Cloud Computing - Part 4 - Business Ecosystems and Value Capture

http://cloudcomputingexpo.com

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

This is part four of a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [1]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

The Cloud Computing Ecosystem Key Groups

Most modern technological products and services exist in a complex business ecosystem framework that extends far beyond the traditional scope of manufacturer and consumer. The business ecosystem framework for cloud computing consists of several key groups:

• End Users - Most end users of cloud computing services, as discussed in the first and second papers of this series[1][2], must see improvement in key values in which Cloud Computing will be measured. Otherwise, there will be no incentive to adapt the technology. Any loss aversion from traditional alternatives must be avoided or made irrelevant when compared to the new technology.

• Network Administrators - Depending on the particular adoption policy of a corporation, Cloud Computing may not extend throughout a corporation’s computer network and only reach the data center / server level. In this case, the actual network administrators are considered the actual end-users and have focused needs and concerns that must be addressed by a Cloud Computing provider before being adopted.

• Computer Hardware Manufacturers (OEMs) - These companies offer workstation and/or server equipment to their clients, including individual corporations, separate data centers, and cloud computing data centers. Existing and future partnerships will dictate what opportunities in these disparate areas of the ecosystem can be successfully leveraged to maximize market share and survivability.

• Internet Service Providers (ISPs) - While not directly associated with the technology of Cloud Computing, ISPs provide the means by which the end users or network administrators are able to access the services associated with Cloud Computing.

• Cloud Computing Platform Providers - Depending on a particular Cloud Computing Architecture, there may be a top-level interface that an end user accesses lower level applications and services in a Cloud Computing framework. Alternatively, if the framework is modular and based on à la carte offerings, this top-level interface may only be a standardized graphical user interface among each option.

• Cloud Computing Applications and Services - These are the actual components that make up each cloud computing framework. The key objectives assigned to each component, especially for à la carte frameworks, help to distinguish the target business sectors of the framework. The most integrated architectures will blur the distinctions among services and offer a seemingly all-encompassing package to the end user.

• Business Partners - In order for a framework to dominate parts of a business ecosystem, partnerships must be formed among companies and organizations. These partnerships, which most often are vertically formed through an architecture, allow a synergistic relationship, leveraging the specialties of differing organizations into a common framework or product.

• Business Complementors - As described by David Yoffie and Mary Kwak in the September 2006 Harvard Business Review article “With Friends Like These”, and adapted into Figure below, the management of complementors, businesses that separately supply services to the same customers are a key component to business ecosystem strategy. These businesses often have the opportunity to leverage off of each other’s ecosystem position and strategy to further their own interests. Complementor arrangements can be fleeting since the parties often have misaligned interests due to their differing positions in the ecosystem. A mutually beneficial ecosystem can quickly change into a conflicting arrangement.

• Non-Business Organizations - Organizations that are not focused on business partnerships can provide a strong influence in the formation of some business frameworks in the Cloud Computing ecosystem. These relationships are often seen in open-source communities, which foster a collaborative form of product development. Academic institutions, which often give greater value to the sharing of knowledge epitomized by scientific research, are often involved with these organizational relationships.

• Two-Sided Market Complements - Separate from the business partners described above, some Cloud Computing frameworks are structured for a two-sided market. As a result, the adoption of a framework by one side of a market is directly related to the existence of adopters on the other side of the market. The Cloud Computing platform provider serves as the intermediary between these two sides. Caution must be exercised by the platform provider to balance both sides of the relationship to maintain increasing returns to scale.

  Complementor Management Strategies; Adapted from [3]

 

An INTRODUCTION to the Cloud Computing Ecosystem

 Since most cloud computing applications are in the very early stages of adoption, there is not a wide variety of history in the technology. Previous business strategies involved focused efforts in remote storage, media access, or common services such as webmail. However, as Cloud Computing as a unique business model has matured and attracted the attention of major corporation, major architectures, both modular and integrated, have been developed to incorporate this technology.

As can be seen in Exhibits 1 and 2 below, there are six major Cloud Computing service architectures that are competing for dominance. Each architecture is fundamentally different from one another, reflecting not only the types of clients it is targeted to serve, but also the technical background and business philosophy of its developers.

• Amazon.com – Amazon Web Services - Amazon’s modular cloud computing solution is focused on specific services that have been designed for businesses and is considered a specialist in this segment of the ecosystem. Other than the coordination among services, there is no focused platform. The architecture is designed to serve B2B two-sided markets with the seller paying Amazon for services. Due to the focused, yet comprehensive offering in these services, complementors are not very important. However, IBM Blue Cloud is a potential future rival in these services. Microsoft Azure, with an integrated platform, will offer a long-term threat. 

• Yahoo! – Commerce and Small Business Services - Yahoo, who offers home-user focused web applications such as e-mail or job searching, has begun to offer limited services to small businesses. While they were a leader in the use of the internet in the late 1990s among home-users, they are being eclipsed by Google.

