Tools of Creative Destruction
Last week (April 26th, 2016) marked the 60th anniversary of container shipping and the beginnings of the intermodal transport system. What started as an idea pioneered by a US trucking magnate now represents nearly 90% of the entire world’s commerce. From fuel and fashion, to cars and consumables, most goods spend a part of their lives in the container-based shipping supply chain. Many argue containerization has been one of the greatest facilitators of change in the world economy over the last century.
But despite the global impact, not much has changed in container shipping. Sure, the market has grown massively, containers sizes have become uniform, and the ships that carry them have gotten bigger, but the underlying components of this marketplace still look as they did in the mid-twentieth century.
Transportation of freight between shippers and carriers is executed by operators, known as freight forwarders. And while costs to ship goods have fallen significantly over the last six decades, nearly 60% of container space is still sold through middlemen. The results is an opaque marketplace that lacks pricing transparency, simple bid/ask mechanisms, and efficient demand and supply (read: market liquidity).
As venture capitalists, we at Sway Ventures love market inefficiencies like these because this is exactly the type of marketplace problem technology can solve for. Not to downplay the industry’s efforts, they’re in fact using technology, but it’s a patchwork of 20th century communications technologies, using phones, emails and even faxes (yes, faxes in 2016) to quote, book, bill, and confirm shipments. What’s needed is a technology-driven marketplace, one that creates the two essential elements missing, liquidity and efficiency.
Liquidity is the lifeblood of marketplaces. You see it in obvious examples like the financial markets with Nasdaq, FTSE, DAX, and Hang Seng, but it’s also the key component driving Uber (those who want local transportation and those supplying it), Airbnb (those who want short-term lodging and those supplying it), and Flipkart (those who want local grocery delivery and those supplying it). Think about how easy it is for consumers to book and use Uber, Airbnb and Flipkart; these marketplaces epitomize efficiency-driven consumption.
Haven is building the marketplace that will create liquidity and efficiency between shippers and carriers. For the shippers, Haven creates price transparency, simplifies the bid/ask process, and most importantly provides a consistent source of reliable carrier supply. For the carriers, Haven’s platform streamlines existing demand while opening doors to new customers, and provides competitive intelligence across the entire supply chain. Haven has built an algorithmic software platform that’s akin to a commodities trading engine and marketplace dynamics analytics engine, which, when combined together allows each market constituent to enable a much more efficient and productive existence. The result is automated procurement logistics – a dramatic change from the phone-and-fax state of the industry today.
Six years ago, Marc Andreessen suggested that software is eating the world. More recently, he has argued that software is now programming the world. The truth is Andreessen is exactly right on both counts. With the ever-growing proliferation of applications on mobile devices and tablets, as well as disruption in healthcare, consumer services, and transportation, software is now a major source of competitive advantage.
The reality of billions of consumers and entrepreneurs now connected through mobile devices and software platforms means that agile software tools are becoming the driving force of an accelerating wave of creative destruction. Indeed, the term “creative destruction” was first coined by the economist, Joseph Schumpeter, to refer to the incessant transformation wrought by innovation. And as this wave of creative destruction expands it is also accelerating technology breakthroughs in new fields (artificial intelligence, robotics, 3-D printing, biotechnology).
With technology transforming virtually every industry today, it would seem that software is now the fount of creative destruction. At the same time, we are witnessing a significant paradigm shift in the way firms evaluate and buy software. From debugging and API management to code sharing networks and mobile back-end services, new developer tools are changing the way software developers collaborate and manage code. Developer tools are becoming critical to helping organizations increase revenues, reduce costs and accelerate time-to-market.
The ability to leverage cloud services is becoming critical to extending both the scale and scope of industries today. Consider the ride-sharing company, Uber: The majority of Uber’s business productivity is managed by specialists— its infrastructure is provided by Amazon, its mapping technology is provided by Google Maps, its messaging stack is provided by Twilio, and its email service is provided by SendGrid APIs.
The proliferation of software across all industries has created a massive developer tools ecosystem. This includes entirely new technology categories built on top of developer-focused platforms. Taken as a whole, the software industry is undergoing a kind of industrialization, as new upstarts move the industry away from hand coding and toward modular platforms. To be sure, innovation in this space is accelerating with venture capital funding to the industry growing by 77% annually.
The main reason for this accelerating growth is a large increase in the demand for new and innovative software tools. According to Gartner, IT spending will reach $3.5 Trillion in 2017. This is an increase of 2.9 percent from 2016 estimates. In fact, the Bureau of Labor and Statistics estimates that the number of software developers will grow by 17 percent between 2014 to 2024— with application developers projected to grow by 19 percent, and systems developers by 13 percent.
For this reason, venture capital firms around the world are now hungry to invest in smart startups with a vision for transforming the software industry. One example of this trend is the developer firm, Split.io. Emerging out of Salesforce and RelateIQ, the pioneers behind Split have focused on software tools that can launch code level feature testing useful to developers, business leaders, and product managers alike.
The goal of Split is to give companies control over their users’ experience. More precisely Split is interested in systematizing releases by accelerating the speed at which companies metabolize feedback. The company focuses on shortening the QA and test cycle and effectively mitigating problems or challenges with each new software release. Split’s founders work from the assumption that software remains the key to disrupting industries, and that source code is the DNA of disruptive companies. Venture firms like ours are now specifically targeting new upstart developer firms as a way of transforming the broader market from the group up.
(Sway Ventures is an investor in Split, as well as developer tools startup, Sourcegraph)
New tech startups like Split and Sourcegraph are making user-friendly software tools increasingly accessible to a much broader audience. This explosion in the number of software developers coupled with new cloud-based delivery models is accelerating the capacity of software to disrupt well-established industries. In fact, all of this accelerating change is converging toward what some are now describing as a “Fourth Industrial Revolution.” And this is translating in the creative destruction we see in the rise and fall of firms around the world.
Fifty years ago, a company’s tenure on the S&P 500 lasted 60 years. Today that time span is less than 15 years. At this rate, by 2027, 75 percent of companies on the index will be companies that have yet to be created. What is interesting is this accelerating rate of technological and economic change will require more software innovation, not less. And fortunately software tools are becoming much more user-friendly thanks to smart new companies. As we move deeper into this “computational knowledge economy”, software developer tools will make it increasingly easier for consumers and entrepreneurs to program the world they wish to see.