Cloud research
Last year uber-analyst Esteban Kolsky and I did a research project to better understand cloud computing’s uptake and related issues and last week Financial Force, our sponsor, made the results public. The findings are interesting to me because they reveal a more or less typical adoption cycle for cloud by which I mean that some of the downstream effects are only gradually becoming apparent.
One of the appealing parts of cloud computing, aside from its favorable cost model, is its consumerized packaging—people have the expectation (and rightly so) that they can get up and running with little fanfare and not much input from IT. Cloud has been a liberating force throughout business for this very reason. Back in the day, words that rolled off the tongue a little too easily were, “Our system won’t let us do that,” but that’s a thing of the past and cloud computing is responsible in large part for the shift.
What’s less obvious though, in a world where lunch is not free, is that the cloud comes with its own baggage too. We found that the vast majority of companies surveyed had many cloud apps and nearly half (46.3 percent) were using 4 or more. With this come some subtle issues. For instance, usually a cloud app doesn’t exist in a vacuum, it needs to be integrated and with lots of them it becomes something of a logistical challenge getting data to where it can do the most good. Also, each distinctly different app can come with a different cloud and tool set or at least user interface for maintenance.
This didn’t surprise me. For a long time, I’ve been articulating that the platform is the new competitive software battleground because it determines what works easiest with what. Platforms provide a degree of standardization for app builders in the same way that a motherboard imposes a set of standards on what can be plugged into it. To be clear, there are many ways to get apps to communicate but in many situations, when two apps have been built to the same platform standard, life is quite good.
Through this research I developed new empathy for the folks in IT for many reasons. Old IT was a reflection of the technology it supported. In the mainframe era it was bureaucratic, rigid, and limited and many people associated these attributes with the people of IT rather than their jobs. But in new IT, the people responsible for making cloud computing work are quite the opposite. IT has learned to team with line of business units, to be supportive of business initiatives, and to do what it takes to make the business successful. But therein lies a new issue.
It seemed to me that, at least in some cases, IT has been left to clean up after departments that go ahead with an implementation without necessarily accounting for the downstream eventualities that can cripple a project like integration and performance. Somehow this all comes back to platform too. One of the reasons for the proliferation of disparate clouds in some organizations is that no one considers the implication of having three clouds for three separate apps rather than one cloud in common among them. It’s no one’s job at the line of business level where many decisions are made and in these cases some businesses were slow to promote platform standards.
The result is that at the front end, the lines of business run well with their cloud systems but often that’s because the people in the engine room are working hard, or harder than necessary, to keep all the cloud balls in the air. So add a new job to IT’s growing list. The information technology department has developed some good partnerships with the lines of business and now it’s time to use some of that good will to help set up standards and to show the departments some best practices.
Other issues worth considering—there are more but you’ll need to download the report—include cost considerations and performance and to a great degree, they come down to platform too.
Briefly, you’d think the arrival of cloud computing would have banished concerns about cost but that’s not true any longer—if it ever was. Many organizations have capped IT spending, or nearly so, making it difficult to find thousands of dollars in a budget for new systems in order to save millions by replacing old systems. It’s crazy but true. So speed of implementation is one of those areas you don’t see advertised or even written about very often, but it is becoming a real concern, at least for cloud vendors looking to generate initial revenue from a customer. So, of course, platform is a big factor in deployment, especially for the time to deploy the next app on the platform.
Performance is right up there as a customer concern too and platform is important here as well but so is the speed of the Internet connection and the number of integrations running. While most of our study population had “more than four” cloud apps, it’s not unreasonable today to see companies with a dozen or two cloud systems running the business.
At some point every business will have to face the need to rationalize or refactor its cloud deployments—it’s a natural part of cloud’s success. This reconsideration should happen around your business’s platform strategy. If you don’t have a strategy it’s a good time to develop one.
GE moving to Boston
General Electric Corporation’s announcement that it was moving its headquarters to Boston is big news for Boston and the region. Long known as a center for technology innovation in computers, health and life sciences, communications (Internet got going here as well as elsewhere, that’s the nature of a network) oh, and robotics, with world-class research institutions like Harvard and MIT, the decision has given Boston a new life reversing a trend of corporate departures many through acquisition. Dell is buying EMC, Digital, DG, and the other mini-computer companies are gone.
