Bundling Software Into Defense Hardware
Ross Fubini, Managing Partner at XYZ Capital, on the defense tech opportunity
The key point is that modern defense winners are getting valued like software companies, but paid like hardware companies. Anduril’s software matters because it makes drones, towers, and interceptors work as one system, but the dollars still show up when an agency buys the physical kit. That mirrors Apple, where the operating system increases the value of the device, but the device is still what gets budgeted, purchased, deployed, and replaced.
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Anduril’s early motion was not selling pure software seats. It was rapidly prototyping products, showing them at the range, getting small paid deployments, then scaling the hardware that proved itself. Sentry towers and counter drone systems became repeatable products because customers could buy a defined system, not just a dashboard.
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This matters in defense because procurement is built to buy commercial products and equipment more easily than recurring software subscriptions. In practice, a drone, truck, tower, or vessel can carry the software inside the package, making the buying process look more like equipment acquisition than enterprise SaaS.
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The best comparison set splits into hardware led companies like Anduril, Shield AI, Saildrone, and Saronic, versus software first companies like Govini. The hardware led group can unlock much larger contract values per deployment, but it needs more capital, manufacturing, and field testing. The software first group is lighter, but faces a narrower path to becoming a prime scale defense company.
Going forward, the biggest companies in defense tech are likely to keep bundling software into purchasable systems, not selling software by itself. The strategic prize is owning the operating layer and the hardware shell together, so each new deployed unit pulls more software into the field and makes the next product easier to sell.