Hardware vs. SaaS Misses Where Industrial Value Is Created
In the markets, in recent months, a distinct new narrative has taken hold.
But that interpretation starts to fall apart once you step into real industrial environments.
European semiconductor startups are raising record capital. Hardware is back in favor. At the same time, the SaaS model is being questioned as AI lowers the barrier to building and replicating software.Opinion pieces about the SaaS fall from grace strike a tone of alarm. It is an easy story to believe in. Software is commoditizing, hardware suddenly appears more defensible, and capital is moving accordingly.
However, in industrial markets, the question is not what you build. It is whether it runs.
In those environments, success is rarely determined by whether a solution is defined as hardware or software. What matters is whether a system can be deployed into what already exists, operate reliably under real conditions, and be trusted by the people who depend on it every day. That is where value is created.
What we are seeing is not a wholesale shift from SaaS to hardware. It is a shift away from standalone products toward systems that can be integrated, sustained, and relied upon in production.
In conversations with industrial leaders, this becomes clear quickly. The questions they are asking are focused on operational realities.
- How difficult will this be to install into what we already have?
- What happens when conditions are no longer ideal?
- Who owns the system when something breaks?
These are not secondary considerations. They are what drives their decisions.
Defensibility, in this context, is not created at the point of invention. It is created when a system continues to function under real conditions without becoming a burden.
This is where many assumptions about hardware begin to weaken.
Semiconductors, robotics, and other deep technologies are harder to build. But the complexity of creation does not determine staying-power. In industrial environments, systems are replaced not because something better exists, but because something stops working in practice.
We have seen technically superior systems rolled out with strong early results, only to be sidelined months later when integration created friction, reliability faltered, and operators reverted to familiar workflows to keep production stable.
At that point, the outcome has already been decided.
The narrative around SaaS is being oversimplified.
Horizontal software certainly is under pressure. AI is compressing development cycles, and interfaces are easier to replicate. In those markets, defensibility is being challenged.
However, industrial environments follow a different logic.
In industrial environments, software is becoming more embedded, not less.
It is moving into machines, control layers, and real time decision loops that directly influence physical outcomes. Once software reaches that level, it becomes intertwined with processes, data flows, and operational logic that are difficult to unwind.
What appears interchangeable at the surface becomes deeply entrenched once it is part of how the system runs.
This is why the real shift is not from software to hardware, but toward integrated systems where both are proven in operation.
From an investment perspective, this is where the distinction becomes critical.
Hardware heavy models demand more capital, longer timelines, and early commitments that reduce flexibility. Pure software models, where switching costs remain low, are becoming easier to replicate.
What consistently performs sits between these extremes. It is where software is deeply embedded into physical systems; integration incurs switching costs, and value is demonstrated in operation over time.
These businesses scale on top of existing infrastructure, reach production faster, and build defensibility through adoption.
At Momenta, this is exactly why our approach has remained consistent while narratives change. We have seen enough systems succeed and fail in production to know where defensibility sits.
We focus on systems that connect to physical assets, operate at the edge, and deliver measurable outcomes once deployed. Systems that become part of how industry runs, not just how it is designed.
Because in industrial markets, value is not created when something is built. It is created when it works, consistently, in production.
Capital will continue to move, and narratives will continue to oversimplify what is happening. Industrial systems are governed by their own constraints and a slower pace. They are not subject to the whims of those shifting narratives. They can’t afford to be.
Over time, the companies that endure are not the ones that fit neatly into a category, but the ones that become part of how things work, making them an operational risk to replace.
Momenta is the leading Industrial Impact® venture capital firm, accelerating innovators across energy, manufacturing, smart spaces, and the supply chain. Our team of deep industry operators has helped scale industry leaders and innovators to improve critical industries, the environment, and people's quality of life for over a decade. PitchBook named Momenta among the world's top ten digital industry venture funds for both 2023 and 2024 in its Global Manager Performance Score League Tables, one of just two European-headquartered VCs to achieve a Top 10 ranking. For more information, please visit: momenta.vc
