November 5, 2012 6:38 pm

Software is king in an industrial rebirth

The future depends on products from the tech sector, writes Andrew Keen

Software, to borrow a phrase from venture capitalist Marc Andreessen, is eating the world. In October Facebook announced its billionth active member. An Android-powered Google is worth more than Microsoft. Companies from Kickstarter to Khan Academy to Skype to Amazon to Etsy are transforming the retail, telecoms, education, manufacturing and financial services sectors.

East London’s Silicon Roundabout, a cluster of tech companies, has received support from the British government. Yet some people remain sceptical. Sir James Dyson, an inventor, has told the BBC that hardware manufacturers are a smarter investment than software companies. “The hardware trade is growing at a much faster rate around the world than social media or any of the sorts of things at Silicon Valley,” Sir James says. “Apple’s success is not based on software at all, it’s based on hardware. All the other top 20 hardware companies are growing at a much faster rate than the Googles and Microsofts of this world, so much so that they are getting into hardware.”

I wonder when Sir James last used an Apple product. Using the iPhone without the latest version of Apple’s iOS mobile operating system or its iTunes software would be like trying to drive a car without an engine. Apple may generate most of its revenue from hardware sales but it is dependent upon its software.

There is something slightly archaic about a binary division of the business world into hardware and software companies. The most successful creators of value are enterprises such as Apple, whose success is predicated on seamlessly integrating its proprietary software into its hardware. Meanwhile, companies such as , Sony, Panasonic, RIM, Nokia and Dell have all failed to develop popular software of their own and are at risk of decline.

Manufacturing is experiencing a renaissance. Its share of global output is 17.4 per cent, the highest it has been in more than a decade. But when it comes to manufacturing start-ups, crowd-sourced software platforms such as Kickstarter and AngelList play an increasingly important role in providing funding for their success. For example, Pebble Technology, a watch manufacturer, raised $10.47m via Kickstarter this year.

But there is a more profound technological trend that hardware nostalgists fail to acknowledge. With the increasing affordability of desktop 3D printers we can all manufacture physical things in our own homes using computer-aided design software. Everyone can become a James Dyson.

Neil Gershenfeld, the director of the Center for Bits and Atoms at the Massachusetts Institute of Technology, describes this trend as the “digital fabrication revolution”. He writes in Foreign Affairs magazine that: “Digital fabrication will allow individuals to design and produce tangible objects on demand, wherever and whenever they need them.” This revolution, which turns our homes into factories where we can make anything from dollhouse furniture to space rockets, is driven as much by software as hardware. Everything is an algorithm now, as Chris Anderson, former Wired magazine editor-in-chief and chief executive of 3D Robotics, writes in his book Makers.

Nearly everything of value in this new industrial revolution will be software. The value of the products created by 3D printers will depend on their algorithms. And so the main players are likely, like today’s Facebook or Google or Amazon, to be primarily software companies.

Sir James and other critics are therefore wrong to argue against government investment in software. As 3D printers become more and more affordable, what will distinguish the winners from the losers is the innovation of their algorithms. Just as Britain led the analogue industrial revolution of the 18th and 19th centuries, so there is now an opportunity for this country to catch up with the US and lead the digital industrial revolution in the 21st century. There is a long-running and important debate about when the state should support companies. But if the UK government is to support industries, it is better off helping software companies. This will enable Britain to best compete in an industrial economy driven by software innovation.

The writer is author of ‘Digital Vertigo’

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