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In part 1 of this series I discussed the base technologies (virtualisation, shared resources, automation and abstracted services) that are at the base of cloud computing. Part 2 discusses the new computing models (Public Cloud, Utility Pricing, Commodity Nodes and Service Specializations) that have emerged as a result of the base technologies. Part 3 lists some of the business value that can be extracted from these new models.
This part explores some of the emerging business models, and hence target markets, that may be able to make use of the business value on offer.
Part 4 : Emerging Business Models
Rogue Enterprise Departments
The most boring and barely mentioned group are the rogue enterprise departments that are fed up with the inability of internal IT to meet their needs. Cloud computing allows them to build a solution quickly, under the radar and with low financial risk simply by putting in their own effort and whipping out their credit cards. But how does this facilitate the emergence of new business models? It allows enterprises, by being entrepreneurial at the departmental level, to collectively become more competitive, innovative and respond to market needs. Products can be developed quicker, cheaper and able to fail if they don’t work.
Do you want to quickly spin up a sales campaign app to pitch a new offering? There’s an app for that. Do you want to offer post sales extended warranties via a coupon in the packaging that can be redeemed online? Maybe there is an app for that too.
I think that the market for rogue enterprise cloud applications is larger than people think and the concerns and barriers from corporate risk, security and governance will be forced to adjust.
Small and Medium Business
Some cloud vendors, particularly Microsoft, believe that the largest market is the small to medium sized businesses that should rather be using cloud computing than traditional hosting. The immediate and more obvious benefits are for the smaller businesses to operate solutions that, for a low cost, have enterprise scale features such as high availability, responsiveness and reliability. It allows smaller businesses to compete head on with their larger competition by having high quality customer facing solutions or better systems for staff in the field, logistics, billing or other business processes.
What will be interesting over the next few years (probably more than five years) is how these smaller businesses start linking up to each other in value chains and providing more business services via the cloud.
The cloud start-up dream is to become the next Youtube or Twitter and cloud computing plays to the ambitious (and sometimes unrealistic) plans of start-ups. A start-up can use its limited funding on development and marketing without wasting it on unnecessary hardware that it would need if it Oprah mentioned them, but probably never will. A start-up can, using cloud computing, still operate from the founders’ garage as their role models did ten to twenty years ago, but operate a huge international web property. While most start-ups will never achieve their lofty dreams, cloud computing is there to support them if they do make it. Although it is unlikely to be 100% correct the first time, a properly architected cloud oriented solution could scale sufficiently to handle growth and avoid the infamous ‘fail whale’.
Finally, cloud computing is destined to provide the architectural basis for new products offered by first world organizations to emerging markets. If there is an economic shift towards countries such as India, China and Brazil, the delivery of products by organizations based in New York and London will need to be radically different, low cost and innovative. It is likely that many products will be able to be delivered via the Internet, but emerging markets do not have first world infrastructure, so delivery will have to be done using mobiles, simple interfaces, low bandwidth and low latency. Also, due to such a high dependency on a mobile device and the low margins for each sale, the (possibly free) ecosystem needs to be social, viral and low cost in delivery and marketing terms. There are many smart people around the world thinking about these products, not from a cloud computing perspective (yet), but from their own desires to open up and penetrate new markets. Products that may be delivered would be something like simple life insurance products delivered using a mobile phone on a pay-as-you-go basis. A $2 premium rate text gives you $500 of funeral cover.
Emerging markets can also take advantage of sophisticated first world individuals or social groups. Imagine a system that provides, again via a mobile device, microfinance (say $20 loans) funded by individuals in $1 increments across the United States. ‘Want to lend $10 and get $12 back? There’s an app for that.’
Relating back to the cloud computing model, there are literally billions of people that are able to be serviced by large multinationals if the product and the price is right. These products cannot use traditional delivery channels (mail, branches or call centres) as the margins are pennies. The only way to deliver them is using sophisticated, reliable and low cost IT – and that is where cloud computing plays a role.
Change and Interest
What we understand the cloud computing market to be today is different from what the reality will be 5-10 years from now – at the very least because there is confusion and conflicting messages. Hype cannot be sustained within a vacuum and there definitely is interest in cloud computing fuelling the hype, which means that there probably is a demand. Beyond the marketing material and shallow articles in the mainstream media, leaders in business are sitting down and conversing with people who know something about cloud computing and finding compelling arguments that apply to their particular business and situation.
Businesses are reeling from the financial crisis – manufacturing, shipping, travel, services, media and just about every single sector is looking at how they need to do things differently, look at new markets, manage costs, take less risks, be more responsible and many other items on the boardroom agenda that would never have been table a few years ago. Individuals are feeling the threat of collapsing industries, unemployment, financial insecurity and diminishing prospects. They too are feeling the need to do things differently and have a yearning for change. It is causing them to be more entrepreneurial, to create new businesses, to try and change enterprises from within and to elect a President that offers hope and change.
So while Information Technology has evolved at its usual (rapid) pace, change has swept across the world and something within cloud computing has resonated with that change and amplified the impact that cloud computing could have on the way we sell, buy, develop and interact with each other. Where cloud computing may have been an interesting technology sideshow in years gone by, the promise that it offers (which admittedly it may not be able to deliver on) has caught the attention of business leaders.
So people are listening, leaning forward in their chairs and conjuring up scenarios where cloud computing may work for them. They are talking, arguing, writing and conversing about a set of technologies that will fundamentally rock our approach to IT.
The question is, are you part of that conversation?