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Dealing with Web 2.0, Cloud computing trends….

In Systems thinking on December 7, 2008 at 8:55 pm

My favorite oxymoron(ic) concept/phrase is “sustainable competitive advantage”…its all about getting to a point where you have sufficient lead time with competitors on all aspects of ‘competitive advantage’ such as Product or Technology supremacy, Customer intimacy or Operational Efficiency. You need constant learning & unlearning to recognize when the rules of the game change, when there are changes in frame of reference and refocusing. Programmable Web or Web 2.0 or “Participation age” or *aaS (everything as a Service) is just another inflection point in how the technology game is evolving. But first, lets talk about how you might lose competitive advantage. You lose competitive advantage due to:

  • Imitation by competitors: Amazon’s AWS, GoogleApps, Joyent are some of the forerunners in the Cloud computing offerings space. While first mover advantages could be significant in the presence of strong network effects, certainly the concepts around the Cloud Computing business model is no barrier for entry. So, expect responses from other big players such as Microsoft, HP, IBM and Sun.Interestingly, Sun’s offerings competed on a similar business model, but addressed a much narrower segment of workloads. Then, Web 2.0 came along….Companies with large install bases of their own in various customer segments such as Enterprises, Web 2.0/startups, Channels (Resellers, OEM’s), Developers are sure to come up with unique value propositions for their primary revenue base, and build on their existing networks first. “Best Practices” is the euphemism for imitation…not that it is bad, but remember it is an equalizer. Now, in the context of Cloud computing, ITIL/ITSM as a best-practice will begin to be re-defined.
  • Denial or Inertia of incumbents: Ironically, the likelihood of delayed response to technological shifts increases with a company’s level of success with previously dominant technologies. Google and Amazon seem to have cost structure advantage, and have exploited Web 2.0 standards to roll out utility scale computing. Sunk costs and current cost structures for the big players (IBM, Sun etc) impose quite a lot of inertia, while they formulate response strategies…
  • Exploiting your strength’s to the point where they turn out to be your weakness (Sub-Optimization): What has worked in the past may not work for the future. For e.g. Network effects that drove the adoption of the Microsoft PC platform, are not as relevant in the Web 2.0, Open Source/Open standards world. Similarly, high performance server market is not as attractive to customers as before in the Web 2.0 world, because of open source innovations that enable highly scalable, utility scale deployments using low-end hardware and open source software. Think about what MogileFS, Hadoop, BigTable, AWS do to HW vendors…you would care less about OS innovations such as ZFS or DTrace when you have to worry about large scale deployments. Application level fault tolerance tend to away a big chunk of the value proposition out of these technologies. 
  • Change in the rules of the game: Rail roads, Telegraph/Telephone networks, Automotive manufacturing all went through this, and it is not time for IT industry. First generation of these industries worried about Manufacturing issues (e.g. once Ford Model T’s started rolling out en masse, the success in dealing with problems in production created a new problem/game: that of concern about dealing with growth, customer segments, distribution etc). After Mainframes, Client-server & PC eras, we’re moving back to ubiquitous & participatory age of computing with the need for Utility scale of compute and storage capacity. Cloud computing seems to address business model concerns in this area in a simple/scalable manner. 
  • Change in the very context/frame of reference: The nature of computing, as well as how you look at computing in general, is changing (i.e the frame of reference that is common or “reality” and the methods of inquiry). All enterprises have to deal with a Social network of some sort at the edges. The LongTail, Power Law and the idea of offering API’s for a programmable web of Services around your products, is the new frame of reference. You just don’t “sell products” anymore. This is where terms like “Platform as a Service”, “Infrastructure as a Service”, “Software as a Service” etc come in to play….whether you like it or not, companies will have to be “operators” of “IT utility” at some level. Today we tend to look at “internal applications” versus “customer facing” applications, as adjuncts to product strategy. We’re moving in to an era of Information-bonded, social networks.

Google’s promise on more eco-friendly Data centers, Microsoft’s Generation 4 Data center design, and how they craft their business models around Cloud computing at all levels, determine how the IT industry is set to transform the next round of this game.