The Boston area last bloomed in the 1970’s and 1980’s as the center of the mini-computer revolution but all of these companies are gone as is the mini-computer but the infrastructure of technology innovation goes back at least to Alexander Graham Bell and the telephone, Samuel Morse an inventor of the telegraph and Morse code (a decent painter too) and many others. The first surgery with ether happened here too.
GE is coming to Boston because it wants to be a major player in the Internet of Things or what this New York Times article referred to as the industrial Internet. Good for them. Having GE here will re-energize the local economy and tap into some very bright minds, not just in engineering but in many other fields like medicine. As is typical, I’d expect a large community of spin-off companies to emerge and to need venture funding which will tap into another one of the area’s natural strengths. I also expect many Silicon Valley companies to start or beef up their presences here just because.
GE’s presence will also change Boston in unpredictable ways. Will the industrial Internet overtake biotech? Will the local software industry thrive or will it be supplanted by another wave of hardware builders? Where will people live and what will the influx of more talent and capital do to real estate prices? Will Cambridge, a hip enclave in the metro region come to resemble Palo Alto more? Who knows?
Last summer the voters put their collective foot down over hosting an upcoming summer Olympics. It was mostly due to the high projected costs and the IOC’s demand that the city and state backstop any cost overruns. When it was over Boston was a bit bruised and the Boston Globe putting what seemed like a brave face on the disaster at the time said, that’s Okay, we’re Boston, we cure cancer, we don’t host track meets. At the time it was cold comfort, today not so much.
Vendor of the Future
I spent part of last week listening to presentations about the customer of the future and of course it made me think but as usual, I didn’t think in a straight line.
As you’ve heard from me before, customers are still the human beings that walked out of the ice age ten thousand years ago or even the Cro-Magnons of 100,000 years ago. It takes geologic time to observe changes in a species and those time frames are much too short so I generally brush aside suggestions that customers are different today or that they will be in my lifetime.
But it is very certain that we all behave differently today when we enter the marketplace than we did 5, 10 or especially 20 years ago. Behavior is a cultural and social adaptation and while it is true that we behave differently, it is largely because we have better tools, like mobile devices and analytics to use as customers. This is not a small point; it means we shouldn’t have to go back to the drawing board on customers. We only need to revisit behavioral strategies and ask how new technologies have affected behavior or will affect it in the future.
All of this suggested to me that assuming the customer of the future is somehow different, can obscure the real need which is to consider how the vendor of the future addresses customers who just happen to have better tools—in other words what does the vendor of the future look like? I think that’s a better question.
It’s a better question for all of the reasons above but also because when we speak about customers, the discussion is much more nuanced. It is much harder to conclude anything about the commonalities between the customer of the future in retail, pharmaceuticals, and insurance just to pick three widely divergent verticals. However, if we turn the discussion around and ask about the vendor of the future, we can see more clearly.
The great sea change we need to wrap our heads around comes from understanding the shift in communications. For a long time vendors did the talking and customers primarily listened but now the roles have flipped. Since information is much more accessible today, we see statistics like the one about customers performing more than half of the buying cycle without recourse to vendors.
So how does a vendor act within this new reality? I am not satisfied with prescriptions that leverage technology to speed up the ways a vendor can get into the grill of a customer. This all naturally led me to formulate a short list of attributes that I think any vendor should work to develop regardless of vertical.
- The ability to sense what customers think and need on an aggregate basis so that vendors can respond with products, processes and policies that keep them in line with their customers. Sensing happens through communities, data gathering, and analytics and it is a key attribute but far from the whole story.
- Good sensing will enable a vendor to participate in moments that matter or moments of truth for customers. Vendor presence is more important than ever in such areas as subscriptions.
- Being able to understand individuals in a moment of truth. The need for empathy has risen significantly lately in part because so many of our interactions no longer happen in a face-to-face context. Also, empathy is a less pervasive need when dealing with single transactions. In today’s world of subscriptions in which vendors have to continuously work to earn business and not simply to win it, empathy is a continuous requirement.
