The cloud is revolutionising IT. However there are two sides to every story: the winners and the losers. Who are they going to be and why? If you can’t wait here are the losers: HP, Oracle, Dell, SAP, RedHat, Infosys, VMWare, EMC, Cisco, etc. Survivors: IBM, Accenture, Intel, Apple, etc. Winners: Amazon, Salesforce, Google, CSC, Workday, Canonical, Metaswitch, Microsoft, ARM, ODMs.
Now the question is why and is this list written in stone?
What has cloud changed?
If you are working in a hardware business (storage, networking, etc. is also included) then cloud computing is a value destroyer. You have an organisation that is assuming small, medium and large enterprises have and always will run their own data centre. As such you have been blown out of the water by the fact that cloud has changed this fundamental rule. All of a sudden Amazon, Google and Facebook go and buy specialised webscale hardware from your suppliers, the ODMs. Facebook all of a sudden open sources hardware, networking, rack and data centre designs and makes it that anybody can compete with you. Cloud is all about scale out and open source hence commodity storage, software defined networks and network virtualisation functions are converting your portfolio in commodity products. If you are an enterprise software vendor then you always assumed that companies will buy an instance of your product, customise it and manage it themselves. You did not expect that software can be offered as a service and that one platform can offer individual solutions to millions of enterprises. You also did not expect that software can be sold by the hour instead of licensed forever. If you are an outsourcing company then you assume that companies that have invested in customising Siebel will want you to run this forever and not move to Salesforce.
Reviewing the losers
HP’s Cloud Strategy
HP has been living from printers and hardware. Meg rightfully has taken the decision to separate the cashcow, stop subsidising other less profitable divisions and let it be milked till it dies. The other group will focus on Cloud, Big Data, etc. However HP Cloud is more expensive and slower moving than any of the big three so economies of scale will push it into niche areas or make it die. HP’s OpenStack is a product that came 2-3 years late to the market. A market as we will see later that is about to be commoditised. HP’s Big Data strategy? Overpay for Vertica and Autonomy and focus your marketing around the lawsuits with former owners, not any unique selling proposition. Also Big Data can only be sold if you have an open source solution that people can test. Big Data customers are small startups that quickly have become large dotcoms. Most enterprises would not know what to do with Hadoop even if they could download it for free [YES you can actually download it for free!!!].
Oracle’s Cloud Strategy
Oracle has been denying Cloud existed until their most laggard customer started asking questions. Until very recently you could only buy Oracle databases by the hour from Amazon. Oracle has been milking the enterprise software market for years and paying surprise visits to audit your usage of their database and send you an unexpected bill. Recently they have started to cloud-wash [and Big Data wash] their software portfolio but Salesforce and Workday already are too far ahead to catch them. A good Christmas book Larry could buy from Amazon would be “The Innovator’s Dilemma“.
Dell’s Cloud Strategy
Go to the main Dell page and you will not find the word Big Data or Cloud. I rest my case.
SAP’s Cloud Strategy
Workday is working hard on making SAP irrelevant. Salesforce overtook Siebel. Workday is likely to do the same with SAP. People don’t want to manage their ERP themselves.
RedHat’s Cloud Strategy
[I work for their biggest competitor] RedHat salesperson to its customers: There are three versions. Fedora if you need innovation but don’t want support. CentOS if you want free but no security updates. RHEL is expensive and old but with support. Compare this to Canonical. There is only one Ubuntu, it is innovative, free to use and if you want support you can buy it extra.
For Cloud the story is that RedHat is three times cheaper than VMWare and your old stuff can be made to work as long as you want it according to a prescribed recipe. Compare this with an innovator that wants to completely commoditise OpenStack [ten times cheaper] and bring the most innovative and flexible solution [any SDN, any storage, any hypervisor, etc.] that instantly solves your problems [deploy different flavours of OpenStack in minutes without needing any help].
Infosys or any outsourcing company
If the data centre is going away then the first thing that will go away is that CRM solution we bought in the 90’s from a company that no longer exists.
For the company that brought virtualisation into the enterprise it is hard to admit that by putting a rest API in front of it, you don’t need their solution in each enterprise any more.
Commodity storage means that scale out storage can be offered at a fraction of the price of a regular EMC SAN solution. However the big killer is Amazon’s S3 that can give you unlimited storage in minutes without worries.
A Cisco router is an extremely expensive device that is hard to manage and build on top of proprietary hardware, a proprietary OS and proprietary software. What do you think will happen in a world where cheap ASIC + commodity CPU, general purpose OS and many thousands of network apps from an app store become available? Or worse, a network will no longer need many physical boxes because most of it is virtualised.
What does a cloud loser mean?
A cloud loser means that their existing cash cows will be crunched by disruptive innovations. Does this mean that losers will disappear or can not recuperate? Some might disappear. However if smart executives in these losing companies would be given the freedom to bring to market new solutions that build on top of the new reality then they might come out stronger. IBM has shown they were able to do so many times.
