Software is eating the world, but finance already did

What can history teach us?

Software is overturning every major industry, and VCs consistently tell us that every company will eventually become a technology company. Otherwise, it dies. I wholeheartedly support this view.

But the way in which software disperses itself and eats at value chains in major segments of the market is not a novel phenomenon in the history of American capitalism. To go back in time a bit, following World War II and leading up to the 1980’s, manufacturing-centric large corporations sat at the center of American economic and social life. They provided stable employment, career growth + wealth, and community for the individuals involved with them. As the United States transitioned from an industrial economy to postindustrial or services-based economy, the orbits around these companies largely vanished. So, what happened?

The rise of finance

In “The Rise and Fall of Finance and the End of the Society of Organizations,” Gerald Davis argues, “the shift from an industrial to a postindustrial economy in the United States was decisively shaped by finance, and that the ascendance of finance effectively ended the reign of the society of organizations.” He circles his explanation around a few main points:

• The shift to a services-based economy disbanded long-term employment relations and firm-specific skills causing greater movement across companies.
• Institutional investing became a real force. Companies started 401(k) plans, and millions of Americans put their money into mutual funds.
• Companies started optimizing for shareholder value and companies outsourced many facets of their supply chains to run leaner operations.
• Securitization happened, and loans started getting sold left and right, creating large pools of derivatives markets.
• The notion of capital came to define every aspect of a consumer’s life — human capital, social capital, financial capital, etc.

These effects have left us with the modern organization of today in industries not touched by technology. The abstract ideas of finance and capital have proliferated through every company, dominating practices and behavior.

What’s the role of software?

As Andreessen says, “software is eating the world.” Technology becomes more than a functional area. Software becomes the product itself (Google, Facebook, Spotify) and you can rapidly scale to millions of users with no marginal cost. Companies become easier to start, and thanks to a host of micro-services, stitching together infrastructure is like putting Legos together.

What are the specific superpowers of software, and what will it continue to do?

• Every facet of every company becomes software and data-driven: product development, marketing, customer success, HR, operations, etc.
• Organizations will start to adapt software culture in their business and HR practices: adaptability, flexibility, etc.
• Data becomes an asset on the balance sheet. What data you have and what you do with it (consumer or enterprise) will decide your future direction.
• Engineers and product developers guide the economy in similar ways to capital allocators.
• Many transactions or interactions become programmatic. Make an API call and get a loan or new office space.

Software will be fundamental in the same way that finance came to define the lifeblood of any business.

What can we learn?

As technologists, how can we take hold of a bigger picture?

Software eating the world doesn’t just change corporate structures. It also affects households and social life. For example, maybe one changed jobs more in a serviced-based economy, but he or she still lived in the same place. With a digital economy, you can theoretically work anywhere.

Programming or engineering become abstracted as ideas outside of their traditional realms. I already hear “what are you optimizing for” in regards to career choices or even what’s for dinner.

Giants lead the way. Mutual fund monsters like Fidelity, Vanguard, and BlackRock own large stakes in many public and private companies. What will the likes of Google, Apple, Amazon, Facebook, and Microsoft do?

We’ll see in the next few decades how this pans out, but we do have some history that can show us what forces come out to play.

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