Why Software Is Eating The World
This week, Hewlett-Packard (where I am on the board) announced that it is exploring jettisoning its struggling PC business in favor of investing more heavily in software, where it sees better potential for growth. Meanwhile, Google plans to buy up the cellphone handset maker Motorola Mobility.
Context & Ripple Effects
The essay lands at the end of a summer in which its two lead examples were already playing out. HP had spent June floating a shift in how it handles webOS — first the CEO suggesting licensing the platform to other makers, then reports of active licensing talks — an acknowledgment that the Palm acquisition had not delivered a device-led turnaround, and that the software inside might be worth more unbundled from HP hardware.
On the other side of the argument sits Google, whose move on Motorola Mobility gives a pure software company direct control of a handset manufacturer. Marc Andreessen, writing from HP's own board, uses the pair as proof that value in computing is draining out of hardware assembly and into software — a thesis that reframes both companies' maneuvers as one phenomenon rather than two unrelated deals.
First-order effects
- If HP follows through on shedding its PC business, the largest PC vendor exits commodity hardware and redirects capital toward software, where management sees better growth potential.
- Google gains ownership of a handset maker, putting the Android operator in the unusual position of competing with the companies that build its phones.
Second-order effects
- HP's PC rivals inherit share in a market its incumbent leader has signaled is strategically expendable, while HP's own webOS licensing talks become the test of whether the software asset can be monetized without HP devices.
- Android hardware partners now face a counterparty that owns manufacturing outright, sharpening questions about where they stand in Google's stack — and pushing them to weigh alternative platforms or their own software bets.
Third-order effects
- The pattern points to a structural reordering of the computer industry: margins and strategic control concentrating in software layers, with hardware businesses increasingly treated as separable — licensed out, spun off, or acquired as complements rather than run as core franchises.
- If boards keep pricing hardware lower than software growth, expect more conglomerate-style tech companies to split along exactly this seam, forcing investors to value the two halves on different models.
The trend: Value in the computing industry is migrating decisively from hardware ownership to software platforms, and 2011's boardroom moves — HP's PC review chief among them — are the visible adjustment to that repricing.