• Hewlett Packard (HP) / Intel / Yahoo! – Cloud Computing Research Initiative - Uniquely, these companies have formed a partnership with HP and Intel called the Cloud Computing Initiative that is focused on sharing storage and computing capacity among academic institutions. Many applications and services have been developed with assistance from the open source community. Complements are critical for this project to survive in the long term.

• Google – Google Apps and Google App Engine - Google Apps has focused on time management and communication applications that leverage the architecture that Cloud Computing can offer. Google App Engine provides a programming interface that facilitates the programming of webapps. Since Google is not a major software developer, it will require a constant variety of complementors to maintain dominance in the long run. Microsoft Azure, an integrated platform, will have build-in complementors that will directly threaten Google’s position in all ecosystems, but primarily in the business sector.

• International Business Machines (IBM) – Blue Cloud - IBM’s modular framework, developed from the continuing development of their Tivoli division, aims specifically at the server market. They aim to leverage their relationships in the server market and specialize in offering an alternative to local Data Centers. Accordingly, their services are structured towards the needs of a network administrator.

• Microsoft – Windows Azure - The industry is awaiting Microsoft’s entry into the Cloud Computing “arena” with Windows Azure. It will be an architectural innovation since it will be the first major integrated operating system designed to work primarily with cloud computing resources. As a result, Azure has the opportunity to be both a vertical integrator as an application interface and a horizontal frontend platform for end-users. Microsoft will need to leverage their existing user base and their application developer partners to assure that the combination of a two sided market (application developer / application user) and complementors are sufficient to gain dominance in the ecosystem. However, Microsoft is in the strong position that it could use its vast financial resources to form additional partnerships and wait for adoption of Azure in the ecosystem.

Major Cloud Computing Service Architectures

Cloud Computing Ecosystem (Select Services)

The computer ecosystem is at the edge of a radical change in architecture due to the maturing of Cloud Computing. Initially, Cloud Computing was the venue of many varied services that offered limited offerings. Gradually, major leaders have come to dominate some types of services such as Google for personal productivity and organization and Amazon for B2B Services.

However, IBM Blue Cloud and Microsoft Windows Azure herald a radical change in the architecture of the ecosystem in which the focus of the computing hardware and software is no longer located with the user, but at a central hub “in the cloud”.

This could raise the importance of the telecommunications industry to an even higher level of importance than during the “dot com boom” of the 1990s. These companies will not just be the “gatekeepers” of access to the rest of the world as in the past, but also to our own hardware and software. Essentially, the telecommunication companies are the ultimate compementors of the Cloud Computing industry. If the infrastructure is unable to handle the additional communicative load, it will form a bottleneck that will prevent large scale adoption of cloud computing.

The discussion of Cloud Computing will take a deeper dive into the issues that affect IT operations and business strategy in the next part of this series:

Cloud Computing - Part 5 - A Disruptive Technology?

Refernces:

[1]    Atencio, Charles, “Demand Opportunity of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[2]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[3]    Yoffie, David, and Kwak, Martin, “With Friends Like These – The Art of Managing Complementors”, Harvard Business Review.

Cloud Computing - Part 3 - Life Cycles and Transitions

http://cloudcomputingexpo.com/

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

This is part three of a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [1]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

A Brief Introduction to Technology Evolution of the Cloud Computing "Concept"

The research into the technological concepts behind Cloud Computing could be traced back to the development of the first computer networking infrastructure, the Advanced Research Projects Agency Network (ARPAnet), in 1962. Charles Herzfeld, ARPAnet Director from 1965 to 1967 described the project intentions:

“The ARPAnet was not started to create a Command and Control System... Rather, the ARPAnet came out of our frustration that there were only a limited number of large, powerful research computers in the country, and that many research investigators who should have access to them were geographically separated from them.” [3]

ARPAnet Geographic Map - 1969

ARPAnet Geographic Map - 1971

ARPAnet Geographic Map - 1980

Research, development, and diffusion of prerequisite technologies to Cloud Computing followed: Ethernet standards in the 1970s, TCP/IP protocols in the 1980s, and the advent of widespread high-speed internet access during the 1990s and early 2000s.

Application of the Evolutionary Life-Cycle Framework to Cloud Computing Development

Fernando Suarez, Associate Professor of Management at Boston University, has identified five key phases in the evolutionary life-cycle of a technology [2] as shown in Figure below. Each phase is bounded by seminal events in the technology’s development and adoption in a market. While these events have been standardized by Professor Suarez, they are unique to the particular circumstances in the development and diffusion of each technology.

