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You Bring the Hardware, We’ll Bring the Software

Eugene Leychenko
Jun 1, 2016 · 3 min read

The rapid rise of startups was brought on because we all dropped the notion that a company has to do “everything”. By segmenting the markets, and biting off the piece that that company excels at, innovation could continue compounding at a steady rate.

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But this goes beyond just outsourcing a competency. Apple uses almost a dozen other companies to create the iPhone and makes almost no hardware in-house. Apple is a software company. By being located in the Valley, it has access to the best engineers and other talents that the US can offer. By allowing them to do what they do, they can create amazing firmware for the phone to operate on, and for their ecosystem to thrive on.

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Uber doesn’t own a single car. What people fail to understand is that there is no reason to own the commodity, if you are trying to create the non commoditized product — the AI brain. Cars and rides, in Uber’s case, are only training routines for their AI machine to learn all the roads of the world. That is why they will take full advantage of the fact that they don’t have to own their own fleet. By having an efficient marketplace, they can attract enough drivers to create the fleet for them.

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In addition, operating at a time where legislation is trying to understand the gig economy is opportunistic and short lived. Uber is having trouble turning a profit as it is. If legislation decides to treat it as a real company, Uber could pay up to an additional $4B out to its workers.

Logistics startups have an average valuation of $5M and AngelList has over 1100 of them. Their main value add is wrapping hundred year old technology (shipping, trucking, etc) in software. And with that software offer a suite of products that help employees. This can range from tracking of the cargo or individual freight to invoicing to paying employees.

What’s the play here?

Simple. Software will allow logistics companies to be more efficient. Logistics companies will seek more efficiency. Software companies will build more tools to fulfill those use cases. Logistic companies will enter more of their information into Software. Logistic companies will slowly become more reliant on Software. Software will be able to offer goods and eventually cut the Logistic companies out of the chain.

We have seen it happen with Dropshipping. Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.

The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the merchant purchases inventory as needed from a third party — usually a wholesaler or manufacturer — to fulfill orders.

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