Software Is Eating The World, But Services Is Eating Software

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“Software is eating the world,” wrote Marc Andreessen, co-founder and general partner of venture capital firm Andreessen Horowitz, in an essay published in The Wall Street Journal in 2011. But today, it’s clear that services are eating software. The implications of this trend are very significant for companies. The advantages are clear, but it’s also clear that there are challenges. Most companies today are not set up to deal with a services world. I believe they need a new set of management and operating models that allow companies to get clarity on what they are doing with services and allow them to stay in control.

Services are intangible offerings that create tangible results. Software services are certainly at the heart of digital transformation, transforming industry after industry, as companies substitute capital investments in software over labor and tangible assets. For example, all the software legacy products are moving to SaaS. So, companies no longer buy software; they buy the service that software delivers. The old model of buying software and implementing it is giving way to the service model.

Furthermore, the as-a-service model is extending even further and providing the use of the software, such as in cloud, rather than the actual code. Just as software disrupted the infrastructure market by putting virtualization and automation layers over infrastructure, businesses are now turning that into a service. That’s what hyperscale cloud offerings from Amazon, Google and Microsoft are. So, services are eating software.

Today In: Innovation

The voracious appetite of services does not stop with software. It’s also eating tangible assets. For example, Uber and its ride-sharing competitors are eating cars. The service Uber provides creates a connection between a person and a car and a person who needs a ride, rather than the old model of selling the person a car. All across the spectrum, businesses and people are giving up their ownership of tangible assets and software products and exchanging them for the use of services.

When a firm adopts the “as a service” model, it doesn’t buy software; it buys the use of the software. The buyer gains benefits of the use of the software and what the software runs on, rather than having to acquire data centers and software to get the usage. This has a lot of advantages. In the case of cloud and other elastic models, companies can move to much more efficient models because they can reap economies of scale from an asset perspective as well as from a software perspective.

This trend doesn’t stop at software. It underlies much of what companies are doing with digital transformation. It gets companies closer to delivering the result rather than getting the components.

Challenges In Services

The essence of this challenge in adopting the service model is simple but profound, and it’s also very slippery. The nature of services is that it is an intangible offering that creates a tangible result. This is further complicated as services themselves are constantly changing across multiple vectors, such as how the end-user consumes them, the tech stack, operating model and talent model. It is this intangible quality combined with continuous change which makes this hard for firms to handle.

The Reasons For Embracing Services

Not spending time focusing on owning and integrating assets is compelling and often irresistible. Firms that embrace using services are able to avoid the complexity of integrating components and spend their time on how to use the benefits of those services. This allows companies to focus on things that create value for their customers rather than focusing on the components. It allows companies to spend less time on clutter that comes from owning assets and, instead, focus on creating value.

A High-Change Environment

Among the challenges in a services world is a significant complication with services in that companies face a change in velocity across multiple elements and vectors that is much faster than other environments. And that change is driven by several factors.

Services change across a lot of vectors at the same time, which creates a vector of change that ripples through the services ecosystem such as those listed below:

• End-user needs constantly evolve

• The technology stack that the services are delivered from constantly evolves and changes

• The operating model constantly evolves to adapt to the changing customer needs, changing technology stack and changing vendor environments

• The vendor ecosystem also constantly evolves

• The talent model constantly evolves

Need A New Set of Management Models To Deal With Services

The above list highlights a few of the vectors of change that make services a very high-change environment. When you couple that high-change environment with the slipperiness of an intangible offering that creates a tangible result, it creates a special set of challenges for firms to deal with – one that most firms struggle to come to grips with.

Most companies are not set up to deal with the services world. They are still struggling with a software-driven world, let alone an “as a service” world. In services, companies buy the benefit, not the assets. The ecosystem that supports that and demands that is changing at an unusually high rate of change.

We all know that change is painful and difficult, and our traditional management vehicles are not well suited to understanding what these issues are and how to allow companies to have clearly defined actions to manage and operate these environments.

For example, dealing with the need for integrated secure and GDPR-compliant data management across the enterprise that must originate or be consumed in the new service construct is one of many perplexing challenges.

Another challenge is holding the service providers accountable while allowing them to innovate great additional value. The realization that service contracts need to evolve from the old take-or-pay structures to consumption models is also more complicated than it would at first seem, and the traditional purchasing and vendor management functions are also being forced to evolve to accommodate the new agile reality they are operating in. Until they evolve, the traditional purchasing and vendor management functions increasingly become a constraint to firms affecting the realization of the value of the services they purchase.

[“source=forbes”]