A Blog by Jonathan Low


Mar 24, 2015

The Softwarization of Hardware

We've heard a great deal about how the intangible is surpassing the tangible in terms of economic value added in the post-industrial economy. And all of the data suggests this is true.

But less has been articulated about the convergence of the two.

The guiding precept for technological advance has been efficiency: reducing the friction between maker and buyer in order to drive costs and time delays out of the system which then lowers costs and raises profits.

Softwarization of hardware means the direct relationship between seller and buyer will broaden and accelerate. The excitement about rapid-prototyping and the internet of things is because a prototype, by definition, is but a preliminary step in a much more fundamentally disruptive process. All of that eliminated friction, of course, reduces jobs and profits and taxes meaning power gets further concentrated. The implications for the economy are profound - and we are feeling them now as household income for the vast majority declines.

The promise has been that all those excess profits will then be reinvested in productive activity which will replace the lost assets. There is little evidence of that yet - and it may well be a chimera - useful to disguise the truth about realignment of opportunity. But there can be no doubt that the intangible-ization of the tangible world is upon us. The only question is who will pay - and who will benefit. JL

Christopher Mims comments in the Wall Street Journal:

One of the reasons for the explosion of software and cloud startups in the past 10 years is that innumerable tools and services—from GitHub to Amazon’s cloud services—have been developed to make transforming an idea into a finished software product easier than ever.
Recently, as I gazed into the prototype of a smart breast pump, I had a vision of the future. I saw an age in which new products—actual, physical electronics products—will go from idea to store shelves in a matter of months. A future in which warehouses and distribution centers cease to exist, because factories produce finished goods from raw materials on demand, and they never stop moving through the supply chain.
Only it turns out all of this is possible today. The “hardware renaissance” that began in Silicon Valley in just the last five years, born of rapid prototyping technologies, has become something much larger and more important. It has been a sea change in every stage of producing physical objects, from idea to manufacturing to selling at retail.
In the vanguard are firms you’ve never heard of—like PCH International and Dragon Innovation—that aim to make producing electronics hardware as easy as producing software.
On its face, this is a ridiculous goal. The physical world will always be a more challenging environment than a virtual one. But for entrepreneurs, it has these virtues: Unlike an app store, no one can tell you what you can or can’t sell. Nor are designers and engineers limited by the capabilities of the device containing their software.
Take that smart breast pump, made by a three-person startup called Moxxly. Anyone who has pumped breast milk or been the partner of someone who has knows that existing breast pumps badly need to be disrupted. “I had quit my job last spring after having a baby and realizing that the only thing I was ‘leaning into’ was my breast pump,” says Cara Delzer, CEO of Moxxly.

In contrast, the one built by Moxxly is unobtrusive enough to be used by a woman, under her clothes, while she works. Enabling a woman to “pump as she is,” it tracks flow rate and sends data to a companion smartphone app so the woman can track production as precisely as she counts steps with her FitBit.
In partnership with product designer Gabrielle Guthrie and engineer Santhi Analytis, Ms. Delzer took her idea to Highway1, a hardware-startups incubator owned by PCH International.
PCH International already has a vigorous business in manufacturing goods in China for a few brands you may have heard of—Apple, Beats, drone startup 3DR—plus at least 60 other firms CEO Liam Casey says he is legally bound not to reveal. He would say that the company earned $1 billion in revenue last year on goods valued at $10 billion at retail.Mr. Casey is using the war chest he has accrued from PCH to fund both the incubator Highway1 and an accelerator, designed for more mature startups, called PCH Access. Both take a small equity stake in the companies they nurture, which makes Mr. Casey something like a hybrid between a seed-stage investor and Foxconn, which is the world’s largest contract maker of electronics and a competitor of PCH.
One of the reasons for the explosion of software and cloud startups in the past 10 years is that innumerable tools and services—from GitHub to Amazon’s cloud services—have been developed to make transforming an idea into a finished software product easier than ever.
Analogous tools have come to hardware, and that means companies like Drop, maker of a connected kitchen scale, have been able to leverage PCH’s expertise and manufacturing capacity in China to go from idea to being sold in Apple’s retail stores within 10 months, a timetable unprecedented for a hardware startup.
Plenty of competitors are hot on PCH’s heels. “Our mission and vision is to make manufacturing feel easy,” says Dragon Innovation CEO Scott Miller. “There are a lot of moving parts behind the scenes, but we want to abstract away that complexity.”
Dragon is a much smaller company than PCH, with just 25 employees and no contracts with international megabrands, but it is leveraging a partnership with the most selective startup incubator in the Valley, Y Combinator, to offer similar services.
Hardware startups that enter Y Combinator can now take advantage of labs full of equipment for prototyping gadgets, provided by Bolt, a venture-capital firm associated with Dragon.
No matter how many advisers and investors they accrue, every hardware startup must contend with the same reality, which is that almost all contract electronics manufacturing happens in one place in the world: the factories and sister cities of Shenzhen, China.
Twenty years ago, when Mr. Casey first arrived in China, just having connections among the factories and manufacturing brokers in China was enough to make you uniquely valuable to American tech firms. These days, having those connections is merely table stakes, says Sam Altman, president of Y Combinator.
As much as these companies would like you to believe that the entire hardware producing ecosystem of which they are a part—from Kickstarter pre-orders through 3D printed prototypes to design for manufacturing consultants and millions of square feet of factory floor in China—can make building hardware easier than ever, there remains the not-so-small matter that the objects we covet are still made almost exclusively by human beings.
“[Scaling up] wasn’t as easy as we’d anticipated,” says Christina Mercando, founder of Ringly, which makes a smart ring that vibrates when its wearer gets an alert on her phone. “We didn’t anticipate Chinese new year—we lost three weeks of production there,” she adds.
But it might not always be this way. Foxconn is working on its own industrial robots, and it seems inevitable that even custom or small-scale manufacturing will, like all repetitive tasks, give way to automation.
The tools that made it easy for engineers to produce software are one of the great unlocking technologies of the 20th century. It seems reasonable that the “softwarization of hardware,” as Mr. Altman describes it, could have similar effects on the 21st.


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