The next generation of software firms must cope with structural market changes and embrace the opportunities from software becoming “everyware.”
In the dynamic landscape of the software industry, growth rates, which soared in the early 2020s, are now stabilizing. Nevertheless, growth projections for information and communications technology (ICT) remain promising, fueled by demand for customized solutions tailored to specific industries. The software supply side is becoming increasingly competitive, with customers venturing into self-development, mirroring the practices of ICT ecosystem partners. Emerging technologies also enable ever more advanced software applications to run almost everywhere.
Navigating the software landscape in this new age
While the software industry has passed its peak, there are promising growth areas in customer segments seeking tailored digital solutions that far exceed average projections.
Business customers need solutions tailored to their industries for competitive advantages. The verticalization of business applications is by no means a new phenomenon. It was outweighed by an overwhelming trend for standardization in software applications and the costly maintenance for bespoke on-premises solutions. Also, commercially available applications were not consistently designed to leverage the full scope of potential business benefits for customers. Cloud-based XaaS solutions can now fill this gap in a commercially viable manner.
Considering advancements around Industry 4.0, eHealth, and smart cities, there is a further increasing requirement for cyber-physical systems, holistic solutions combining components from software, hardware, connectivity, and services around ICT and the industries applying them.
Software will become an integral part of such solutions and not only in centralized cloud architectures. New capabilities around communications networks supported by increased computing performance and decentralized computing will enable software to evolve as a powerful part of both access networks and network edge with a rapidly rising number of connected devices. By that, software will become ubiquitous, becoming “everyware” rather than software.
Likewise, besides business application software, application development software is expected to continue fulfilling an increasing demand. This demand is widely grounded in the trend for self-developed software driven by various B2B customer segments such as automotive, retail, and other industries.
New players on the field blurring industry boundaries
The supply side is also experiencing this “everyware” phenomenon, massively driven by organizations that were initially software customers.
Depending on the industry and the new role software will play within a firm’s business model, software is increasingly self-developed by these firms as it becomes an integral part of either their products and services or of their uniquely designed differentiating processes. The penetration of low-code platforms is further promoting self-development to another level.
Looking closely at industries considered part of the ICT sector, we observe a specific type of industry convergence. Prominent sub-segments within ICT are mutually taking over parts of value creation historically covered by other originating sub-segments. For instance, for a long time, hardware and infrastructure suppliers have built proprietary software into their products and sometimes built their complementary standalone software products. Recently, various telecommunications players announced they had also become technology companies focused on developing software. Big tech firms are also now developing and offering virtual network solutions, experimenting with and building network infrastructure, and competing with telecom operators.
Industry boundaries are blurring while software becomes increasingly critical to business and ubiquitous, and broader ICT solutions are in demand rather than single components. ICT players naturally seek bigger chunks for their own business. Software firms should consider doing likewise.
Enabling technologies
There is an accelerating influence from one technological advancement to other technologies, and we consider these enabling technologies or key enabling technologies if the advancement has a far-reaching impact beyond the sphere of its direct users. Artificial intelligence, blockchain, and big data analytics are examples of this type of technology. Progress in one of these often allows improvements in the others.
Asking what comes next, we see technologies in the research and development stage rather than in a mature stage. Looking at ICT, we see developments in layers below the level of application areas, such as networking and computing. These trends can potentially promote a synthesis of enabling technologies, creating new application opportunities. Such early advancements will generate opportunities for the next generation of software firms.
Enabling through networks
Higher bandwidth radio technology deployed beyond 5G (B5G) and 6G systems in densified small cell configurations and automated security operations is the basis for joint communication and (high-resolution) sensing systems. This evolution will boost the emulation of human sensing capabilities and enable advanced digital representations of the physical and biological world for immersive mixed-reality experiences in virtual environments.
Enabling through Computing
Optical and nano-computing, neuromorphic computing, and DNA data storage will make computing ever more powerful, miniaturized, and energy efficient. This enables computing architectures covering, for instance, automated software creation and thinking sensors for the next level of application scenarios. Paired with emerging networking capabilities, this type of architecture will make up the fundamentals for next-generation application software and the business models built on it.
Enabling through interfacing with humans
The interaction between humans and systems based on the above technologies will emerge on another level in the coming years. Facing probably the biggest hurdle in technology ambitions, the integration with humans, technology strives to establish brain-computer interfaces and bio-sensing systems to realize the bold vision of an internet of the senses. In the early stages of development, there are already prototypes in place.
The winners have a vision
Envision a scenario where a medical specialist is in the virtual environment of an operating theater and performs the surgery with his thoughts. What an incredible benefit for healthcare, hospitals, the entire developing world, and most importantly, patients. It is still science fiction, but for how long?
It is time for decision-makers at software firms to explore emerging opportunities and build next-generation businesses.
We are investigating emergent developments in software markets and their technological environments with software providers, their ecosystem partners, and clients to better understand the dynamics of software evolution in this new age. Please contact our experts if you wish to learn more about our work around the next generation of software business.
