WIRED: “Software Will Eat the World” -Andreseen

Software Will Eat the World

In 2009, Andreessen and his longtime business partner, Loudcloud cofounder Ben Horowitz, created a venture capital firm called Andreessen Horowitz. Their vision today: an economy transformed by the rise of computing. Andreessen believes that enormous technology companies can now be built around the use of hyperintelligent software to revolutionize whole sectors of the economy, from retail to real estate to health care.

Photo: Nigel Parry

Photo: Nigel Parry

Anderson: Take us back to when you were forming Andreessen Horowitz. You’d been an investor for some time already, but now you decided to formalize it. So what was the guiding philosophy?

Andreessen: Our vision was to be a throwback: a Silicon Valley venture capital firm. We were going to be a single-office firm, focusing primarily on companies in the US and then, within that, primarily companies in Silicon Valley. And—this is the crucial thing—we’re only going to invest in companies based on computer science, no matter what sector their business is in. We are looking to invest in what we call primary technology companies.

Anderson: Give me an example.

Andreessen: Airbnb—the startup that lets you rent out your home or a room in your home. Ten years ago you would never have said you could build Airbnb, which is looking to transform real estate with a new primary technology. But now the market’s big enough.

Anderson: I guess I’m struggling a little bit with “primary technology.” How does Airbnb qualify?

Andreessen: Airbnb makes its money in real estate. But everything inside of how Airbnb runs has much more in common with Facebook or Google or Microsoft or Oracle than with any real estate company. What makes Airbnb function is its software engine, which matches customers to properties, sets prices, flags potential problems. It’s a tech company—a company where, if the developers all quit tomorrow, you’d have to shut the company down. To us, that’s a good thing.

Anderson: I’m probably a little bit elitist in this, but I think a “primary technology” would need to involve, you know, some fundamental new insight in code, some proprietary set of algorithms.

Andreessen: Oh, I agree. I think Airbnb is building a software technology that is equivalent in complexity, power, and importance to an operating system. It’s just applied to a sector of the economy instead. This is the basic insight: Software is eating the world. The Internet has now spread to the size and scope where it has become economically viable to build huge companies in single domains, where their basic, world-changing innovation is entirely in the code. We’ve especially seen it in retail—with companies like Groupon, Zappos, Fab.

“Amazon is a force for human progress and culture and economics in a way that Borders never was.”

Anderson: And these aren’t copycats, or me-toos, but fundamentally new insights in software?

Andreessen: Yes, absolutely. I have another theory that I call the missing campus puzzle. When you drive down highway 101 through Silicon Valley, you pass the Oracle campus and then the Google campus and then the Cisco campus. And some people think, wow, they’re so big. But what I think is, I’ve been driving for close to an hour—why haven’t I passed a hundred more campuses? Why is there all this open space?

Anderson: What’s your answer?

Andreessen: Think about what it has meant to build a primary technology company up until now. In order to harness a large enough market, to attract the right kind of technical talent, to pay them adequately, to grow the company to critical mass—until now that’s only been possible with companies that are providing tools for all sectors, not just specific sectors. Technology has been just a slice of the economy. We’ve been making the building blocks to get us to today, when technology is poised to remake the whole economy.

Anderson: What categories are next?

Andreessen: The next stops, I believe, are education, financial services, health care, and then ultimately government—the huge swaths of the economy that historically have not been addressable by technology, that haven’t been amenable to the entrance of Silicon Valley-style software companies. But increasingly I think they’re going to be.

Anderson: Today, so much software is instantiated in hardware—Apple being a great example. As software “eats the world,” do you think that we’ll see fewer companies like Apple that deliver their revolutionary software in the form of shiny objects?

Andreessen: Yes, but I’m not a purist. In fact, we’re funding some hardware companies. Let me give two examples. The first is Jawbone—they make portable speakers, noise-canceling headsets, and now a wristband that tracks your daily movements. Jawbone is an Apple-style company, in that it has genius in hardware and marketing as well as in software design. But if you took away the software, you’d have nothing.

Anderson: What’s the second?

Andreessen: The other one is Lytro, which is making light-field cameras—this amazing new technology that lets you capture the whole depth of field in three dimensions and then focus and compose your picture later.

Anderson: It’s a computer science company.

Andreessen: Yeah, it’s computer science. But it’s going to ship as a camera. And before I met Ren Ng, the founder, if you had asked me if we’d ever back a camera company, I would have said you’re smoking crack.

Anderson: There’s an app for that!

Andreessen: And Kodak filed for bankruptcy. But what Ren has is a completely different approach to photography. There’s a lot of hardware engineering that goes into it, but 90 percent of the intellectual property is software. So we look at Lytro and we look at Jawbone and we see software expressed as hardware—highly specialized hardware that will be hard to clone.

Anderson: One last question for you. Software eating the world is dematerialization, in some sense: These sectors of the economy get transformed into coding problems. But I’m wondering whether there is an economic path by which dematerialization leads to demonetization—where the efficiency of the software sucks economic value out of the whole system. Take Craigslist, for example: For every million that Craigslist made, it took a billion out of the newspaper industry. If you transform these big, inefficient industries in such a way that the value all accrues to a smaller software company, what’s the broad economic impact?

Andreessen: My bet is that the positive effects will far outweigh the negatives. Think about Borders, the bookstore chain. Amazon drove Borders out of business, and the vast majority of Borders employees are not qualified to work at Amazon. That’s an actual, full-on problem. But should Amazon have been prevented from doing that? In my view, no. Because it’s so much better to live in a world where that happened, it’s so much better to live in a world where Amazon is ascendant. I told you that my childhood bookstore was something you had to drive an hour to get to. But it was a Waldenbooks, and it was, like, 800 square feet, and it sold almost nothing that you would actually want to read. It’s such a better world where we have Amazon, where everything is universally available. They’re a force for human progress and culture and economics in a way that Borders never was.

Anderson: So it’s creative destruction.

Andreessen: When Milton Friedman was asked about this kind of thing, he said: Human wants and needs are infinite, and so there will always be new industries, there will always be new professions. This is the great sweep of economic history. When the vast majority of the workforce was in agriculture, it was impossible to imagine what all those people would do if they didn’t have agricultural jobs. Then a hundred years later the vast majority of the workforce was in industrial jobs, and we were similarly blind: It was impossible to imagine what workers would do without those jobs. Now the majority are in information jobs. If the computers get smart enough, then what? I’ll tell you: The then what is whatever we invent next.

The Man Who Makes the Future: Wired Icon Marc Andreessen | Epicenter | Wired.com.