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MARC ANDREESSEN on Why Software Is Eating the World – WSJ.com – SEE VIDEO LINK

August 21, 2011

ESSAY AUGUST 20, 2011

Why Software Is Eating The World

By MARC ANDREESSEN

This week, Hewlett-Packard (where I am on the board) announced that it is exploring jettisoning its struggling PC business in favor of investing more heavily in software, where it sees better potential for growth. Meanwhile, Google plans to buy up the cellphone handset maker Motorola Mobility. Both moves surprised the tech world. But both moves are also in line with a trend I’ve observed, one that makes me optimistic about the future growth of the American and world economies, despite the recent turmoil in the stock market.

In an interview with WSJ’s Kevin Delaney, Groupon and LinkedIn investor Marc Andreessen insists that the recent popularity of tech companies does not constitute a bubble. He also stressed that both Apple and Google are undervalued and that “the market doesn’t like tech.”

In short, software is eating the world.

More than 10 years after the peak of the 1990s dot-com bubble, a dozen or so new Internet companies like Facebook and Twitter are sparking controversy in Silicon Valley, due to their rapidly growing private market valuations, and even the occasional successful IPO. With scars from the heyday of Webvan and Pets.com still fresh in the investor psyche, people are asking, “Isn’t this just a dangerous new bubble?”

I, along with others, have been arguing the other side of the case. (I am co-founder and general partner of venture capital firm Andreessen-Horowitz, which has invested in Facebook, Groupon, Skype, Twitter, Zynga, and Foursquare, among others. I am also personally an investor in LinkedIn.) We believe that many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses.

Today’s stock market actually hates technology, as shown by all-time low price/earnings ratios for major public technology companies. Apple, for example, has a P/E ratio of around 15.2—about the same as the broader stock market, despite Apple’s immense profitability and dominant market position (Apple in the last couple weeks became the biggest company in America, judged by market capitalization, surpassing Exxon Mobil). And, perhaps most telling, you can’t have a bubble when people are constantly screaming “Bubble!”

But too much of the debate is still around financial valuation, as opposed to the underlying intrinsic value of the best of Silicon Valley’s new companies. My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.

More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

Why is this happening now?

via Marc Andreessen on Why Software Is Eating the World – WSJ.com.

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One Comment
  1. Avery Wolfe permalink
    August 21, 2011 5:48 PM

    Marc Andreessen has everything to gain by encouraging people to stop asking if all these companies are worth their valuations – the business models for internet / cloud companies are still a tough go and the only companies that make money in a world where subscription services are sliced and diced across many companies in a value chain are the workload providers or the VCs when the inflated private company goes public and then quickly drops. He mentions of course his two nacient start up – and hangs his hat on the fact that he called it – he changed the world. The problem here is that Marc – who stands to gain – and very few companies with the exception of the workload providers (eg. Salesforce) of the cloud-service who will win here. How profitable is Amazon in their renting-computer-cycle business – does anyone really know? How does Farmville make any money ? Sustainable revenue streams ? Same with Facebook – the old advertising will get you everytime. Everyone of us needs to kick the tires, do the due dilligence to understand these cloud business models – and the “real” value they bring to the economy – who gives a flyin leap about Angry Birds after a few spins around the block, people get tired and move on from Farmville over night and people get tired or Marc reminding us he was ahead of the curve when he founded Netscape with others (who were the other founders, Marc fails to mention) ….

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