- Action across and through barriers of time and space—this is critical. Time refers both to being in the moment and to being able to act asynchronously. Space refers to face-to-face brick and mortar interactions and virtual space across various media some in real time some asynchronously. You can boil this one down to channels but importantly, before channels you need to understand journeys.
- Building journeys. A lot comes together under this rubric. Understanding the journey gives us a good understanding of when, what, and where to do our sensing and apply empathy through action. Understanding journeys gives us the ability to anticipate customers and to thus be ready for their requests.
- Journeys also help us to understand the flow of a relationship such that we can recognize when to push and when to back off.
- I need a better word but tomorrow’s vendor has to be approachable and easy to work with especially where automation is concerned. This is applicable both to the customer and the employee experiences. This list won’t do you much good if your offerings are not consumable, usable, and comprehensible.
So I like this list. It simplifies the vendor’s mission and demystifies the job ahead in a way that approaching from the customer side makes less clear. It also places the onus to act more clearly on the vendor. Focusing on the customer can sometimes relegate a vendor to a more passive role of reacting. Since the game is a vendor’s to lose, it’s best to be on the offensive, this list gives insight into how that can be done.
Loyalty and engagement
I’ve been trying to analyze modern rewards programs and customer loyalty recently for a project. It’s a complex issue and so it is tricky to tease apart; nothing like trying to defuse a bomb but intellectually challenging for sure.
At the heart of the issue is a body of research that says rewards, as currently configured, don’t work in the ways we want. It’s complicated by the fact that rewarding customers for making purchases, for instance, does produce what looks like loyal purchasing behavior though further analysis exposes a flaw. If a customer continues to receive rewards for just being a customer then the vendor is effectively selling at a discount, which could roil the customer base, which might be paying full fare. And if everyone is receiving rewards just for being customers, then the notion of list price becomes problematic.
It’s appropriate to offer a token of appreciation to customers for positive behaviors but drawing the line between what’s appropriate and what’s too much is difficult. Rewards started as a way to recruit the marginal customer, the person who might need a product but who nonetheless did not see value at the regular price point. Offering a small discount did good things in such cases. The approach got new people to try products and, at an appropriate discount level, it still made profits. But at some point all that discipline went out the window and discounting in one form or another became a major point of competition. Today, we simply advertise savings opportunities, for example.
Customers have responded in kind, which is to say, not well if you study loyalty. Rewards tend to support today’s transactions and not much more. I’ve read a number of papers in business school reviews lately that basically say that even though customers exhibit loyal behavior, like making a subsequent purchase, they’d be happy to change brands or vendors in a second if they got a better deal elsewhere. That’s not loyalty, though we like to pretend it is by rewarding present behavior.
Other papers describe a vendor community that is frustrated with its loyalty efforts and their lack of results. But as an analyst I have to say that everyone is behaving rationally, or another way to put it, if you offer a customer a form of discount, don’t be surprised that they take it. Moreover, if you set up a game in which the well-understood rules are meeting one transaction with another (which is what current rewards approaches do) then don’t be frustrated when people follow those rules.
But if you want real loyalty in which customers preferentially seek out your brands and products, and in which they pay a slight premium for your products because they believe the products are worth it, you’ll need a different game with different rules. Instead of rewarding purchase behavior as if it was a demonstration of loyalty, we need to go upstream a bit to earlier forms of engagement. Many papers rightly point out that engagement is a predictor of loyalty but unfortunately in many studies, the percentage of vendors that reward engagement hovers in the mid-teens.
Simply put we need to raise our sights and rather than rewarding purchases, we should be rewarding engagement activities. A vendor gets a lot from engagement if you define it as a customer’s willingness to respond to a survey, advocate for a brand or even a solution to a problem that includes a brand or a product. This customer input can identify issues as well as unmet customer needs that could drive better processes and new products.
Other papers I’ve read lately point to vendors actually not wanting to engage with customers in this way. Why? Their lawyers told them not to. They’re afraid that if they get a product idea from a customer that ownership could be compromised by claims and litigation from the customer. Consequently, there’s a tall wall between the vendor and its customers and the most popular form of communication between them is the reward or discount, which gets us right back to frustration that loyalty isn’t any better than it is.
