determining value.
Case in point: The transition from basic mobile phones to smartphones has dramatically increased the value of a device that can make calls. One small device doesn’t just allow you to call your family from the road; it tells you that there’s an Indonesian-Texan barbecue fusion restaurant four blocks from your hotel room. And soon it will be able to tell you which colleagues are free for dinner — and then make a reservation for five at 7 p.m. The phone’s value in that hotel room, at that moment, is very particular. Value is created by context and the actions taken in that context. In the near future, no software will stand alone; how it is choreographed to function in context will increase its value dramatically. As a result, products and services will move increasingly away from being products and services to becoming platforms upon which customers and partners can add value.
Innovation will be crucial for profit in an equilibrium economy.
Some economists note that we’re approaching what’s called an equilibrium or perfect economy — one in which just about anyone can start producing and selling anything in short order thanks to SaaS computer-aided design (CAD) software, 3D printers, Kickstarter, outsourcing production, Amazon storefronts and UPS. This dynamic means that supply rises to meet demand almost instantly, bringing the economy to equilibrium. When the economy reaches that point, the only form of profit left is monopoly: the profits that come from a short period of time when you have a value proposition that no one else does — in other words, innovation. More than ever, software developers must continually innovate, and agile development models that allow quick manipulation of value, such as DevOps, will become prevalent.
Advanced mathematics becomes more important.
Basic tools of software development — architecture, languages, environments — follow the progressions of thought in philosophy — logic, semantics, taxonomy, epistemology. But increasingly, as we move toward the IoT, ideas drawn from advanced mathematics will become more and more relevant. Here’s an extreme example: Imagine having sensors in your undergarments that monitor your health and that coordinate with environmental detectors in your outerwear, which in turn are organized by systems in your car or home or even synced with your calendar, phone, and perhaps your glasses and watch. Sensors attached to your skin could create gigabytes of data per second that track your glucose levels. These sensors could send an alert to your phone when your glucose levels spike after eating a sugary food or send a warning when your electrolytes are dipping too low. And when abnormalities in your bloodstream are detected, the sensors could even automatically alert your doctor.
Today, software making the first iterations of such connectivity possible is rooted in code that is very close to the silicon. But given the sheer volume and complexity of programming that the IoT demands, we will see new forms of programming emerge. These forms will leverage ideas from the prototype-instance model of object-oriented programming, as well as from complex adaptive systems rules that are derived from advanced mathematics. I’m not sure exactly which elements of advanced mathematics will be used — maybe genetic algorithms, neural nets, predicate calculus — or how they’ll be applied and configured. But no doubt they’ll be key to building an IoT. All that data, handled with the idea that value is highest at the moment of need, will require increased adaptation, agility and decision making on the part of software itself.
It’s important to note that hardware for an IoT is ready, for the most part: 64-bit ARM or x86 system-on-chip are adequate, and the technology will only get better. Moreover, the IoT could even reduce bandwidth needs if we get the architecture right, which will be necessary as wireless becomes the default interface mode.
Outsourcing relationships are characterized by trust instead of legalities.
Economics always drives problem-solving. In software development, just as in any other business, we’re constantly weighing speed to benefit against cost of failure. These days, the bottlenecks that slow software development are legal and administrative issues: the defensive strategies used to reduce or eliminate the cost of failure. But as speedy experimentation becomes the common practice— try it out, see whether it works, quickly regroup and try again — there just isn’t time for traditional procurement methods.
In the coming years, we will see outsourcing relationships become less like traditional contractual relationships and more like highly trusting ecosystems in which gain and risk are shared. You will share all needed information with your outsourcers and trust that they will not only build the right thing, but perhaps even build something better than what you envisioned. Naturally, this idea makes legal departments shudder, but we’re already seeing it in play with certain small specialty manufacturers that produce anything you want without requiring any contractual relationships. Reputation and verbal commitments are the name of the game. The maker culture operates in a similar fashion and still produces sophisticated products.
All this leads to transformative change.
Flexibility happens, adaptability happens, agility happens. The Darwinian crucible of competition heats up and change happens. Transformative change happens when industries democratize — when they’re ripped from the sole domain of companies, governments and other institutions and handed over to regular people to operate collaboratively and cooperatively. We have seen this in the intangible world of content and the associated disruption of media. And we’ve seen it in the open-source software movement and resulting software, such as the Linux® OS, the Apache™ HTTP Server and others that basically run the internet. Now we are beginning to see it in the tangible world as the IoT matures.
Basically, a value supplier or business must maintain — appropriately and with permission — the total context of the customer’s environment so that when opportunities appear to provide value, they can be exploited as quickly as possible if not instantaneously. And the value of a product or service greatly varies in the moment: One minute it may be highly valuable, and a few seconds, minutes, hours or days later effectively useless. Value creation for both business and consumer becomes a joint activity between the customer and the supplier or the supplier’s ecosystem. At a particular moment, a supplier is increasingly less likely to have all the capabilities necessary for generating needed value, so its ecosystem also must be contextually aware and able to operate instantaneously.
The role of an enterprise morphs from providing products and services to providing a platform upon which customers and partners can build value. And the strategic questions shift: Who can add value to my platform? Whose value can I enhance?
This transformation is driven by the next generation of software.
Jim Stikeleather is chief innovation officer for Dell Services, where his team enables, facilitates and accelerates advanced technologies, business models and processes to address evolving business, economic and social forces for Dell and its customers.
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1 To read the CEB report, “The Future of Corporate IT, 2013–2017,” visit qrs.ly/z43cf47.
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