The Key Phases in Technological Evolution [2]

Using Professor Suarez’s framework, a brief description of the phases, seminal events, and how they relate to Cloud Computing follow:

Phase 1 – Research and Development:
This phase, initialed at the very beginning of technological development (To), includes the initial research into a technology before a working prototype (TP) is developed. While computer clustering has been used with supercomputers for many years, To for the current incarnation of cloud computing can be traced back to the early 1990s when Ian Foster, Carl Kresselman, and Steve Tuecke began research into a modern form of distributed computing for science and engineering called “The Grid” [4] [5]. Analogous to the electric utility grid, this technology would allow a user to use metered computing resources.

Early research was focused within academic institutions. The innovation trajectory at this stage concentrated on the coordination of resource sharing among different computers, leading to the establishment of Virtual Organizations (VOs), a new type of architecture that supported problem solving based on computer collaboration. Key metrics of success, embodied in the first working prototypes, included acceptable data transfer rates among network nodes, reliability in the transfer of data, and the ability to dynamically integrate output from computer collaboration onto a central server.

Phase 2 – Technical Feasibility:
Initiated by the development of the first prototype (TP), this phase focuses on refinement of the technology until the first release of a commercial product (TL). The prototypes of the shared computational aspects of Cloud Computing, then called Grid Computing, were focused in academic volunteer research projects.

The first of these was the Great Internet Mersenne Prime Search, started in January 1996, focused on finding Mersenne numbers, positive integers that are one less than a power of two, which are also prime numbers. [6]

This free project, and others like it, such as SETI@home in 1999, proved that the use of centralized servers interacting with personal computers over high-speed internet connections was a feasible technology to pursue commercially.





Phase 3 – Creation of a Market for the Technology:
Initiated by the release of the first commercial product (TL), this phase focuses on alignment of the technology to the needs of potential customer segments, ending when an early front runner in the technology appears in the market (TF). The need for centralization and standardization in an increasingly digital globally networked world is self-evident at different levels to many consumers. However, the radical architectural innovation presented by cloud computing compared with existing technologies has slowed market adoption of many innovations associated with this new technology.

In order to effectively address different customer segments, Cloud Computing has fragmented into various types of products and services with different development trajectories.

• Online File Storage - The remote on-line file storage service, first pioneered during the “dot com boom” of the late 1990s, is currently inferior to internal hard disk drives and local network servers in speed. However, it has the ability to offer virtually unlimited storage capacity to its clients. In addition to free storage services that are typically limited to a few gigabytes, these service providers have been offering low monthly rates ($5 to $10) per month for unlimited backup capacity. These rates allow remote storage to be an economical alternative to local storage of archival files.

• Social Networking - While preceded by an early dial-up modem service called “The Well” in 1985, the mid 1990s saw the dawn of the World Wide Web based social networking sites, such as Geocities in 1994, Classmates.com in 1995, Linked-in in 2003, and Facebook in 2004. These services are leveraging the advantages of multiple users contributing to a centralized database. Users, after contributing some basic information about themselves to the database, are able to exploit the connections this centralized database provides. Most sites offer limited services for free in order to easily build up a database, but require monthly payments for premium services ($24.95 - $499.95 per month in linked-in depending on level of access)

• Software as a Service (SAAS) - One of the first outlines of Software as a Service (SAAS) applications was made in the paper “Service- Based Software: The Future for Flexible Software”. [8] In this paper, the authors mention that there were three key models for SAAS in 2000:
• A Rental Model in which the software distributor leases the software license to the user. Distributors must focus on maintaining additional content or beneficial upgrades for the user in order to maintain the contract. An example of the rental model can be seen in anti-virus software, which need continuous virus definition updates
   
• A Server Model offers software from a central server on a pay-per-use basis. The software is not downloaded to a local machine.

• A Service Package Model has components that enhance the base software package to use the networking capabilities of the internet. Many applications, have “value-added features” that require internet access to various central servers.

• Productivity Suites - An increased need for web based productivity tools became evident as personal and business consumers became increasingly dependent on the internet for collaboration and communication in the mid 2000s. Hotmail in 1996 was the first webmail service and was promptly sold to Microsoft a year later. Google Gmail, a competing webmail client, was released in 2004. Google later chose to leverage the advantages of the centralized servers of Cloud Computing and offered a now dominant package of interlinked software. Google offered Google Talk for voice over internet protocol (VOIP) in 2005, and Google Calendar for scheduling and Google Docs for word processing, spreadsheets, and presentations in 2006.

• Total Solution Software, Storage, and Inter-connectivity as a Service - A new paradigm of the personal computer may emerge. All the above market solutions assume that the user’s machine would be the focus of the processing of data. Microsoft has passed on making a first-move in many of these markets. In one of the most ambitious projects to leverage Cloud Computing, Microsoft is planning to offer a new Cloud Computing based operating system, Microsoft Windows Azure, that not only offers many of the services listed above, but also allows computational tasks to be assigned to centralized servers, turning the home computer into an advanced terminal.

