In age-old Silicon Valley dictum. Today, with the

In recent times,
many software giants have entered the hardware arena. Companies in Silicon
Valley have been traditionally focused on developing software solutions. Historically,
it has been believed that focusing on software solutions is an effective
strategy due to lower investment required, higher margins and massive
scalability. Modern day giants like Google, Microsoft, Amazon have grown to
their present size following this well proven age-old Silicon Valley dictum. Today,
with the increasing penetration of connected devices, Internet of Things, etc. In
today’s world, there is a frenzy of new start-ups focused on the smart hardware
area. It is possible that just like the transition from hardware focused giants
like IBM, Xerox, etc. to software giants such as Google, Facebook the next
opportunity lies in the field of connected and smart hardware devices.
Start-ups focused on hardware have been garnering interest recently both from
venture capitalists as well as existing companies. Companies like Google,
Amazon, Facebook have been making inroads into the hardware space through both
in-house initiatives as well as by acquiring promising start-ups in the hardware
arena.

The software
giants like Google, Amazon and Facebook have been investing heavily in developing
their own hardware ventures. Google has separated its moonshot projects as
under the banner of ‘Google X”. Google has come out with many products such as
augmented reality glasses: “Google Glass”, voice assistant “Google Home”,
streaming device “Chromecast”. It has also followed the example of apple to
launch a smartphone series of its own: “Google Pixel”. On the other hand, it
also acquired Smart Home Start-up Nest for over $3.2 Billion. Similarly, Amazon
has also invested tremendous efforts under its Labs152 division. It has come
out with revolutionary hardware products such as “Kindle”, an e-book reader,
“Echo” the first home voice assistant, “Dash” buttons for easy re-ordering,
“Firestick” for streaming content on TV. It is investing significant amount of
efforts and money into next generation robotics developing robots and drones to
automate its delivery and warehousing processes. Facebook, on similar lines as
the above two companies has started investing significant funds in future
focused acquisitions as well as R&D. It acquired VR headset startup Oculus
Rift and started its own in-house lab “Building 8” to focus on the hardware
projects. Microsoft is also not far behind when it comes to hardware
development. They came out with “Hololens”, a mixed reality headset which is
the first of its kind, in order to gain an early foothold in the mixed reality
segment. Apart from that, they have followed the example of Apple and rolled
out their own line of high performance PCs and tablets. They already have a
significant market share in gaming through their Xbox series of gaming
processors.

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So, a lot of
companies which were once focused solely on software product and services are
suddenly making serious investments in the hardware space. What can explain the
sudden interest in hardware development after a long-standing focus on
software? The crucial reasons for this shift are: Companies want to own the
end-to-end user experience for their customers. Developing hardware products
aligned with their core products makes sense for these companies. Secondly,
they want to create a complete ecosystem for their users to ensure stickiness.
A great example of this would be Amazon Kindle. Amazon was already in the business
of selling books online. So, once they saw the book market shifting towards
e-books, they developed their own e-book reader to create a complete ecosystem
for their customers where they can search, download, read and then review books
without having to leave the Amazon ecosystem. Investments by Facebook into
virtual reality can also be explained by the vision that in future people would
increasingly use VR to connect with their peers.

Another crucial
reason for sudden interest in hardware development is that the product
development cycles for hardware products have been shortened to a great extent,
thanks to innovations like better software tools, 3D printing for faster
prototype development. So, instead of going through a long product development
cycle which could take months, the product prototyping can be done very fast,
allowing companies to make changes according to their need without delaying the
product development schedule to ensure better product-market fit.  

In the age of
connected devices, it is crucial for the software companies to own the hardware
due to increased complexities. A company developing software for next
generation smart devices would want to ensure a smooth experience for the
customers using those products. But to ensure that, it is necessary that the
hardware, software and networking integration is optimized. Thus, it makes
sense for the software companies to own the front-end hardware as well to
ensure the optimal experience for the end users. Most of the new technologies
such as Smart Home Automation, Augmented Reality and Virtual Reality are in
initial phase of adoption and customers are still skeptical about the products.
Thus, in order to ensure wide adoption, the software companies are motivated to
make investments in the hardware piece of the technology as well.

The increasing
investment by traditional software companies can be explained by their desire
to own a slice of the technologies that the users will use in the future. These
technologies are in the nascent stage of adoption and the software companies
have been building up their presence both through in-house development
initiatives as well as through acquisitions of promising companies in fields
like AR, VR, Smart Products. Right now, investing in the hardware space is a
way for the companies to ensure continued relevance in the future. Thus, in
future the software and the hardware pieces will merge creating more vertically
integrated companies which will own the end-to-end user experience.