CASE STUDY
The Business Problem
Sixty years into the computer revolution, 40 years into the age of the and 20 years into the rise of
the modern Internet, all of the technology re transform industries through software has been
developed and integrated and ca be delivered globally. Billions of people now access the Internet
via broadband connections. Worldwide, more than 5 billion people use cell phones. Of those
users, 1 billion have smartphones that provide them with instant access to the Internet at all times
from multiple locations. In addition, software programming tools and Internet-based services
allow companies in many industries to launch new software-powered startups without investing
in new infrastructure or training new employees. For example, in 2000, operating a basic Internet
application cost business approximately $150,000 per month. Today, operating that same
application in Amazon’s cloud (we discuss cloud computing in detail in Technology Guide 3)
costs about $1,000 per month. In essence, software is disrupting every industry, and every
organization must prepare for this disruption. Numerous companies have attempted to meet the
disruption challenge: Some have succeeded, and some have failed.
Software Disruptions
Let’s look at examples of software disruption across several industries. Many of these examples
focus on two scenarios: (1) industries where software disrupted the previous market-leading
companies and (2) industries where a new company (or companies) used software to achieve a
competitive advantage.
• The book industry: A dramatic example of software disruption is the fate of Borders bookstore.
In 2001, Borders agreed to hand over its online business to Amazon because the bookstore was
convinced that online book sales were nonstrategic and unimportant. Ten years later, Borders
filed for bankruptcy. That same year, the www.borders.com Web site was replaced with a
redirect link to the Barnes & Noble Web site (www.bn.com).
Then, in January 2012, Barnes & Noble warned analysts that it would lose twice as much money
in 2012 as it had previously predicted. On April 30, 2012, the bookstore entered into a
partnership with Microsoft that will spin off the Nook and college businesses into a subsidiary.
Today, the world’s largest bookseller, Amazon, is a software company. Its core capability is its
software engine, which can sell virtually anything online without building or maintaining any
retail stores. Amazon has even reorganized its Web site to promote its Kindle digital books over
physical books. (In August 2012, Amazon announced that it sold more electronic books than
hardback books and paperback books combined.) Now, even the books themselves are software
products.
• The music industry: As with publishing, today’s dominant music companies are software
companies: Apple’s iTunes (www.apple.com/itunes), Spotify (www.spotify.com), and Pandora
(www.pandora.com). Traditional record labels now exist largely to provide those software
companies with content. In mid-2013, the Recording Industry Association of America (RIAA)
continues to fight battles over copyright infringement and the illegal download and sharing of
digital music files.
• The video industry: Blockbuster—which rented and sold videos and ancillary products through
its chain of stores—was the industry leader until it was disrupted by a software company, Netflix
(www.netflix.com). In mid-2013, Netflix has the largest subscriber base of any video service
with some 33 million subscribers. Meanwhile, Blockbuster declared bankruptcy in February
2011 and was acquired by satellite television provider Dish Networks in March 2011.
• The software industry: Incumbent software companies such as Oracle and Microsoft are
increasingly threatened by software-as-a-service products (e.g., Salesforce.com) and Android, an
open-source operating system developed by the Open Handset Alliance
(www.openhandsetalliance.com
• The videogame industry: Today, the fastest-growing entertainment companies are videogame
makers—again, software. Examples are:
° Zynga (www.zynga.com), which makes FarmVille, delivers its games entirely online.
° Rovio (www.rovio.com), the maker of Angry Birds, made almost $195 million in 2012. The
company was nearly bankrupt when it launched Angry Birds on the iPhone in late 2009.
° Minecraft (www.minecraft.net), another video game delivered exclusively over the Internet,
was first released in 2009. By January 2013, more than 20 million people had downloaded it.
Interestingly, the creator of Minecraft, Markus Persson, has never spent any money to market his
game. Instead, sales resulted entirely from word of mouth.
• The photography industry: This industry was disrupted by software years ago. Today it is
virtually impossible to buy a mobile phone that does not include a software-powered camera. In
addition, people can upload photos automatically to the Internet for permanent archiving and
global sharing. The leading photography companies include Shutterfly (www.shutterfly.com),
Snapfish (www.snapfish.com), Flickr (www.flickr.com), and Instagram (www.instagram.com).
Meanwhile, the long-time market leader, Kodak—whose name was almost synonymous with
cameras—declared bankruptcy in January 2012.
° Each day people upload more than 350 million digital photos just to Facebook. Snapchat
(ww.snapchat.com) is a smartphone app that enables users to send a photo (or video) to someone
and have it “self-destruct” within seconds. Snapchat users are now sharing more than 100 million
“snaps” daily.
• The marketing industry: Today’s largest direct marketing companies include Facebook
(www.facebook.com), Google (www.google.com), Groupon (www.groupon.com), Living Social
(www.livingsocial.com), and Foursquare (www.foursquare.com). All of these companies are
using software to disrupt the retail marketing industry.
The recruiting industry: LinkedIn (www.linkedin.com) is a fast-growing company that is
disrupting the traditional job recruiting industry. For the first time, employees and job searchers
can maintain their own resumes on LinkedIn for recruiters to search in real time.
• The financial services industry: Software has transformed the financial services industry.
Practically every financial transaction is now performed by software. Also, many of the leading
innovators in financial services are software companies. For example, Square
(https://squareup.com) allows anyone to accept credit card payments with a mobile phone.