• Editor's Note - Since the writing of this analysis in early 2009, it has become obvious how several of the above Cloud Computing services have become strong synergistic complementors of mobile technologies, including smartphones, e-readers, and the new paradigm in tablet-based technology, pioneered by the Apple iPad. The continued widespread adoption of this hardware, enabled by mobile storage and software, will help to drive Cloud service expansion and vice versa.

Phase 4 – The Decisive Battle for Dominance
Once an early front runner in the technology field appears on the market (TF), a battle for dominance in the technology begins. This battle ends when a dominant technology emerges (TD). Latecomers often will have difficulty in gaining market share unless they expand to new markets, or offer a disruptive version of the technology and change the market dynamics.

While the online file storage, individual software as a service, and social networking have developed in parallel to dominant architectures as described in detail above, the key battle for dominance of the Cloud Computing architecture lies in two issues:

• Will the dominant architecture of Cloud Computing involve separately sourced services as is most often seen today, or a packaged group of interconnected applications used as complementary assets as can be seen in Google Apps and will be seen in Microsoft Windows Azure?

• If the future Cloud Computing dominant architecture will be an integrated set of applications in a suite, what will be the role of the personal computer? Will the Cloud serve as a source of centralized storage, data, and base applications with the personal computer or mobile device as the focus of activity as Google Apps proposes? Alternatively, will there be a new type of operating system, as proposed by Microsoft Windows Azure, which starts to leverage distributed computing and shifts the focus of the processing into the Cloud?

Phase 5 – Post Dominance Battles:
Proceeding from the establishment of clear technology architecture (TD), post dominance battles focus on technology development within the dominant architecture. Major participants typically have a license to core components of the architecture or have already amassed a significant market share or complementary assets supporting the technology. Online storage and social networking have developed standardized architectures for the present time and are evolving in parallel to meet different social and business needs. However, software as a service and application suites are still under heavy contention for dominance based on the two key issues described in Phase 4.

Key Player Cloud Computing Adoption and Responses to Technological Innovation

The table below indicates how the key distributors and consumers have responded to different technological innovations in Cloud Computing. As of 2009, there appears to be two overall architectures that are competing for long-term dominance of Cloud Computing technology – separate specialized services or highly integrated packages:

Specialized Services (à la carte)

• IBM’s “Blue Cloud” business hardware/software solution packages targeting IT groups.
• Amazon.com packages addressing a broad spectrum of services for both end-users and service providers.
• Google Apps (as isolated applications).
• Miscellaneous Software and Service Providers who offer limited services (not shown).

Integrated Services

• Google Apps (as an integrated suite of applications – a “Cloud Computing Office”).
• Microsoft Windows Azure – Cloud Computing based operating system offering storage, SAAS, and distributed computing solutions in an integrated package.

Government legislation may affect the outcome of this battle if it prohibits the all-encompassing consolidation of data and services under one package as presented by Windows Azure. Whatever the result, the architecture that becomes dominant will force services using competing architectures to redefine their services, find a niche, or leave the market.

The discussion of Cloud Computing will be refined/expanded upon in the next part of this series:

Cloud Computing - Part 4 - Business Ecosystems and Value Capture

References:
[1]    Atencio, Charles, “Demand Opportunity of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[2]    Suarez, Fernando, “Battles for Technological Dominance: An Integrative Framework”, in Research Policy 33, Pages 271-286
[3]    “Charles Herzfeld on ARPAnet and Computers”, About.com:Inventors,
http://inventors.about.com/library/inventors/bl_Charles_Herzfeld.htm
[4]    Foster, Ian, et al, “The Anatomy of the Grid”, Intl J. Supercomputer Applications, 2001,
http://www.globus.org/alliance/publications/papers/anatomy.pdf
[5]    Wallis, Paul, “A Brief History of Cloud Computing: Is the Cloud There Yet?”, August 22, 2008, Cloud Computing Journal, http://cloudcomputing.sys-con.com/node/581838
[6]    Great Internet Mersenne Prime Search – GIMPS,
http://www.mersenne.org/
[7]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[8]    Bennett, Keith, et al, “Service-Based Software: The Future for Flexible Software”, 2000,
http://www.bds.ie/Pdf/ServiceOriented1.pdf

Cloud Computing - Part 2 - Demand Opportunity

http://cloudcomputingexpo.com/

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

This is part two of a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [2]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

A Brief Introduction to Technology Adoption

An understanding of the implications of Geoffrey Moore’s Technology Adoption Lifecycle [1] is required to properly perceive the challenges that Cloud Computing currently faces in its adoption by different customer segments.

The Technology Adoption Lifecycle and the Chasm that exists before adoption by the Early Majority

 (http://edgehopper.com/wp-content/uploads/2008/10/slide1.jpg

The figure above indicates the primary types of consumers, each having different expectations in a new technology and requiring unique approaches to properly ensure technological “buy-in”. There are technological adoption discontinuities, not shown in the figure, that exist between consumer types, indicating radical differences in the requirements and expectations. The largest of these, between Early Adopters and Early Majority, often require particular care and often prevent the widespread adoption of some new technologies (hence the term "chasm"). The implementation of a technology must address these new requirements and expectations to the satisfaction of the consumer type before technological adoption is able to continue.

