Ricardo Arriaga
Innovation Director
Expert Contributor

If You Are Not a Software Company, You Will Soon Cease to Exist

By Ricardo Arriaga | Fri, 09/25/2020 - 13:30

We are moving from a world of atoms to a world of bits, from a physical world to the digital world. This transformation is affecting various industries , especially those highly dependent on physical operations, such as retail, construction, restaurants, manufacturing and tourism. In recent months, this phenomenon has also accelerated because the pandemic we are experiencing has forced us to isolate ourselves and perform our activities remotely and without physical contact. 

Due to the lack of modernization, more and more companies have had to close down, specifically because they have not adapted to the needs of the new markets and transformed into the digital world. Bankruptcy cases such as Blockbuster, Kodak, Tower Records and Sears in the U.S. and many other retailers are signs of a new era – the digital era – to which companies like Spotify, Netflix, Amazon, Google and Waze belong and are disrupting industries such as music, movies, retail, news and maps.

According to a report published by BrandFinance, Amazon, Google, Apple, Microsoft, Samsung, Facebook and Huawei are the most valuable companies in the world and stand out in the Top 10 of technology-based companies. Three "nontechnological" companies also stand out, which are the Chinese companies ICBC and Ping An, as well as the American company Walmart. However, they are not technological in quotation marks as they have large software development investments to automate processes, improve customer service, enhance sales experience and have better operational controls. Would a bank, insurance company and retail store with millions of clients be able to operate without technology in this century?

Currently, there are 450 unicorns – private companies worth over US$ 1 billion – of which 329 have been created over the last three years and have a technological basis. These startups also have accelerated growth and have become, in many cases, the main competitor of different industries. What is the reason for the explosion of new billion-dollar companies? The answer is mainly due to digitalization, mass smartphone adoption, the internet and cloud computing, tools that have made room for exponential technology, such as artificial intelligence, augmented reality, virtual reality and the Internet of Things.

The massification of internet and mobile telephony has been achieved thanks to the reduction of costs and availability. These technologies are the basis of the digital era and generate a virtuous circle that makes it possible for companies to move from the material world and scarcity to the digital world of abundance. For example, photos printed in the photography industry were scarce because they cost more, and we took only a few. We've got a smartphone now, and we can take thousands because they tend to cost zero dollars. That's why digitalization can be disruptive.

The first cellphone Motorola launched cost US$3,995. Today, we can buy a smartphone for only US$60. In 1956, a hard drive cost US$120,000 and had a capacity of only 5MB. It was the size of a refrigerator and weighed a ton. Today, we can buy a 32GB Micro SD memory for just US$1. This is telling us where we are going and what is going to change. 

People's habits have changed considerably. We keep less and less information in our brain and leave the task to our smartphone. For example, we use a calendar app to maintain all our schedules, we have an app to save addresses, another for contacts with their phone numbers. Human relations are conducted through social networks and WhatsApp. Meetings, because of the pandemic, are done on Zoom. Even emotions are being digitized: the Israeli company Beyond verbal can determine a person’s mood with only 10 seconds of a voice recording.

In Mexico, there are also technology-based companies that are creating disruption, such as Clip, Albo and Conekta in the financial sector, Justo and Cornershop in retail and Gaia Design in the manufacturing and sale of furniture through e-commerce. I believe that there are very few startups in Mexico with the potential to be a unicorn; there is a lot of work ahead but great opportunities to take advantage of. 

Most of the disruption is yet to come. We have had only 40 years of the IT industry and the technological advance is minimal compared to everything that can be done, since we are said to be only 2 percent advanced. Furthermore, we have new generations connected to the internet by means of a cellphone, smart television, computer and tablet that perform all their activities from one or more electronic devices.

The applications – small pieces of software – will be the cornerstone for connecting with the new generations; the software is everywhere, in every device we use. Tesla, the car brand, is actually software on wheels and it is constantly updated like a mobile app.
The time to transform is now. Digitalization has stopped being an option and has become an obligation. Businesses are being born that will change the industries of the last century completely. And more disruptions are coming. On which side do you want to be?

Photo by:   Ricardo Arriaga