Article development led by
Soon every company will be
a software company.
BY ERIK MEIJER AND VIKRAM KAPOOR
AS OF JULY 2014, Facebook, founded in 2004, is in the
top 20 of the most valuable companies in the S&P 500,
putting the 10-year-old software company in the same
league as IBM, Oracle, and Coca-Cola.
3 Of the top five
fastest-growing companies with regard to market
capitalization in 2014 (Table 1), three are software
companies: Apple, Google, and Microsoft (in fact,
one could argue that Intel is also driven by software,
making it four out of five).
Hot and upcoming companies such as Uber, Tesla,
and Airbnb, which are disrupting the traditional
taxi, car, and hotel markets, respectively, are also all
fundamentally software companies.
Conversely, the bottom five companies, which lost market capitalization
in the first half of 2014 (Table 2), are
mostly traditional enterprises in business for decades.
Given this information, the logical
question to ask is why are software-based companies taking over the
2 The answer is simply that powering companies by software allows
them to be responsive and data driven
and, hence, able to react to changes
quickly. To explain this, let’s take an informal look at control theory.
In control theory, an open‑loop
(no-feedback) control system computes the control input to the system
using only the external input, but
without taking into account the current output of the system (Figure 1). An
open-loop control system works well
with full knowledge of a static world,
but it falls apart when the environment
evolves, or when there is no perfect
model of the system under control. An
example of an open-loop system is the
cab driver who after every trip returns
to the same hotel to hang out with his
fellow cabbies and smoke a few ciga-