It doesn’t have to be that way. I’ve worked with large corporations that, at the end of the day, had to admit that their lawyers were simply trying to protect their corporate customer when they made anti-engagement recommendations. But interestingly, when the corporate attorneys were informed that their real customer is that same customer that the rest of the organization serves, things loosened up, at least in some cases.
Changes in lawyering won’t solve every company’s engagement challenges because there are many more. But if we take an approach that rewards should be focused on engagement and not on transactions at least some of the time, we might be able to present an engaging face to customers, one that drives loyalty.
Forecasting 2016
My favorite Boston FM radio DJ back in the day was Charles Laquidara who would end his morning show (‘The Big Mattress’) with the immortal words, “If the creek don’t rise, if the good lord’s willing, if there ain’t no meltdown, we’ll do it all over again tomorrow right here on ‘The Biiiiig Mattress’!” It always impressed me that even one day out, he couldn’t be sure and he’d caveat his prediction of being there tomorrow. Smart man. Unlike my hero, I will now attempt to forecast the year ahead, (Yes, this is proof that I am not so smart).
Another hero is Mark Twain who might have said that history does not repeat itself, but it rhymes, though researchers doubt this claim. Absent a clean reference I’m going with the author of “Huckleberry Finn.” I think whoever said it was right though. History doesn’t repeat but given similar inputs, of which the human mind and its needs are one, we can expect general patterns to emerge. This helps explain the Hype Cycle first proposed by some genius at Gartner, which is very helpful in understanding how we buy and try to adopt emerging technologies.
I think it’s time to revisit what was once considered an unalloyed good, social media and where it might be taking us in the years ahead and I think that re-examination will begin next year. In the last few years this revolutionary technology has taken a back seat to other shiny objects like analytics and big data. While it has been out of the spotlight many of us have traveled far down the Hype Cycle curve to a point where we actually incorporate it into business to get things done. But the adoption has not been limited to business and social media is now one of the threads in the fabric of global society.
Nowhere has social media’s impact been felt to a more perceptible degree than in the middle east. This timeline from The Guardian, provides a succinct and inclusive description of the events of Arab Spring that began in December 2010. Social media gave political voice to millions of people who had been controlled by authoritarian regimes and enabled them to change their world beginning with the ouster of long time Egyptian president Hosni Mubarak.
I remember many people cheering social media’s coming of age as an effective political tool that enabled ordinary citizens to speak truth to power. In the spring of 2011, multiple CEOs of fast-growing tech companies wanted to jump on the bandwagon to claim a place for their products and approaches to business that ran through the intersection of social media and mobile technologies.
But today as we look at social media, it is far from the universal good that we heralded a mere five years ago. Social media is embedded in customer-facing business processes, politicians use it in governance and in campaigning; vendors have jumped on it to foster better contact with customers. But in all these cases we have begun to see the down side of having too easy a time at telling the world what we think.
Especially in the political sphere we find that our adversaries have the same access to the infrastructure that we do and they use it to effectively communicate and recruit followers for nefarious causes. We also know now the reality that it’s far easier to be snarky to strangers or even friends when we have a bubble of social media protecting us from viewing the body language of someone’s hurt feelings. Social media is paradoxically making us less sociable.
But we can’t blame the tool and we must remain conscious of how we use it. A backlash is forming in which people either don’t use some forms of social media, refer to it only occasionally, or actively use technologies that limit their exposure to the social stream. As the Hype Cycle suggests, a certain amount of retrenchment should be expected in the history of any technology, but social structures like the First Amendment will ensure that our access to the technology is not impeded. However, the free market might have other plans.
For example, earlier this year user growth at Twitter was reported to be slowing and with it there were concerns about its ability to generate an increasing revenue stream. There’s also the issue of user overload and the possibility that some enterprising vendor might develop application(s) that do for social media what ad blockers and DVR have done to other media. Already, encryption technologies are making it hard to track bad guys. But we need social media in ways that we don’t need TV partly because it is bi-directional and asynchronous and because in this hectic world it greatly expands our inner-most circles.
All this is a circuitous way of saying that I think next year will be, among many other things, a time for re-evaluating social media as it passes from precocious youth to responsible adulthood. We’ll find out then if I am right and I’ll write about it here, if the creek don’t rise…