Let’s look at the cloud survivors.
IBM has shown over and over again that it can reinvent itself. It sold its x86 servers in order to show its employees and the world that the future is no longer there. In the past it bought PWC’s consultancy which will keep on reinventing new service offerings for customers that are lost in the cloud.
Just like PWC’s consultancy arm within IBM, Accenture will have consultants that help people make the transition from data centre to the cloud. Accenture will not be leading the revolution but will be a “me-to” player that can put more people faster than others.
X86 is not going to die soon. The cloud just means others will be buying it. Intel will keep on trying to innovate in software and go nowhere [e.g. Intel’s Hadoop was going to eat the world] but at least its processors will keep it above the water.
Apple knows what consumers want but they still need to prove they understand enterprises. Having a locked-in world is fine for consumers but enterprises don’t like it. Either they come up with a creative solution or the billions will not keep on growing.
What does a cloud survivor mean?
A cloud survivor means that the key cash cows will not be killed by the cloud. It does not give a guarantee that the company will grow. It just means that in this revolution, the eye of the tornado rushed over your neighbours house, not yours. You can still have lots of collateral damage…
IaaS = Amazon. No further words needed. Amazon will extend Gov Cloud into Health Cloud, Bank Cloud, Energy Cloud, etc. and remove the main laggard’s argument: “for legal & security reasons I can’t move to the cloud”. Amazon currently has 40-50 Anything-as-a-Service offerings in 36 months they will have 500.
PaaS & SaaS = Salesforce. Salesforce will become more than a CRM on steroids, it will be the world’s business solutions platform. If there is no business solution for it on Salesforce then it is not a business problem worth solving. They are likely to buy competitors like Workday.
Google is the king of the consumer cloud. Google Apps has taken the SME market by storm. Enterprise cloud is not going anywhere soon however. Google was too late with IaaS and is not solving on-premise transitional problems unlike its competitors. With Kubernetes Google will re-educate the current star programmers and over time will revolutionise the way software is written and managed and might win in the long run. Google’s cloud future will be decided in 5-10 years. They invented most of it and showed the world 5 years later in a paper.
CSC has moved away from being a bodyshop to having several strategic important products for cloud orchestration and big data. They have a long-term future focus, employing cloud visionaries like Simon Wardley, that few others match. You don’t win a cloud war in the next quarter. It took Simon 4 years to take Ubuntu from 0% to 70% on public clouds.
What Salesforce did to Oracle’s Siebel, Workday is doing to SAP. Companies that have bought into Salesforce will easily switch to Workday in phase 2.
Since RedHat is probably reading this blog post, I can’t be explicit. But a company of 600 people that controls up to 70% of the operating systems on public clouds, more than 50% of OpenStack, brings out a new server OS every 6 months, a phone OS in the next months, a desktop every 6 months, a complete cloud solution every 6 months, can convert bare-metal into virtual-like cloud resources in minutes, enables anybody to deploy/integrate/scale any software on any cloud or bare-metal server [Intel, IBM Power 8, ARM 64] and is on a mission to completely commoditise cloud infrastructure via open source solutions in 2015 deserves to make it to the list.
Metaswitch has been developing network software for the big network guys for years. These big network guys would put it in a box and sell it extremely expensive. In a world of commodity hardware, open source and scale out, Clearwater and Calico have catapulted Metaswitch to the list of most innovative telecom supplier. Telecom providers will be like cloud providers, they will go to the ODM that really knows how things work and will ignore the OEM that just puts a brand on the box. The Cloud still needs WAN networks. Google Fibre will not rule the world in one day. Telecom operators will have to spend their billions with somebody.
If you are into Windows you will be on Azure and it will be business as usual for Microsoft.
In an ODM dominated world, ARM processors are likely to move from smart phones into network and into cloud.
Nobody knows them but they are the ones designing everybody’s hardware. Over time Amazon, Google and Microsoft might make their own hardware but for the foreseeable future they will keep on buying it “en masse” from ODMs.
What does a cloud winner mean?
Billions and fame for some, large take-overs or IPOs for others. But the cloud war is not over yet. It is not because the first battles were won that enemies can’t invent new weapons or join forces. So the war is not over, it is just beginning. History is written today…
Everybody is hearing Cloud Computing on the television now. Operators will store your contacts in the Cloud. Hosting companies will host your website in the Cloud. Others will store your photos in the Cloud.
However how do you make money with the Cloud?
The first thing is to forget about infrastructure and virtualization. If you are thinking that in 2013, the world needs more IaaS providers then you haven’t seen what is currently on offer (Amazon, Microsoft, Google, Rackspace, Joyent, Verizon/Terramark, IBM, HP, etc.).
