Bagel Downloads & Virtual Cappuccinos
Remember all that dotcom madness at the turn of the millennium? I was in Sweden for a few weeks at the time, working on some monstrous, sleep-depriving bid for a 3G license. But on a rare outing to central Stockholm, I recall stumbling across a ramshackle sports shop with ".com" in its name. The full moniker escapes me, but the ".com" really sticks in my mind -- partly because it was still a bit unusual back then, but mainly because the shop's only web presence came from the eight-legged creatures scurrying across its façade. The owner, it transpired, had simply discovered that having a ".com" in your company name made you seem a lot more exciting.
Something similar can be seen at the moment in the pandemic urge to be identified with software. In the telecom sector, it's been spreading for a while. Back in 2014, Hossein Moiin, chief technology officer of Nokia Corp. (NYSE: NOK), insisted the Finnish vendor was really a software company, even though most people still called it an equipment maker (and still do). More recently, Russia's MTS, which sells network connectivity, has described itself in similar terms. US telco AT&T Inc. (NYSE: T) is just as smitten with software, if not more so. (See Nokia Ups Guidance But Investors Take Fright, Russia's MTS to 'Sacrifice' Connectivity in Software Rebirth and AT&T to Flog Smart City Tech to Other Carriers.)
Now, I'm not suggesting that Nokia, Mobile TeleSystems OJSC (MTS) (NYSE: MBT) and AT&T have all that much in common with our Swedish dotcom wannabe. As technology players, they have all used software for a long time. In the markets in which Nokia trades, value has seeped from hardware into software. The boxes it sells to its customers are becoming dumb building blocks that run clever programs. Not admitting the importance of software would be disingenuous or stupid.
Yet there are parallels between this hankering after software and the Swedish retailer's teenager-like need to be in the cool crowd. Software is the new black. Anything in your DNA that reeks of bricks and mortar is to be concealed like an embarrassing smell with the perfume of binary code. Just look at what the market men think. At the end of the first quarter, five of the ten most valuable publicly listed companies in the world -- Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Google (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT) and Facebook -- were all heavily invested in software. And even though Apple and Amazon deal largely in tangible goods, it's their software smarts that have the analysts drooling onto their spreadsheets.
The jolting speed at which these software players have risen to prominence explains why others are so desperate to mimic them. Amazon, Facebook and Google were all outside the top ten companies by market capitalization in early 2013. General Electric (GE), a veritable hardware business determined to reinvent itself in the age of software, occupied the number six spot back then but was nowhere on the list in the first quarter of this year. (See Industrie 4.0: Rebooting Germany.)
All the software expertise in the world, though, won't replace one of GE's gas turbines, or Nokia's radio equipment. That is not to deny the value of software as a tool of product innovation and an agent of cultural change. Moreover, from a financial reporting perspective, there may be attractions in a software-like business model, whereby revenues are generated on a recurring monthly basis rather than in lump sums. But to describe and market oneself first and foremost as a software company is usually a spurious move.
Next page: Losing sight of what matters