Additional barriers to entry exist for a new technology if it requires a change in behavior by the customer. In such cases, the replacement technology must be considered by the end user to be 8-10 times "better" than the incumbent products.

Cloud Computing - A Different Technology for Different Customer Segments

What is not indicated in the technology adoption lifecycle is that each consumer type has a variety of customer segments or user groups representing different industries or backgrounds. If these customer segments are not in open collaboration, they must also be considered separately from one another due to the differences that may exist in technological adoption, needs, and expectations within that segment.

There are several general applications for this Cloud Computing:

• Centralization of data storage and applications
• Standardization of applications and data storage
• Increased portability of the data and associated applications to global locations
• Reduction or elimination of on-site server setup and maintenance

There are also three general types of user groups that exist across all customer segments that could potentially benefit from these general applications:

• Individual private computer users
• Individual computer users within a corporate environment
• Corporate IT organizations

However, an assessment of the alignment between the applications of Cloud Computing and the general tasks of potential customer segments are required to determine the potential success or failure of this technology. Professor Clayton Christensen, the Robert and Jane Cizik Professor of Buisness Administration at the Harvard Business School, stated clearly that “This means that marketers need to understand the jobs that arise in customers’ lives for which their products might be hired.” [3] These “jobs” often can involve general tasks that can be interrelated with other user groups and industries.

Identification of these key “jobs” allows the technology to be tailored to meet the most important needs of the customer through the widest possible grouping. The above table identifies major potential user groups for Cloud Computing and the “jobs” that may be able to be met by the technology. Interrelated user groups have been highlighted in a common color.

Let us examine each User Group in greater detail.

Home Users
Home users have historically kept photo albums, address books, and a home library consisting of a mix of audio, video, and printed material. During the rise of personal computers, some of this media became digitized into various formats. Initially, these electronic file formats were proprietary, requiring conversion for use with different applications. Eventually, the common environment of the internet and the rise of dominant operating systems, such as Windows 95, accelerated the standardization of formats. The advent of increasing electronic media has grown exponentially, necessitating a new means to organize and store personal collections – online.

Once online through networked storage services, these files may be shared with anyone anywhere in the world with access to the internet or transferred to many different electronic devices.

Entrepreneurial Start-ups
Start-up companies were forced to sacrifice precious funds for product development in order to fund overhead operations that may be required in a moment’s notice. Entrepreneurs in the current economic climate need to maximize the benefit from each venture capital dollar they are able to gain. Cloud Computing offers the ability to minimize capital expenditures in IT infrastructure that may initially be underutilized in favor of a “pay-as-you-go” service model.

This customer segment is potentially in the most immediate need of Cloud Computing and IT consulting firms and Cloud Services had quickly been established to meet their immediate needs.

Private Sector Industry

• General Corporate Organizations
• Professional Service Organizations and Outside Consultants
• Industrial Equipment Manufacturers

The Private Sector is focused on maximizing profit. Profit is most closely associated with the end- product produced by the company, not the overhead. Until the past 5-10 years, network technology did not permit outsourcing of IT operations. Additionally, until the 1990s, regular global business collaboration, beyond strategic alliances, was rare. As a result of economic challenges, there is need to outsource IT operations to an outside entity where a corporation would pay for whatever storage and applications are needed, whenever they need it. Additionally, the global scale of business necessitates a means to facilitate collaborative work.

Cloud Computing has the potential to meet these needs. It presents a centralized means to expeditiously share data with outside entities, such as consulting firms, clients, or accounting and human resources agencies, further decreasing overhead.

Defense Industry

• High Security Organizations (Defense Contractors)
• Military Organizations

The Defense Industry is in many ways a hybrid of the Public and Private Sector. The Defense Contractors wish to maximize profits and have many of the same “jobs” as the Private Sector, but they are limited by the requirements imposed upon them by their client, the government and military, and their needs, projects timelines, technical requirements, and security restrictions.

Cloud Computing does not naturally lend itself to such strict security requirements. However, the American military has often established parallel modifications of commercial technologies for their internal use. There is evidence of the Defense Department’s adoption of Cloud Computing when John Garing, the Chief Information Officer and Director for Strategic Planning and Information for the Defense Information Systems Agency (DISA), publically announced that he will be setting up a private Cloud Computing network for the use of the entire Department of Defense (DOD). [4]

Non-Military Public Sector and Institutional

• Civilian Government
• Institutional

The Public Sector and Institutional Organizations normally have not focused on profit, and only change technologies when forced by legislation or extreme need. However, in economically challenging times, these institutions forcibly seek to adopt cost-saving technological advances. For instance, Arizona State University is an early adopter of the Google Apps Education Suite. [5] Additionally, Vivek Kundra, the Chief Technology Officer for the City of Washington D.C., is adopting Google Enterprise, Google Search Enterprises, and Google Earth, as standardized applications for city administrative operations. [6]

Computer Software and Hardware Industry

• Companies That Are Not Associated with the Development of Cloud Computing
• Companies That Are Associated with the Development of Cloud Computing

Both types of companies in this group are in a close symbiotic relationship. While companies that developed the concepts behind Cloud Computing, such as Google or Amazon, may be able to develop applications to immediately leverage its advantages, the technology will not gain wide- spread support of its full potential until 3rd party applications are developed.

