Software Giants

Marc Andreessen was right
Background

"Software is eating the world"

In 2011, co-founder and general partner of the venture capital firm Andreessen Horowitz, Marc Andreessen, wrote an essay about software growth that was published in The Wall Street Journal. Marc Andreessen’s headline, “Software is eating the world,” quickly became a phrase often referred to by investors and still is today.

Superior scalability

Since then, Andreessen's findings have become even more true, considering many of the world's most influential and valuable companies today are software companies. This is an outcome of the superior scalability that a software company has over a hardware-producing company.

Low marginal cost and quick sales scale up

A rule of thumb for a company selling software is that it can sell its services at a low marginal cost while also being able to scale up sales quickly to large quantities - as they are not dependent on suppliers or production capacity. A software company supplier is a company selling server capacity, such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.

The more compelling opportunities to scale up sales with better marginal structures are probably a reason why several companies that originate from selling hardware now are transforming into software companies, like Amazon with AWS and its advertising services and Apple with its App Store.