McDonald’s is now a tech company. Walmart is now a tech company. That little Italian joint on the corner in The Bronx? Even it, in some ways, is a tech company, too. What do all of them have in common?
None are in Silicon Valley. Whether that means automating hamburger preparation, optimizing sale prices or just managing a social campaign, businesses are beyond the point of deciding whether to innovate digitally. In every company, across every industry, digital has become non-negotiable. If it’s not your competitors forcing your hand, it’s your board — or both.
Since the early days of chip design and manufacture that gave birth to Silicon Valley, the Bay Area has stood as the poster child for 1’s and 0’s, but today companies across the country are urgently deploying new technologies for fear of being “Ubered.” So where does that leave Silicon Valley? If every company is a tech company today, how does the Valley stay at the cutting edge of the digital revolution that it ignited?
For starters, the Silicon Valley companies of tomorrow will need to spend more time outside the Bay Area exploring all the corners of the globe where they can apply their digital skills. Because everyday life across the world still contains myriad squeaky wheels in need of digital oil.
Digital arms dealers
That is one way forward for the Valley’s tech engine, selling solutions to companies in need. That’s the traditional market for technology companies around the globe, and it’s been a good one — IDC estimates global IT spending will clock in around $2.4 trillion in 2016. And while the exchange — tech company to non-tech company — is traditional, the rush of companies heading to the cloud to find digital religion is unlike any tech transition we’ve seen.
That massive “digital transformation” means traditional companies will lean hard on a new wave of Silicon Valley enterprise infrastructure companies — non-household names like Cruise, Nutanix*, Mulesoft*, Atlassian, Splunk, Appdynamics*, Tableau, Datastax*, Twilio, MapR*, Cloudera*, Rackspace and many others — in order to fend off the next wave of “full stack” tech disruptors — more on that below.
These new generation Silicon Valley enterprise infrastructure companies are not just serving up innovative new software; they are also fielding a host of new data technologies. Non-traditional tech companies have realized they possess vast amounts of untapped business information that requires both intelligent software and new data analysis technologies to convert that information into savings on the bottom line, or new insights and products.
Data has become the currency of the business realm. Marry that data with expertise, and you are onto something significant. And that is why, apart from supplying traditional companies with technology solutions, tech companies can use data as a way into the traditional industries they have historically been service providers to.
The net effect is that the traditional relationship between Silicon Valley and the rest of the world is bifurcating in some sense. Yes, there is still the arms dealer relationship, but now there is another way forward for tech companies.
Redefining the boundaries of tech
It used to be that there are companies with domain expertise in auto manufacturing, or the food industry, or retail, and there are the technology companies — big and small — that bring to bear solutions for efficiency, productivity, or collaboration to the domain experts by selling back things like CRM, ERP, and storage solutions. The technology providers help drive the business, but they aren’t the ones making the cars or growing the corn (unless you are Tesla).
It is that boundary that is being redefined. Domain experts are moving into tech, and tech companies are moving into expert domains. So just as Ford calls itself a software company, Uber is in the transportation business. Airbnb is another great example. Is it a technology company? Absolutely, but it is also squarely in the hospitality business.
If you are a hotel chain, or an automaker, that is what you keep a watchful eye out for, some technology company that is coming up out of nowhere to run roughshod over your market. It’s called getting “Ubered.” These are the “full-stack” upstarts that are redefining industries.
But it works both ways. As a tech upstart do you have something unique, whether via product development, business model, or network effects, that the domain experts can’t simply knock off? Remember this is their house, and you are coming into it. They won’t just let some startup waltz in, and they can develop or buy their own technology to fight back.
For tech companies going into expert domains, that also means comparisons of your business, your practices, and your valuation aren’t being made just with your peers in the tech world. It’s every company in the world you wish to inhabit — that global retailer or that centuries-old brand. So do your growth and your revenue justify your price? In the past, that comparison has typically benefited tech companies in the market, but with a sluggish economy and valuations in private markets priced for perfection, it’s not always true today.
For legacy companies making the transition to tech, and tech upstarts wanting to get into specific domains, the place they will increasingly meet — and where the war will be won — is around data. Who’s got more of it, and who knows what to do with it.
If you look at some of the biggest winners in the tech space, Google, Facebook, and Amazon the reason these three have all far outdistanced the competition is on the back of their data. They have so much more to work with (and know how to put it to work) that the results — of search, interacting with friends, or online shopping — are so superior it’s not even close. Just “Bing it,” if you have any doubts.
However, when it comes to non-tech industries, it’s the domain experts that have the advantage, if not in data volume, than in the expertise to know what to look for in all that data. Take G.E. for example, it knows more about building jet engines and windmill turbines and how they work over a lifespan than almost any other player out there (Rolls Royce is in the same position when it comes jet engines) — certainly more than a tech company looking from the outside in.
As G.E. has added more and more sensors to these massive, and massively expensive industrial machines, its engineers now have the data to combine with their manufacturing and operational experience to help engines run more efficiently, or windmill turbines to run longer in between maintenance.
G.E. already knows the business, now it also knows which virtual and literal knobs to turn to optimize for whatever it is that the business needs most — safety, efficiency, longevity, speed — based on its long experience and insights from a new flood of data.
Retail may not have lives at stake like jet engines, but the same dynamic applies. What can a world-class retailer do to turn the knobs on its business with the right data flowing in from online sales, in-store, social, weather, and mobile apps? Better pricing, inventory management, seasonal hiring, and a more nimble response to the vagaries of fashion. Even what to do with all those brick-and-mortar stores.
In the end, that is how and why tech and domain expertise will merge. All that “big data” companies have been feverishly collecting the last five years or so will finally be put to work most likely with the help of the cloud offerings from all those digital arms dealers. And the claims of Ford or WalMart being tech companies will finally be true.
That isn’t to say all companies will succeed in executing this transition, but virtually all will attempt it and will invest heavily in data and software infrastructure to support their digital transformation.
That trend absolutely plays into the skill, thinking, and creativity that Silicon Valley is best at, but it’s not a foregone conclusion that tech companies always win. The rest of the world is running hard at Silicon Valley now — whether to partner or compete. And that is what is so exciting, the world of technology is opening up to every industry and to every geography.
Who ultimately wins is anybody’s guess, but we know that the game has shifted — from software to data, and from domain knowledge to information insights. If you are a tech entrepreneur the opportunity has never been greater. But neither has the competition.
*Denotes Lightspeed portfolio company.
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