There is historical precedent in this symbiotic relationship. One reason the Apple Macintosh failed to gain wide support upon release was due to its lack of productivity applications. Microsoft was hired to develop applications for the Macintosh, but the inertia in the market was already lost. The Macintosh was never able to supersede the IBM architecture and dominate the personal computer market. Cloud Computing could initially be used by software companies as a value added feature in future releases of their software, as a catalyst to enter new markets and introduce the user to the benefits of the technology, much like the online services Compuserve and America On-Line, started to introduce users to the internet in the mid to late 1990s.

Cloud Computing Adoption Forecast - 2009

As of early 2009 (the time of the original report), Cloud Computing is currently within the “chasm” between the early adoption and the early majority customer segments. Early Adopters aim to use a technology to gain an advantage in competition, while Early Majority customers wish to gain measurable benefits without any loss of existing features, productivity, or reliability.

The few Customer Segments in which Cloud Computing has started to gain the Early Majority, with the exception of Home Users, are all focused on a competitive service-related business model. These organizations succeed or fail based on their ability to meet the requirements of their client, a large corporation, quickly, accurately, and efficiently. Cloud Computing among home users, as indicated in the following Table from a 2008 Pew Internet and American Life Project questionnaire, has seemingly crossed into the Early Adopter Lifecycle for several applications. [7]

http://pewresearch.org/assets/publications/948-3.png

Key Factors for Cloud Computing Diffusion and Adoption

There are several key factors in the successful diffusion of Cloud Computing to potential customer segments:

• Release of Cloud Computing Operating Systems - Microsoft is currently developing such an OS, Windows Azure, packaged with a software service oriented business model. [8]

• Release of Well-Known Professional Applications using Cloud Computing - Development of professional applications that take advantage of Cloud Computing as a value added feature. This will passively expose customer segments to the technology while not forcing them to choose between Cloud Computing and legacy solutions.

While the technology is available to customer segments through diffusion, widespread adoption will not begin until several key factors are met:

• Increased Security and Reliability of Safe Storage of Data - This is a continuing challenge to the technology. Early Majority customer segments will not adopt Cloud Computing until these issues are resolved to their satisfaction.

• Acceptance of Cloud Computing by Influential Organizations and Individuals - Many executives will not advocate the adoption of a new technology until it has been “tested and approved” by reputable individuals in their industry.

• MACHIAVELLIAN ALTERNATIVE - Forced Obsolescence of Older non-Cloud Computing Software and Procedures - Software companies, such as Microsoft, can choose to force Cloud Computing onto all their new products over a length of time, using their considerable market share to force the adoption of Cloud Computing on Microsoft’s terms.

Once initial steps in diffusion and adoption of Cloud Computing are made, the key factors for diffusion and adoption will start to shift to those connected to the internet service providers:

• Communication Infrastructure Capacity - Is the current communications infrastructure capable of handling the increased data load as Cloud Computing is adopted? Will additional bandwidth become available?

• Communication Infrastructure Price - Incorporating additional infrastructure is expensive. Is there a business model available for the service providers to pay for these improvements while providing marketable pricing.

Microsoft and Google, among other companies, are currently either developing or marketing software and operating systems that incorporate Cloud Computing. These applications will serve to introduce Cloud Computing to the general public. However, if the key factors of security and reliability, coupled by adoption by influential organizations, do not come to pass, Cloud Computing will never realize its full potential.

The discussion of Cloud Computing will be refined expanded upon in the next part of this series:

Cloud Computing - Part 3 - Life Cycles and Transitions

References:
[1]    Moore, Geoffrey, “High-Tech Marketing Illusion”, in Crossing the Chasm (New York: Harper Collins, 1999)
[2]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[3]    Christensen, Clayton, “Finding the Right Job for Your Product”, MIT Sloan Management Review, Spring 2007
[4]    Harrison, Crayton, “Defense Department Mimics Google in Cloud Computing (Update 2)”, January 26, 2009, Bloomberg.com,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afc7BEZTIyJ0
[5]    Raths, David, “Government Remains Skeptical About Cloud Computing”, October 16, 2008, Government Technology,
http://www.govtech.com/gt/articles/422107?id=422107&full=1&story_pg=2
[6]    Marshall, Patrick, “City in the Cloud”, November 14, 2008, Government Computer News,
http://gcn.com/articles/2008/11/14/city-in-the-cloud.aspx
[7]    Horrigan, John, “Cloud Computing Gains in Currency”, September 12, 2008, Pew Research Center Publications,
http://pewresearch.org/pubs/948/cloud-computing-gains-in-currency
[8]    “Microsoft Unveils Windows Azure at Professional Developers Conference”, October 27, 2008, Microsoft PressPass,
http://www.microsoft.com/presspass/press/2008/oct08/10-27PDCDay1PR.mspx