So what are alternative strategies:
1) Rocket Internet SaaS Cloning
Your best hope is SaaS and PaaS. The best markets are non-English speaking markets. We have seen an explosion of SaaS in the USA but most have not made it to the rest of the world yet. Only some bigger SaaS solutions (Webex, GoToMeeting, Office 365, etc.) and PaaS platforms (Salesforce, Workday, etc.) are available outside of the US and the UK. However most SaaS and PaaS solutions are currently still English-only. So the quickest solution to make some money is to just copy, translate and paste some successful English-only SaaS product. If you do not know how to copy dotcoms, take a look at how the Rocket Internet team is doing it. Of course you should always be open for those annoying problems everybody has that could use a new innovative solution and as such create your own SaaS.
During the gold rush, be the restaurant, hotel or tool shop. While everybody is looking for the SaaS gold, offer solutions that will save gold diggers time and money. SaaSification allows others to focus on building their SaaS business, not on reinventing for the millionth time a web page, web store, email server, search, CRM, monthly subscription billing, reporting, BI, etc. Instead of a “Use Shopify to create your online store”, it should be “Use <YOUR PRODUCT> to create a SaaS Business”.
3) Mobile & Cloud
Everybody is having, or at least thinking about buying, a Smartphone. However there are very few really good mobile services that fully exploit the Cloud. Yet I can get a shopping list app but most are just glorified to-do lists. None is recommending me where to go and buy based on current promotions and comparison with other buyers. None is helping me find products inside a large supermarket. None is learning from my shopping habits and suggesting items on the list. None is allowing me to take a number at the seafood queue. These are just examples for one mobile + cloud app. Think about any other field and you are sure to find great ideas.
4) Specialized IaaS
I mentioned it before, IaaS is already overcrowded but there is one exception: specialized IaaS. You can focus on specialized hardware, e.g. virtualized GPU, DSP, mobile ARM processors. On network virtualization like SDN and Openflow. Mobile and tablet virtualization. Embedded device virtualization. Machine Learning IaaS. Car Software virtualization.
5) Disruptive Innovations + Cloud
Selling disruptive innovations and offering them as Cloud services. Examples could be 3D printing services, wireless sensor networks / M2M, Big Data, Wearable Tech, Open Source Hardware, etc. The Cloud will lower your costs and give you a global elastically scalable solution.
When the first television shows were made they used one camera to record a theatre play. It was only after some time that the real potential of the television became clear.
Virtualization and IaaS is like a one-camera-theatre-play-broadcast
Yes it is great to be able to put software on virtual hardware and as such save some money in hardware costs. But it will not change anybody’s life because renting a virtual server full-time is more expensive than renting a physical hosting server. Companies that focus too much on virtualization and IaaS are not seeing the full potential of Cloud Computing.
Multi-tenancy – a game changer
Cloud Computing without mult-tenant solutions is like a race car without an engine. Making one solution that fits many and installing it once and managing it in one place is the real game changer.
How much time and money is lost in a per customer install? Ordering and installing hardware (4-6 weeks); paying for base software (OS, Cluster, Database, etc.); installing the total software stack; integration with back-up, fault management, single sign-on, performance management, third-party systems, etc.; upgrading and bug fixing; data migrations; etc.
All this can be drastically reduced if the software is installed once and designed for multiple companies and customers.
Best-In-Class solutions used to be those solutions with most features from market-leading companies like SAP, Oracle, Microsoft, etc. However most of these solutions are unnecessarily complex. There is a simple rule to check if you will be overpaying for unnecessary features: Do my business users need training? The more, the worst.
Apple has demonstrated that simplicity and easy-of-use are real demand creators. The real revolution of Cloud Computing is starting now. The real revolution is that business users can ignore the legacy corporate IT systems and use alternative solutions to get things done faster and more efficiently. The Appstore concept of “There is an app for everything”, will now be translated into “There is a SaaS for everything”.
Project managers will stop asking the IT department to install a shared project management server to synchronize their MS-Projects. Instead they will simply use a SaaS solution for project management. The same will be happening for other disciplines.
IT departments can fight this trend, just like they can try to stop people from bringing smartphones and tablets to work. However smart IT departments see a clear opportunity. Corporate systems are very expensive and often their implementation fails. This wastes a lot of time and money. By letting business users choose the SaaS solutions they want to use, IT departments will see the risk of project failures due to change management issues almost disappear. Using SaaS solutions however does not mean that IT departments are no longer necessary. Once users are over their honeymoon period they will want these SaaS solutions to use Single Sign-on and be integrated with corporate systems and other SaaS solutions.
The next steps in the Cloud Revolution
The next step in the Cloud revolution will be solutions that make easy integration between on-site systems and between different SaaS solutions possible. Project managers will love to manage projects via a best-in-class project management SaaS. However they will still need to get time reporting info, travel expenses, resource allocation, etc. The reality will be that some of these systems can be offered via other SaaS solutions and some will be local. All of them will need to be integrated if the enterprise wants to get real benefits. History has a tendency to repeat itself. Middleware and EAIs are not death because of the Cloud. They just will become EAIaaS.
