The Plumbers of the Cryptocosm [Part 2]
Posted April 14, 2021
If you missed part 1 of this Prophecy, go here now to catch up.
John Schroeter and Dr. Timothy Chou are back today with part 2.
Service is Information, Personal and Relevant to You
A few months ago, I had breakfast at Joannie’s Café in Palo Alto with the CEO of a company that builds machines for the semiconductor industry. I asked him how many machines he had in the field, and he said around 10,000-20,000. The precision of his answer should have been my first clue. I went on to ask him, “How much service revenue do you generate?” to which he responded with the universal sign of a goose egg. I asked “Why zero?” to which he replied “No one wants to pay for service.”
Of course, the reason no one pays for service is he’s defined service as break-fix support. Of course, anyone who has just bought a $250,000 machine would assume it would work, so why pay for service?
The service sector represents more than 85% of the US economy. So, what is service? Is it answering the phone nicely from Bangalore? Is it flipping burgers at In-and-Out? No. Service is the delivery of information that is personal and relevant to you. That could be the hotel concierge giving you directions to the best Shangdong Chinese restaurant in town, or your doctor telling you that, based on your genome and lifestyle, you should be on a specific medication. Service is personal and relevant information.
In 2004, the Oracle Support organization studied 100 million service requests and found that over 99.9% of them had been answered with already known information. Service is information on how to maintain or optimize the performance, security, and availability of the software. Of course, if I can tell you how to maintain and optimize the performance, security, and availability of the software, then the next logical step is to do it for you. In the software industry you know this as software-as-a-service (SaaS). The company that builds the product, services the product. Salesforce, ServiceNow, and Blackbaud all build enterprise software products and service them.
But, let’s get back to my CEO. I asked him, do you think a customer would pay for information on how to maintain or optimize the performance, security, and availability of the product? And as the builder of the product, you are the aggregation point of all this information since every customer calls, texts, or emails you first when they need information. What if you were to aggregate all of this information, and furthermore, what if you connected all of your machines? Wouldn’t you know more about how to best maintain, or optimize the performance, availability, and security of the machine? And if you were to charge just 1% a month of the purchase price of the machine for the digital service product, you’d be able to double the revenues and quadruple the margins of your company. Ultimately, if the company knows what to do to maintain and optimize the product, then clearly it can take the last step and offer the product-as-a-service.
Any company that builds agricultural, life science, construction, healthcare, packaging, manufacturing, printing, power generation, or transportation machines has the opportunity to build a new high-growth, high-margin recurring revenue digital service business. Service is not break-fix. Service is personal and relevant information.
Software Plumbers, not Hydraulic Engineers
I recently reviewed a paper on recommendations for changes in the computer science curriculum at a four-year college. While we always have to be thinking about the core CS curriculum, I think there is a big gap in the education system globally.
A few years ago, I helped Stanford students start the first hackathon at the university. While I didn’t drink Red Bull and stay up for 24 hours, it did open my eyes. What I saw was software being built in an entirely different way than we had all been classically trained. In my analogy it looked a lot more like plumbing. Students were assembling new applications from hundreds of software parts. In an age of cloud computing, open source, and web services, this has suddenly become possible.
But did they learn any of these skills in their computer science curriculum? No. If we’re to use plumbing as an analogy, getting a computer science degree from a major institution is similar to being taught how to build a P-trap [the curved pipe underneath sinks] in the field of plumbing. In order to build a better P-trap you need to understand fluid dynamics, material science, and mechanical engineering principles.
While designers of P-traps need these skills, plumbers don’t need to understand the physics or engineering. Rather, they learn through apprenticeship with a master plumber which P-trap to install and when. They don't need to understand how it works.
Now take this analogy to the world of software. Four-year colleges are designed to teach a computer science curriculum focused on teaching the fundamental principles required to design better P-traps.
While this knowledge is certainly necessary for some software jobs, there is 10 or 100 times more demand for software plumbers. With so many software parts available, we can build complex software applications by assembling components to satisfy needs across many industries, including agriculture, construction, oil & gas, energy, transportation, healthcare, and financial services.
Software is a unique technology, which costs nothing to create other than mental energy. And with the advent of cloud computing, the cost to deliver and manage the software is headed to zero. Unlike the electrification of the planet, we do not have to wait for physical infrastructure to be purchased, built, shipped, and installed.
The challenge of building good software applications is combining an understanding of the challenges of the domain and knowing what tools you have to build the future. It should be no surprise that college students developed social networks. But how do you bring an understanding of textiles, mining, specialty chemical manufacturing, or genetics together with an understanding of the software parts catalog?
This kind of software plumber education does not exist today, and I am not arguing for changing computer science curriculums at four-year universities. Instead, maybe we need to revive trade schools. It wasn’t very long ago that there was a thriving trade school education system in both the United States and Europe. These focused on turning out welders or auto mechanics. Why shouldn’t there be a software plumbing trade school? And in the four-year universities, why not start out any STEM program with one year of basic plumbing? After all, whether you’re in archeology or zoology, software plumbing should be more basic than first-year chemistry, which we require of nearly everyone today.
Software has already changed our consumer lives, whether that’s watching TV or buying shoes. In the next 50 years it will change the planet.
-Dr. Timothy Chou
Senior Analyst, Gilder's Daily Prophecy