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