Hardware is No Longer Enough

I went to a company's presentation on Tuesday where they talked about how well sales are going. This company is known for producing hardware but have discovered that hardware needs infrastructure. Now half of the company's sales are for online services. That is a big shift in business.

The Apple iPod is probably one of the first instances where it became clear that hardware is no longer enough. When they released the original music player, Apple knew that they also needed a marketplace where users could go to buy content for the new device. They then invested in the infrastructure necessary to create an online music store. Furthermore they did the job well and have grown it to also include software for their mobile phones. Google had no choice but to match that investment in order for Android phones to even be considered an alternative to the iPhone.

Now we see the same thing happening for other consumer electronics companies. When video game companies released the first versions of consoles, all games came on some sort of media. Nintendo created cartridges while Sony started with CD ROM's. The latest versions of video consoles continue to support Blu-ray disks but both Microsoft and PlayStation have online stores where you can purchase digital copies of games.

Think about other consumer-electronic devices. How long will it be before Cannon and Nikon create online services that interact with the next-generation camera equipment? Companies should be looking at this new revenue stream and embrace it. Those that do will succeed while those that don't will cease to exist.