Cloud Computing - Part 1 - Technological Innovation

http://cloudcomputingexpo.com/

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

Accordingly, I will be providing a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [1]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

How Do We Identify the Benefit of Cloud Computing?

Before we can determine the benefits of cloud computing, we must identify what different parameters we should consider when comparing technologies. The most evident key parameters that are associated with Cloud Computing and its technological predecessors are as follows (in no particular order):

• Capital Costs – What initial costs are required for Cloud Computing? (CapEx)
• Operational Costs - What operational and service costs are required? (OpEx)
• Data / Application Access Speed – How quickly can the required information or application become available to the user once it is requested?
• Data Reliability – Can the data be stored and maintained reliably?
• Data Security – How secure is the data from unauthorized access?
• Customization Flexibility – How customizable are applications to meet end-user needs?
• Data Storage Capacity – What limits to storage capacities exist compared to other technologies?
• Portability – How easily can the data be accessed from different locations of the world? From different classes of devices?
• Maintenance/Troubleshooting – What type of overhead and troubleshooting is required?

What are Cloud Computing's Predecessors and Current Competitors?

Any new technology like Cloud Computing represents a step in a continuous evolution of a broader field of technologies and refinement of its application and integration by other industries and end users. Keeping this perspective, potential competing technologies to Cloud Computing reflect not only current technologies and their future potential, but also legacy methodologies whose initial use predate the existence of computers such as:

• Paper Archiving (in use since Ancient Egypt)
• Advantages: Ability to be fully customized to an end-user’s needs; Highest level of security; Has a low captial cost and does not require constant maintenance.
• Disadvantages: Extremely slow access speed (no electronic transfer); Low amount of data per unit storage volume; No remote access (not electronic). 

• Magnetic Hard Disk Drives (in use since the 1950’s; since 1970’s for personal computers)
• Advantages: High level of customization; Allows for high access speeds to data.
• Disadvantages: Incorporated in 1 computer; Susceptible to dynamic and thermal shocks, as well as magnetic fields.

• Internal Flash Drives (in use since late 1990’s)
• Advantages: Same advantages as magnetic hard disk drives with the increased durability and read speeds that Flash memory provides
• Disadvantages: Incorporated in 1 computer; Low write speeds.

• Portable Flash Drives (in use since late 1990’s)
• Advantages: Increased durability compared to other portable media; Portable; User customizable
• Disadvantages: Limited storage capacity; Can be lost or stolen; Low write speeds.

•  Optical Storage (in use since mid to late 1980’s)
• Advantages: Reliability if media is protected from scratches and light; User customizable.
• Disadvantages: Limited storage capacity; Can be lost or stolen; Only feasible for storage of data.

• Magnetic Data Tape Storage (in use since the 1950’s; since 1970’s for personal computers)
• Advantages: Relatively low operational cost; Large storage capacity.
• Disadvantages: Susceptible to magnetic fields; Magnetic tape will decay over time; Access speed is low.

• Local Servers (in use since the 1960’s with Terminals/Mainframes; since 1980’s for personal computers)
• Advantages: High access speeds; Large expandable storage capacity; Accessible from remote locations.
• Disadvantages: High initial costs; Continuous maintenance by end-user’s corporation required.

• Cloud Computing (modern use since 2006/2007)
• Advantages: Virtually unlimited storage capacity; Centralized/standardized data location and format allows for high portability of applications and data; Little initial and maintenance cost.
• Disadvantages: Access speeds limited by internet access speed; Lack of security and reliability; Little application customization available

Cloud Computing attempts to present a practical solution to the portability and storage requirements of an increasingly networked global world. Individuals would use “Software-as-a-Service – hosted services with subscription or on-demand pricing.” [6]. This business model is really a revival of a much older business model before the advent of personal computers where mainframe resources were allocated to multiple terminals through time-sharing technology first developed at M.I.T. in 1960 [7], allowing users to take advantage of the computing power and storage capability that could only feasibly exist in one location.

Cloud Computing takes this concept, with the exception of centralized processing power, to a global scale through the use of the internet. While its benefits mirror those of its predecessor (the whole truly becomes greater than the sum of its parts), there are major obstacles that still need to be overcome. Since the central server is no longer within the direct control of the end-user’s corporation, there are major security and ownership issues that need to be addressed. Additionally, the download and upload access speed over most current internet connections is not able to match the transfer rates of a wired or wireless intra-office networks, let alone the speed seen between an internal hard disk drive with its motherboard.

