The Transformative Power of Cloud Computing

I was recently involved in two different meetings, each convened by an IT research organization focused on providing strategic advice to CIOs.  My participation in each of the CIO  meetings was in the form of a fireside chat with a senior analyst of the organization.  Given that I’ve closely followed cloud computing over the years, the state of cloud was one of the main topics we discussed.

For a while now I’ve thought of cloud as a new model of computing in the IT world.  For the IT industry, a new computing model is a very big deal.  In the sixty years or so since there’s been an IT industry, this would be only the third such model, centralized and client-server computing being the two previous ones.  Mainframes and PCs were the defining technologies of the centralized model and client-server models respectively.

The Internet is the defining technology of the cloud computing model.  There are clearly other major technologies around us, - e.g., smartphones, IoT, analytics, AI, - but when you think about it, all of them rely on their connections to cloud-based data, applications, and services for much of their functionality.

Cloud computing has gone through three major stages over the past decade: IT-as-a-service in its initial years, then application innovation in it’s next stage, and it’s now just entering the business transformation stage.  Let me say a few words about the first two before turning to business transformation.

IT-as-a-Service.  From its earliest days, cloud service providers have been offering IT-as-a-service with near unlimited scalability at very attractive prices.  Early cloud adopters were mostly focused on improving the economics of IT, giving them the ability to expand their current offerings without major investments in additional IT infrastructure.  Instead of having to buy and operate their own computing resources, users could now obtain the IT resources they needed over the Internet on demand, paying for whatever cloud resources they actually used.

Application innovation.  In addition, cloud has helped its users become more agile and innovative.  Turning to an external cloud service provider has often been a faster and less costly way of prototyping and deploying a new application than relying on the internal IT organization.  This is particularly important for customer-facing applications which generally require a more agile development approach to respond to fast changing technology and market requirements, as well as the ability to quickly support a growing numbers of users and a wide variety of devices.

Business Transformation.  By now, it’s well accepted that cloud computing is a major transformational force, helping companies adapt to the ongoing digitization of the economy, - one of the biggest challenges every business is facing.  Let me discuss some of the ways that cloud is helping companies through their digital business journey.

The Industrialization of Services

Cloud is a lot more than IT- or applications-as-a-service over the Internet.  The vast majority of people don’t want to see the hardware, software or applications, - any more than they want to see wires showing through in electronic devices.  They just want all kinds of services-as-a-service in human terms - consumer services, business services, government services, financial services, healthcare services, educational services, entertainment services and so on.

What makes this new cloud stage so important is that we’re now reaching an inflection point in applying technology to services.  When computers first came along, they started to automate repetitive, back office tasks like financial transactions, inventory management and airline reservations.  With the advent of PCs, they moved to support less well defined, personal productivity applications like word processing and spreadsheets.  Then the Internet appeared on the scene and introduced innovative ways of dealing with content, communications, commerce and many more kinds of services.

Cloud computing represents the rise of the Internet of services.  As digital technologies increasingly penetrate every nook and cranny of the economy and society in general, we’re seeing an explosion in the volume and variety of cloud-based services flowing through the Internet.  Consequently, the cloud computing model requires a highly disciplined approach to the management, delivery and consumption of services for both individuals and institutions.  Cloud computing is driving a much needed industrialization of IT data centers and IT infrastructures in general. 

Thirty years ago, we saw something similar happen in manufacturing.  Before that time, most manufacturing plants were fairly inefficient by almost any measure, and were turning out products of varying quality.  Then, driven by the huge success of Toyota and other companies around the world, the industrial sector and academia discovered the merits of applying engineering discipline as well as holistic, systems-wide approaches to manufacturing, leading to major improvements in their productivity and quality.  At the same time, the transactions costs of complex, geographically dispersed supply chains started to come down, - largely driven by global, integrated IT systems and sophisticated supply chain management applications.  Companies started to rely on supply chain partners for many of the components once built in-house, enabling them to better focus on their key core competencies.

Cloud-based infrastructures now require similar advances in productivity and quality and a similar focus on engineering and management discipline.  Many companies now rely on cloud-based service providers, - both for standard, commoditized services and for leading-edge services requiring highly specialized skills, - so they can better focus their organizations on those services that provide truly differentiated business value.  Some companies will choose to become service providers themselves, by selling their business services, - which they previously used only internally, - to the general market, thus developing new revenue sources.

Smart Products and Services

Almost anything - person, object, process or service, - is becoming digitally aware and networked and can be made smarter by turning the mountains of data gathered from their various interactions into real insights using sophisticated algorithms and powerful supercomputers.  This kind of information-based intelligence is helping make companies, industries, organizations and economies more efficient, productive and responsive.  It’s also giving rise to a new wave of cloud-based smart connected products and services.

In a 2014 article, Wired co-founder Kevin Kelly wrote about the future of artificial intelligence.  The AI he envisioned is more like a kind of “cheap, reliable, industrial-grade digital smartness running behind everything, and almost invisible except when it blinks off.  This common utility will serve you as much IQ as you want but no more than you need.  Like all utilities, AI will be supremely boring, even as it transforms the Internet, the global economy, and civilization.”

Comparing AI to electricity, Kelly wrote:  “Everything that we formerly electrified we will now cognitize.”  Like any other tool, this “utilitarian AI will also augment us individually as people (deepening our memory, speeding our recognition) and collectively as a species.  There is almost nothing we can think of that cannot be made new, different, or interesting by infusing it with some extra IQ.  In fact, the business plans of the next 10,000 startups are easy to forecast: Take X and add AI.  This is a big deal, and now it’s here.”

Disruptive Business Models

In a 2013 article, McKinsey listed offering anything as a service as one its key IT-enabled business trends for the decade ahead:  “The buying and selling of services derived from physical products is a business-model shift that’s gaining steam.  An attraction for buyers is the opportunity to replace big blocks of capital investment with more flexible and granular operating expenditures.  A prominent example of this shift is the embrace of cloud-based IT services.”

This trend has significantly accelerated in the intervening years.  GE’s Industrial Internet initiative, for example, offers a variety of value-added IoT based services around its industrial machines, - jet engines, power generators, pipelines, locomotives, - such as predictive maintenance and managed operations.  And IBM recently announced a new cloud-based Watson Data Platform, to help companies gain valuable insights from data using advanced cognitive capabilities including machine learning.

“This model is spreading beyond IT as a range of companies test ways to monetize underused assets by transforming them into services, benefitting corporate buyers that can sidestep owning them,” adds the McKinsey article.  “Companies with trucking fleets, for instance, are creating new B2B businesses renting out idle vehicles by the day or the hour.  And a growing number of companies with excess office space are finding that they can generate revenue by offering space for short-term uses.”

Traditional ways of doing business are under siege and must evolve.  Cloud-based innovations are a major part of that evolution.  Being an early believer in cloud computing, it’s gratifying to see how much progress has been made in just a few years.  And, I’m convinced, much more is to come.

Comments

[Wfnwork]

Great article Irving. I agree the cloud computing model is "a very big deal" for the industry. I also think it is also a big deal for the enterprise as they are pushed to adopt the "as-a-service" model. Most enterprises are struggling with the regulatory environment and labor laws. Neither of which are particularly helpful to moving the enterprise into the new consumption models.

Thanks again for the article.

Regards,
William