Can we see that maintaining a software-obsessed tech industry is self-sabotage? As a venture capitalist, I know there’s incredible excitement around quantum computing. Yet, as a material scientist, I also see the technology is at least five years away from commercialization. Once again, we see a bias that plagues the tech community: software overshadowing hardware. But, continuing with the software-obsessed tech industry is self-sabotage.

Investors have spent much of the last decade focused exclusively on applications (and still seem to be), just as platform providers like Google and Amazon have come to dominate.

With the maturation of artificial intelligence, however, the software-first focus must shift increasingly toward hardware.

Even more nuanced, we should work toward hardware-software integration.

The good news: It seems that shift has already begun — and with the biggest fish in the pond. Apple is already well-known for its game-changing hardware innovations. It very recently hinted toward its latest watch, touted as an impressive piece of hardware that Apple fans are already drooling over.

Other industry leaders would do well to follow suit with moving the software-obsessed tech industry.

In healthcare, for example, a 2019 Accenture survey shows that two-thirds of executives believe that “DARQ” — distributed ledger, AI, extended reality, and quantum computing — technologies will transform their organizations. 89% are already pursuing implementations. If their focus is solely on software, however, these initiatives will fail. Fitness trackers capture in-depth patient data, and hardware is the portal through which data flows. Without this data, AI is irrelevant.

True innovation lies in the integration of hardware and software. Hardware is the data entrance and collector, while the AI software layer handles analysis and delivers insights. If data-driven technologies are going to drive the future of tech, we must adopt a hardware-software integration approach.

Hardware at the Forefront

Reorienting toward hardware won’t be easy for a tech ecosystem that remains so focused on software. The existing giants must adopt drastically new business models, and startups must work to master hardware. Whoever successfully integrates hardware and software will win the next era of tech.

Acknowledging this reality, Google and IBM are racing to develop data capabilities.

Being able to process mass amounts of data at the point of collection (the hardware), rather than sending it first to the cloud, is critical for giving “smart” technology the intelligence it needs.

Therefore, experts project only 20% of all data will be stored in data centers and the cloud by 2025, down from 80% currently.

As more time and money go toward hardware, our assumptions about tech will change. Consumers, for example, have grown used to a model where they exchange personal data for a “free” service. However, privacy concerns sparked by platforms like Facebook make this model less sustainable.

More importantly, collecting data through hardware rather than platforms yields richer data in more significant quantities. Moving forward, consumers will likely pay for more services (and their attendant hardware) but expect more privacy in exchange.

Similarly, the demand for tech talent will evolve. Tomorrow’s computer scientists must understand the engineering behind hardware just as well as they understand the software. Cybersecurity skills will also become a priority. Software is already rife with vulnerabilities, but a world filled with internet-connected hardware increases possible points of attack. Hardware will not fulfill its potential without addressing security concerns first.

Adjusting Expectations Around Hardware

Taking a hardware-first approach sounds like a substantial change from the current tech landscape, yet some companies have already adopted it. Apple, for instance, creates hardware and software, and it succeeds because both are integrated. Essentially, Apple owns the entire ecosystem its users occupy, which allows the company to deliver greater privacy and security while also monopolizing user engagement.

It’s time for the investor community to admit that hardware matters, and though the timelines may take longer, the returns are just as rewarding.

Similarly, founders must begin grappling with hardware development challenges if they’re going to remain relevant. Finally, consumers should expect more from tech and be ready to pay for it.

Lu Zhang

Founder & Managing Partner at Fusion Fund

Lu Zhang is the founder and managing partner of Fusion Fund, a company dedicated to promoting early-stage venture capital for entrepreneurs.