Over the past several years, we have witnessed how critical it is for traditional enterprises in many industries to become software companies to not only thrive, but to survive. With digital natives such as Uber and Airbnb utterly disrupting long-standing industries in just a couple of years, the need for enterprises to embrace software and digital transformation has never been greater.

Plenty of business leaders and observers have weighed in on this phenomenon, presenting software transformation as everything from an inevitability - every business will be a software business, Microsoft chief Satya Nadella -- to an imperative - you need to become a software company... or die, Geneca CEO Joe Basgall.

Like so many others, I’m staunchly in the business imperative camp. The consequences of failing to become a software company are just too dire for any business—particularly an established enterprise—to take a passive approach to this strategy. An enterprise that fails to make the transition faces the risk of being:

• leapfrogged by more agile enterprises that actively transform
• disrupted by newer startups that have been software companies since inception
• unable to react quickly enough to meet the changing needs and expectations of your customers

By now we’re all familiar with the cautionary tales of software-based companies disrupting markets and spelling doom for established players who didn’t evolve quickly enough. Macy’s meet Amazon, Yellow Cab meet Uber, Blockbuster meet Netflix—the list goes on. These unicorn nightmares have raised enough anxiety for enterprises to make serious investments in digital transformation strategies. Sure, the scope of digital transformation is larger than transitioning to a software-driven model, but that metamorphosis is certainly a key aspect.

As Appian President and CEO Matt Calkins told the audience at the recent Appian World conference in San Francisco, “Digital transformation means becoming a software company.”

Judging by IDC research, many companies have heeded the warnings about disruptive unicorns. The firm forecasts worldwide spending on digital transformation technologies to exceed $1.2 trillion in 2017—a 17.8 percent increase over last year. The forecast puts digital transformation spending at a 17.9 percent CAGR from 2015 to 2020, reaching $2.0 trillion in 2020. And the fastest growing technology categories associated with digital transformation all will be software-related:

• Cloud infrastructure (29.4 percent CAGR)
• Business services (22.0 percent CAGR)
• Applications (21.8 percent CAGR)

IDC also predicts that spending on app development and deployment—building and launching software—will overtake IT services as the second largest digital transformation technology category by 2020.

But Software Companies Fail Too

So, businesses get it: becoming a software company is an imperative and they’re placing large investments to make it happen. But I get the sense that a sobering reality gets obscured when so much focus is placed on transformation as the Holy Grail: software companies fail too.

Yes, you must become a software company, but that only keeps you in the game; it doesn’t guarantee victory. There are no trophies awarded for simply wearing cleats and shinguards to a soccer match. You can’t play without them but they afford you only the opportunity to compete. I would say the same for adopting a software-driven model.

Being a software company alone won’t do it; you must be a software company that harnesses its agile, cloud-based, data-driven capabilities to wow its customers. Apply that software-driven approach to attracting, delighting and retaining customers. Remember that customer experience (CX) is the competitive differentiator that ultimately determines a business's success. And you can’t differentiate your CX if you’re deploying the same third-party software solutions that your competitors are. Being an agile software company with a skilled development team allows you to build custom experiences specific to your customers’ needs and expectations.

“Your goal is to find a way to build the organizational capability to create and deploy features that keep customers consuming. Of course that process starts with truly understanding your customers,” wrote Basgall in his Entrepreneur.com article. I agree.

To truly stand apart from your competitors, you need to build an experience that customers can get from your brand alone. Jason Bloomberg summarized it well in his commentary about platforms and digital transformation on Forbes.com, “One of the main reasons becoming a software company makes sense for the typical enterprise, after all, is because software is infinitely malleable. You can become anything you want, or more importantly, anything your customers want you to be.”

The Software Company with a Differentiated CX Wins

Today, customers across industries expect to interact with brands in real time whenever and wherever they want to through the channels they choose. Any enterprise that wants to acquire and retain customers must offer this type of engagement as part of a differentiated experience, and embedding communication into its apps and services is a critical aspect of meeting that objective. Communications platform as a service (CPaaS), through application programming interface (API) building blocks, offers a solution for creating those experiences within the cloud-based model of the modern software company. Not only does this approach enhance the customer journey by engaging with them where they feel most comfortable, but it is a key driver for delivering better business outcomes by helping enterprises to connect with their customers in new and innovative ways.

About the Author: Tony, who is president of Nexmo, the Vonage API platform, has over 14 years of leadership experience in cloud, communication, and mobile industries. At mBlox and Boku, Tony opened up global messaging and payment services. Tony holds a Masters in Computer Science from Grenoble Institute of Technology in France and an MBA from the International Institute for Management Development in Switzerland, with a focus on leadership development and organization behavior.