• Fundraising: In early 2013, Joel Silver and Rob Thomas, the producers of Veronica Mars, a
feature film, used Kickstarter (www.kickstarter.com) to raise money to produce the film. They
achieved their goal of $2 million in just 10 hours. Kickstarter takes a 5 percent cut of every
transaction.
• Genomics: Illumina (www.illumina.com) has reduced the cost of sequencing a human genome
from more $1 million in 2007 to $4,000 in 2013. Illumina’s technology has helped medical
researchers develop cancer drugs that target specific genetic mutations that can cause cancer.
• The motion picture industry: Making feature-length computer-generated films has become
incredibly IT intensive. Studios require state-of-the-art information technologies, including
massive numbers of servers, sophisticated software, and an enormous amount of storage.
Consider DreamWorks Animation (www.dreamworksanimation.com), a motion picture studio
that creates animated feature films, television programs, and online virtual worlds. The studio
has released 26 feature films, including the franchises of Shrek, Madagascar, Kung Fu Panda,
and How to Train Your Dragon. By late 2012, its feature films had grossed more than $10 billion
globally.
For a single motion picture such as The Croods, the studio manages more than 500,000 files and
300 terabytes (a terabyte is 1 trillion bytes) of data, and it uses about 80 million central
processing unit (CPU; described in Technology Guide 1) hours. As DreamWorks executives
state, “In reality, our product is data that looks like a movie. We are a digital manufacturing
company.” Software is also disrupting industries that operate primarily in the physical world.
Consider the following examples:
• The automobile industry: In modern cars, software is responsible for running the engines,
controlling safety features, entertaining passengers, guiding drivers to their destinations, and
connecting the car to mobile, satellite, and GPS networks. Other software functions in modern
cars include Wi-Fi receivers, which turn your car into a mobile hot spot; software, which helps
maximize fuel efficiency; and ultrasonic sensors, which enable some models to parallel-park
automatically.
The next step is to network all vehicles together, a necessary step toward driverless cars. The
creation of software-powered driverless cars is already being undertaken at Google as well as
several major car companies.
• The logistics industry: Today’s leading real-world retailer, Walmart, uses software to power its
logistics and distribution capabilities. This technology has enabled Walmart to become dominant
in its industry.
• The postal industry: FedEx, which early in its history adopted the view that “the information
about the package is as important as the package itself,” now employs hundreds of developers
who build and deploy software products for 350,000 customer sites to help customers with their
mailing and shipping needs.
• The oil and gas industry: Companies in this industry were early innovators in supercomputing
and data visualization and analysis, which are critically important to oil and gas exploration
efforts.
The agriculture industry: Agriculture is increasingly powered by software, including satellite
analysis of soils linked to per-acre seed selection software algorithms. In addition, precision
agriculture makes use of automated, driverless tractors controlled by global positioning systems
and software.
• National defense: Even national defense is increasingly software based. The modern combat
soldier is embedded in a web of software that provides intelligence, communications, logistics,
and weapons guidance. Software-powered drone aircraft launch airstrikes without placing human
pilots at risk. (We discuss drone technology later in the chapter.) Intelligence agencies perform
large-scale data mining with software to uncover and track potential terrorist plots.
• The retail industry: Women have long “borrowed” special-occasion dresses from department
stores, buying them and then returning them after one night wearing them. Now, Rent the
Runway (www.renttherunway.com) has redefined the fashion business, making expensive
clothing available to more women than ever before. The firm is also disrupting traditional
physical retailers. After all, why buy a dress when you can rent one for a very low price? Some
department stores feel so threatened by Rent the Runway that they have reportedly told vendors
that they will pull floor merchandise if it ever shows up on that company’s Web site. Rent the
Runway employs 200 people, including one of the nation’s largest dry-cleaning operations. Their
Web site has more than 3 million members, and it features 35,000 dresses and 7,000 accessories
created by 170 designers.
• Education: College graduates owe approximately $1 trillion in student debt, a crippling burden
for many recent graduates. UniversityNow (www.unow.com) was founded to make college more
accessible to working adults by offering online, self-paced degrees. Two key characteristics
distinguish UniversityNow from an increasing number of rivals: (1) very low fees (as little as
$2,600, which includes tuition and books for as many courses students can complete in one year)
and (2) fully accredited degrees, from an associate’s degree to an M.B.A.
The legal profession: Today, electronic discovery (e-discovery) software applications can
analyze documents in a fraction of the time that human lawyers would take, at a fraction of
the cost. For example, Blackstone Discovery (www.blackstonediscovery.com) helped one
company analyze 1.5 million documents for less than $100,000. That company estimated that
the process would have cost $1.5 million if performed by lawyers. E-discovery applications
go beyond simply finding documents rapidly using relevant terms. They can also extract
relevant concepts, even in the absence of specific terms, and they can deduce peoples’
patterns of behavior that would have eluded lawyers examining millions of documents. These
applications can also analyze documents for information pertaining to the activities and
interactions of people—who did what and when, and who talked to whom.
The Results
Clearly, then, an increasing number of major businesses and industries are being run on software
and delivered as online services—from motion pictures to agriculture to national defense.
Regardless of the industry, companies face constant competitive threats from both established
rivals and entrepreneurial technology companies that are developing disruptive software. These
threats will force companies to become more agile and to respond to competitive threats more
quickly, efficiently, and effectively.
Questions
1. If every company is now a technology company, then what does this mean for the company’s
employees? Provide specific examples to support your answer.
2. If every company is now a technology company, then what does this mean for every student
attending a business college? Provide specific examples to support your answer.
