End of the Beginning
In “IT’s Ethical Dilemma” I wrote about the challenge of having a new product and selling the old one. If the new product offers benefits of better, faster, and cheaper — and what new product doesn’t? — then how is it ethical to sell the older, less performant, and probably more expensive one?
Well, the answer is easy in a free market. First you cut the price, which is natural given the creative destruction that’s taking place thanks to your new widget. Then there’s the customer’s preference for the older, more trusted product. The older product is safe, it’s had the bugs knocked out of it and the customer perceives it as less risky. So selling the older product is actually pretty easy, in fact the customer buys it more than the vendor actually sells it. Sales people like that.
But there’s huge peril in that approach. I was reading “The Rise and Fall of Infrastructures — Dynamics of Evolution and Technological Change in Transport” by Arnulf Griibler on the plane the other day making my way to San Jose and SuiteWorld, and it made me think about our market.
Now, Griibler is not a household name and the book dates back to 1990 so there’s that to consider. But he writes about something that just melts me — the interface between innovation, entrepreneurship, and massive societal change. Call me what you want, it’s fun. Anyhow, Griibler’s book is about change in the transportation industry over centuries starting with canals and progressing to railroads, roads and things driven by internal combustion engines, and air transport.
He’s not always right. From today’s vantage point he got air transport only partly right as the next thing in transportation. He didn’t foresee the spike in energy prices and the funk that air travel has gotten itself into. He also didn’t see that the Internet would become the disruptor of air travel. You would have needed a pretty good crystal ball in 1990 to foresee that the ‘Net would spawn social media and that people would conduct meetings on it reducing the demand for air travel. But that’s the procrastination business, warts and all.
One of the very, very interesting findings that Griibler discusses is what happens to the standard S-curve near the end of a typical market trend. We are used to thinking of the S-curve of most trends as symmetrical around the inflection point (see picture). But in his research Griibler found that wasn’t the case. The waning side of the curve, the top half, is only about half as long (in duration) as the top. The later adopters accelerate adoption and cause the completion of the wave very quickly. He uses the term “seasons of saturations” to describe what Joseph Schumpeter observed decades earlier. According to Griibler: “Schumpeterian ‘gales of creative destruction’ (i.e., organizational readjustment processes like bankruptcies or intensive mergers), a lack of productive investments as a result of the saturation of traditional markets and uncertainty about the characteristics and investment opportunities of the new emerging paradigm prevail (Page 274).” Feels like today in many respects.
So, what does this have to say about the software industry and selling the old product or IT’s ethical dilemma? Simply put it says that we always have less time to convert from the old paradigm to the new one once we get to the second half of the curve. Part of the reason that things accelerate is that at mid-point we are in a transition state and markets hate indecision so they move quickly once the new pattern seems inevitable.
I wrote “IT’s Ethical Dilemma” because I could see this coming intuitively but Griibler gives us the empirical understanding. To net it out I think you can expect cloud computing to accelerate from here, even in markets that might not be prone to adopting it, like ERP.
Consider this press release headline that crossed my desk this morning from NetSuite as it gears up for SuiteWorld. “GARTNER NAMES NETSUITE THE FASTEST GROWING FINANCIAL MANAGEMENT SOFTWARE VENDOR GLOBALLY, Market Shift to Cloud ERP Fuels NetSuite’s Rapid Growth in the UK, APAC and the Rest of the World.”
So think about this: Cloud computing got started as SaaS and Salesforce and NetSuite are among the leaders of the rebellion still standing. For a decade no body took them very seriously. The other vendors did very little to move their applications to SaaS beyond employing browser front ends. Finally, they got some of the religion and today most are offering a hybrid solution that will run in the cloud or in the data center. There is also a thriving new industry emerging for infrastructure services that will run standard single tenant applications elsewhere to provide the illusion of a cloud.
If Griibler is right then the ten or so years that were the first part of the S-curve for cloud computing will be followed by a period that’s about 5 years long in which the late adopters consolidate their seasons of saturations. I figure the five year clock has been ticking for two years that have been recession tinged and so the five year play-out might be a bit longer.
My conclusion though is that one of the riskiest things you can do right now is to ignore cloud computing and by extension the social, mobile, and analytics waves that come with it. Once you’ve fully amortized those servers, things are going to change rapidly.