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Scalability, OSS, Cloud computing business models…

In Business models, Cloud Computing, Open Source Software, Scalability on November 17, 2008 at 5:37 pm

Just to get a perspective on how technology trends (cloud computing, open source software, need for web scale infrastructure) and network effects impact business dynamics, consider:

  1. Moore’s law (CPU power doubles every 18 months)
  2. Gilder’s law (Fiber bandwidth triples every 12 months)
  3. Storage capacity doubles every 12 months (is this called Storage law?)

While these propel improvements such as CMT, greater I/O throughput, greater storage capacity and performance at lower costs, they also enable other developments such as Virtualization etc resulting in lower cost, greater performance, better utilization levels.

Now consider some of the business dynamics based on network effects:
  1. Metcalfe’s law: Value of a network is the square of the number of users (think LinkedIn, your very own Ning network etc)
  2. Power law: Proverbial long-tail and the so called “Freemium” business model (i.e free software == zero cost marketing), you pay when you need extra services.

While few companies enjoy the “head” side of the power curve, things like AWS, Zembly speed up the deployment cycle all along the power curve, even the long tail…it is clear that helping Companies go up the power curve is a good business to be in, faster hardware just makes it faster!  Why? Because there is room for every type of community or customer base, however small it may be, and the marginal cost of delivering to those segments is becoming smaller every day, because of web scale frameworks and variable cost infrastructure made possible by these innovations.

Open Source software + Cloud compute model helps with Economies of Scope (i.e breadth of activities you need to handle in a profitable way) in an unprecedented way: you just don’t worry about IT needs in the traditional manner anymore.
Meanwhile HW innovation trends discussed above + Network effects + Cloud compute model can also help with Economies of Scale (e.g. pay as you go model with AWS) by letting you build on a business model with miniscule “conversion rates” off of a very large online customer base.
 
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