Software-Defined Everything.
Over a decade ago, a16z predicted that software would revolutionize every industry. While this has largely come true for many white-collar jobs across enterprise and consumer, crucial sectors (eg. manufacturing, construction, defense, healthcare…) have been slow to adapt, often dismissed by software investors as ‘software-resistant’ and ‘bad categories’. That’s changing fast. A new wave of entrepreneurs is proving that even these tough industries can go software-driven.
Welcome to the software-defined paradigm!
The Limits of Software-Only Solutions
Software has been the golden child of the tech world for over a decade — and for good reason. It’s scalable, offers high margins with low marginal costs, is flexible, provides recurring revenue, and avoids the headaches of managing physical inventory. But as we have pushed deeper into critical industries, we have bumped against many limitations of software-only plays:
- Integrating software with existing hardware/processes is a nightmare,
- User in traditional industries often prefer tangible interfaces (eg. a construction worker might be more comfortable with a physical control panel than a touchscreen app),
- When it comes to critical operations, there is an inherent trust in physical, tangible solutions. A factory manager might be more comfortable with a physical robot they can see and touch rather than a cloud-based AI system controlling their production line,
- Data collection issues (eg., in industries like manufacturing or agriculture, you need sensors and physical devices to gather real-world data, in real time). Software alone can’t bridge this gap between the digital and physical world.
Actually, I think I could write 100s of points on why it’s extremely difficult to build VC-backable companies targeting critical industries with a software-only value proposition — from the different setups needed for various factories, even within the same account; to operators who can’t afford to cut their factories’ continuous production lines, and don’t have time to set up complex software. So, let’s just move on and understand why software-defined products are gaining momentum. :)
Software-Defined Models, Definition+ Momentum
Definition
Lately, we’ve come across several entrepreneurs who are tackling age-old industrial problems by blending hardware with software and selling the hardware part. They’re using software — often powered by AI and data — to optimize traditional hardware, physical systems, and offline processes.
These models address several pain points that software-only solutions often miss, but three really stand out when we talk to clients and founders:
- They overcome interoperability issues by providing a standardized abstraction layer above diverse hardware components (facilitating integration between legacy and new systems), and
- They tackle the data collection issues by enhancing real-time data collection capabilities and providing a more flexible and standardized approach to integrating diverse sensors and data sources.
- Their customer base are more inclined to buy hardware wether than software, and it’s a true GTM hack.
We’ve noticed that integrating hardware speeds up the sales cycle (some industries are more likely to adopt new tech when it comes in a familiar, tangible form), and even helps create new categories within certain industries. The thing is, this isn’t exactly a new concept… so why is it gaining such momentum now?
Momentum
We have hit a sweet spot where technology, market demand and invesment potential all align.
Tech:
→ We are at a point where AI & Data Analytics have become incredibly powerful and accessible. We can now tackle complex, real-world problem.
→ The hardware part is not as intimidating as it used to be. Nowadays, hardware has become more of a commodity — just think of what you can do with a simple Raspberry Pi!
Market Demand:
→ People operating in the built world crave tech solutions, they know that many processes are still in need of optimization. Classical software just don’t allow them to do so. Software-defined is just another way to help these sectors adopt the tech, just as Vertically Integrated Companies do by integrating new technologies with more agility and beating incumbents.
Investors Appetite:
→ The real magic and the IP that VCs drool over lies in the software part. This mean that many investors an not scared of the hardware part which is commoditized and are more inclined to invest.
Concrete Examples
Several major tech companies have adopted this software-defined approach (i.e. Palantir, Tesla, Check Point…). Same for scale ups like Armis, Anduril, Flock Safety or even Hadrian that introduced the concept of Software-Defined Factories.
Many early-stage companies are exploring software-defined solutions, so I wanted to highlight 5 use cases that showcase its potential.
ReOrbit Space — Launching Software-Defined Satellites
Traditional satellites transmit data in simple point-to-point paths, unlike the complex, interconnected networks on the ground. Software-defined satellites are revolutionizing this by enabling a more sophisticated, network-like data flow in space. ReOrbit Space is developing modular spacecraft with autonomous features and a software-defined design for greater flexibility (eg. a modular spacecraft could be easily reconfigured to switch between carrying communications equipment, scientific instruments, or Earth observation sensors, depending on mission needs.). In this case, software-defined design enable real-time adjustments to the satellite’s operations and data handling, improving mission efficiency and reducing operational costs.
Spore Biotechnologies — Pathogen detection in FMCG factories
Spore.Bio is building a device that detects pathogens instantly on the factory floor. They use ML to assess bacterial concentrations in food, beverages, pharmaceuticals, and cosmetics, providing immediate alerts to quality managers. Previously, quality testing required sending samples to external labs, taking 5 to 20 days and incurring significant costs. Spore.Bio’s software-defined approach is the perfect example of data collection acceleration. They offer near-instant feedback, enhancing traceability, and enabling manufacturers to address contamination sources promptly. This not only cuts down on cross-contamination risks and expenses but also establishes a new standard in quality control.
Resolve Stroke — Software-Defined Ultrasounds
Resolve Stroke is utilizing a software-defined approach to transform 15+ years of research into a product that maximizes the potential of ultrasound technology within commoditized devices. They package state-of-the-art ultrasounds and deep learning techniques into traditional hardware, and this represent the perfect example of IP laying in the software part and enabled by new hardware generation. This approach allows Resolve Stroke to pioneer a new category of data sets specifically tailored for the medical field. This woulnd’t be possible without the hardware part.
Trout Software — Hardware to build more secure facilities
Trout develops a hardware solution called CyberSwitch that enables industrial sites to gain a comprehensive understanding of their networks, structure them efficiently, and implement advanced security measures through a user-friendly interface. Similar to Resolve, the core intellectual property is in the software, with the hardware being more of a commodity. This gives Trout a competitive edge in their go-to-market strategy. While industrial cybersecurity has traditionally been a luxury for large enterprises, the simplicity offered by CyberSwitch allows Trout to address the needs of smaller accounts that are often underserved by most OT players.
Deep Mine — Software-Defined Drones
Deep Mine is changing detection through the use of sophisticated deep learning models within drones. Their approach employs Neural Networks to analyze Ground Penetrating Radar images, significantly improving detection accuracy. Their drone improves data collection, while the algorithm facilitates data augmentation and analysis. Again, perfect use case where the core IP resides in the software, but the client wants you to sell hardware.
The software-defined approach can deliver different types of advantages, from improved UX and GTM acceleration to unlocking new value propositions. I’m bullish on seeing other like-minded companies entering critical industries with this approach. If you are building with this thesis in mind, get in touch thomas@ovni.capital !
