The Importance of Software

When you start a business, one of the decisions you have to make is whether to build things yourself or to buy them in.

Software is one of those things that you can either make or buy – so long as you know how. Here at Voipfone we took a decision from the beginning to build all our core technologies ourselves, so it was interesting to hear an article on the radio about the Japanese electronics industry which once conquered the world, but is now almost defunct.

Sharp and Panasonic are nearly bankrupt, Sony made a loss of $10bn last year and Hitachi has been forced out of consumer electronics and is attempting to make it in heavy industry. China and Korea are stealing their manufacturing and Silicon Valley is stealing their products.

The Sony Walkman once created then dominated its sector but it was destroyed by the iPod. The difference between the two devices is that the Walkman is mechanical and contains no software whilst the iPod contains no clockwork and is all about being digital.

But if you look at the economics of the IPod (and iPad and iPhone) you find that the manufacturer in China is keeping only about 3% of the profit whilst Apple is getting 50%+.

In other words, the real value is being created and kept, in the USA from software development.

Meanwhile, Korean Samsung is being extremely successful in both manufacture and development of digital devices from TVs to smartphones.

Without a massive and wholesale switch from manufacture to software and hardware design, it’s hard to see how the Japanese can climb out of their hole – and it’s also a warning to China that depending on manufacturing alone, is not a great long-term plan.

Meanwhile, here in the UK we need to be spending more time teaching real IT skills to our kids – companies like Voipfone need them.