The other Cloud revolution is likely to give business users tools to create their own applications in the Cloud. This does not mean programming tools but instead drag-and-drop wizards and dynamic data storage solutions. There are millions of business critical applications stored in Excel and Access files. It is time that business users get the proper Cloud tools to convert these into social corporate solutions. Google Apps and Force.com are ahead of the rest but they are far from being the winner yet. The war has just started…
Long Term Evolution, LTE or sometimes also referred to as 4G, is the next generation mobile network technology. It promises to bring network speed to the mobile that can beat the current ADSL offerings. In the beginning LTE prices might be high but competition especially from new entrants – “the Ryanairs of telecom” / “4G Bitpipes” – are likely to bring affordable pricing plans soon. The US already has the first “4G Bitpipe players”: Clearwire and Lightsquared.
So what does it mean if tomorrow you can have ADSL-like speeds for an (almost) flat-rate. In practice, end-users would be crazy to still pay €0,15 for minute for a call or per SMS. Skype with its optimized codecs (e.g. SILK) will offer better voice quality and will throw in video for free. Instant messaging, Twitter and Facebook chat will completely substitute SMS. This will be the end of the telecom cash-cows: calls and SMS…
What will be the next cash-calf? For those operators that are still looking for the “Killer App” – that single technology that only telecom operators can offer and is extremely successful – I have some news. Postal services are still looking for their killer app after the stamp was substituted by email. So is the music industry. There is no economic law that says that a former monopolist has the right to pick its next monopoly.
So if there is no “Killer App” does it mean that all telecom operators are doomed to become bit-pipes tomorrow? Over time several will but not necessarily all. Although dotcoms have the sexiest solutions, large corporations are unlikely to massively shift their communication services to a heavily indebted 25 people company close to a surf-paradise beach. So due to inertia the abyss is still some years away. However should you just give up and let consumer ARPU drop year by year?
I believe there is still a window of opportunity for telecom operators to bring new appealing services. However they must be willing to abandon some important historical laws of telecom.
1) Standards slow innovation
Collectively negotiate a standard that is more a political compromise then the simplest, most effective way of doing things is not helping innovation. In the Web 2.0 era, dotcoms launch new ideas all the time. Most of the time it is a “winner takes it all or at least most” market. So the winner sets the standard. How many Twitter competitors do you use?
By designing an architecture around obscure standards, few operators have employees that can explain their company’s architecture. Google and others have invested heavily in their architecture. They constantly update it. But on a blackboard a Google architect can draw you exactly why they choose Bigtable, GFS, etc.
2) Don’t talk about subscribers, call them users
A subscriber is an entity that signs a monthly contract with a telecom operator. By doing so a subscriber seems to subscribe to a list of applications that the marketing department of the telecom operator has preselected as the most adequate for him or her. The operators seems to know what is best for their subscribers. WRONG!!!!!!!!
Call them users and give them the tools to select/create/design/customize/configure the services they want. Let the community vote about which feature is needed. Ask users why they stop using a new service after a week. Let users define the price they are willing to pay by offering multiple alternative solutions in different price ranges with different feature sets.
3) Go from a catalog of few to an infinite catalog
If Telecom can no longer survive based on a few hit services, then they could go to the other extreme: the long tail telco. A long tail telco offers an almost infinite catalog of solutions that combine communication assets with other solutions in order to solve user’s problems, to make them more productive or to entertain them.
Users should be able to combine products to resolve their needs. A good example is what is offered by Invox. Via wizards, templates or a Yahoo Pipes drag-and-drop configuration, small to large enterprises can configure their own telecom services like call centers, PBX, etc. They can easily integrate the best of the Internet (Salesforce, Google, Yahoo, etc.) with IP-based communication. You use what you need. You configured it the way you want it.
What is missing is a market in which those users that don’t want to do it themselves or who need specific support (e.g. custom integrations), can go and find the right help.
Telecom operators should no longer focus on end-user services but on enabling the end-user and an eco-system of independent third-parties to be able to create and sell solutions and services to one another. As long as it is easier, faster and cheaper for a third-party to use an operator’s tools and assets they will see no need to design an alternative solution. This brings us to the next point…
4) Monopolists die because of greediness
Revenue shares of 40-95% are often not in line with the value and risk the operator takes in the value chain. Those operators that think that “squeezing partners until the last drop” is a good long-term strategy, will be the first to die. Innovation needs out-of-the-box thinking. People don’t take risks if they don’t see rewards.
You will need to do more than to just blindly follow these four rules. But by applying them and listening to users, you are on your way to create new cash-calfs…