How Does Cloud Computing Compare with Other Technologies?

A better understanding of the strengths and weaknesses of competing technologies can be gained by assigning quantitative rankings for how each technology addresses each key parameter. A sum of the rankings for each technology might also be seen as a technology’s overall longevity to compete in a marketplace with user groups that share the same key parameters.

Note: 
With the increasing capacity of Flash Drives now greater than single-layer DVD and starting to surpass dual-layer DVD, Flash Drives and Optical Storage should probably exchange places in the rankings.

Initial Conclusions ...
As can be seen in Table 1, the only technologies that have totals greater than Cloud Computing are both internal flash and magnetic hard disk drives. The primary reason both of these technologies could still compete with Cloud Computing in the long term is the unique customization and high access speeds that an internal hard disk drive offers. However, Cloud Computing could offer a substantial benefit to corporations that do not use specialized applications and do not have unusual security requirements.

This trend has been confirmed by Infosecurity Europe, in industry tradeshow, which noted that in “470 organizations ... 75% of them intend to reallocate or increase their budgets to secure cloud computing and software as a service in the next 12 months.”[8]

Please note that in the table, each key factor has equal weighting. This equal weighting is not be realistic for some industries, such as Financial Services, which have stringent security requirements. An exploration of these differences will be touched upon in Part 2.

However, as can also be seen, there must be further advances made in general security and reliability. In July 2008, Amazon’s S3 Cloud Computing storage servers ceased replying to user request for 8 hours due to a server software malfunction. [6] Similar isolated instances with other cloud services have occurred in 2009 and 2010.

The discussion of Cloud Computing will be refined expanded upon in the next part of this series:

Cloud Computing - Part 2 - Demand Opportunity

References:
[1]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[6]    Bright, Peter, “Microsoft Bets on Cloud Computing as Amazon Suffers Outage.” July, 29, 2008, Ars Technica, http://arstechnica.com/microsoft/news/2008/07/microsoft-bets-on-cloud-computing-as- amazon-suffers-outage.ars
[7]    McCarthy, John, “Reminiscences on the History of Time Sharing”, 1983, http://www-formal.stanford.edu/jmc/history/timesharing/timesharing.html
[8]    O’Gara, Maureen, “Call for Cloud Security Guidelines Heard”, Cloud Computing Journal, February 20, 2009, http://cloudcomputing.sys-con.com/node/849793

The MIT Social Media Club and the MIT Global Talent Initiative

MIT Social Media Club Video Introduction

Transcript:
Welcome!
My name is Charles Atencio, MIT System Design and Management Fellow - Class of 2009, and founding Member of the MIT Social Media Club.

In the past 15 years, the Internet has transcended international and societal boundaries fostering the creation of a truly global network of human beings.

Social Media, enabled by the growth of the internet, has proven to be one of the most innovative and effective tools to communicate with other individuals to express their passions and fulfill the latent human need to identify with and belong to a global community.

By doing this, they not only improve their own quality of life but also their community, their society, and ultimately their planet.

The MIT Social Media Club has been founded with the goal the foster a focused effort in using social media among technology – policy – and business leaders in our world.

We will be communicating with the global community the rich individual talent, cutting-edge research, innovative technologies, and holistic systems thinking perspectives that are being developed within the Cambridge, Massachusetts community which includes:

• The Massachusetts Institute of Technology – A world leader in the education of engineering and science and research and development of world-changing technologies.
• The Sloan School of Management at MIT – A leader and partner with MIT in the development of business strategy for technology-focused mature enterprises and entrepreneurial ventures.
• The MIT System Design and Management Program – Sponsored by both the School of Engineering and Sloan School of Management, SDM develops technology leaders that are able to bridge the functional gap among R&D, Product Development, Marketing, Sales, and Strategy groups in technology-based ventures.
• The Harvard Kennedy School of Government – A focus for the discussion and development of innovative – government – industrial – and foreign policies.
• Harvard Business School – The leader in the education and research of business practices and general management.
• And finally, the wide variety of global enterprises, entrepreneurial ventures, and thought leaders that encompass the greater Cambridge community.

Additionally, in order to truly help our global society, the MIT Social Media Club has also started to organize the MIT Global Talent Initiative, which aims to empower professionals in developing countries to communicate with others in the global community who share their passions, allowing them to partner with them to achieve there common vision.

If you are interested in participating or supporting our initiatives, we ask that you seek out the MIT Social Media Club on Linked-In, Facebook, and YouTube.

Facebook: http://www.facebook.com/#!/group.php?gid=120593071326009
Linked-in: http://www.linkedin.com/groups?gid=3370804
YouTube: http://www.youtube.com/user/MITSocialMedia

And stay tuned – because the best is yet to come!!!