The emergence of companies such as Google, Amazon, Facebook and Apple offering consumer services on a massive scale is having a deep influence on hardware and software enterprise IT vendors. This influence is also being felt in enterprise IT departments. Nevertheless, enterprises are not capturing all the opportunities made available to them by consumer IT innovations.
Early on in their development, the web 2.0 companies -such as Google, Amazon, Facebook and Apple- realised that they could not base their infrastructure on the systems of traditional enterprise vendors for various reasons beyond cost:
- Lack of performance scalability; even the largest enterprise had users numbering in the hundreds of thousands; the consumer companies had the ambition to build infrastructures for the planet’s population. No enterprise vendor had ever considered such scales.
- Lack of maintenance scalability; enterprise IT systems do not scale linearly with size. At some point complexity kicks in and your maintenance effort per “unit” infrastructure increases.
The new entrants developed robust hardware infrastructures, software components and applications where scalability and robustness are guaranteed in a different fashion to the traditional enterprise approach where the probability of failure in a single unit such as a server or a storage array is minimised by building redundancy of components within the unit (an approach typically seen in so called scale-up systems). In the new approach, cheap units with single points of failure are combined and the software is designed assuming that any such component may fail at any time (the term scale out is often used to describe such systems). It sounds simple, our brains also work this way; we do not turn deaf if a few neurons die in our auditory cortex.
Developing such a radically new hardware and software infrastructure in the mere course of a decade is a massive feat of engineering. If we are to draw a parallel to biological evolution, the emergence of this new IT stack is as significant as the emergence of multicellular organisms.
The first direct effect that enterprise vendors felt when the new IT stack was being deployed was a missed growth opportunity; wouldn’t it have been great to sell their wares to infrastructures serving hundreds of millions of users? This was just the beginning of the trouble. To make things worse, some of the new companies started offering their spare capacity as a service. And to add insult to injury, these companies often open sourced their hardware and software designs expecting that a community approach will further improve the robustness of their infrastructure (hardware and software). This is a classical example of disruption where new entrants have a different base of competition to the incumbents.
What the new entrants did not outsource were the areas offering them competitive advantage: algorithms and user experience (networking effects form another competitive advantage but this cannot be copied in any case). Competition in the area of user experience has led into an explosion of experimentation in user terminals and software interfaces: PC’s, tablets, mobile phones, VR headsets, web apps, mobile apps using touch, AI agents and now bots.
It is abundantly clear to any observer of the IT industry that the majority of hardware and software innovations originate from the consumer space in the last 15-20 years. Organisations have woken to the fact that they can use the cloud infrastructure as a service (in the various flavours SAAS, IAAS, PAAS) and the cloud is an important agenda item for the corporate CxO. Even the enterprise IT vendors try to remain relevant by appending the word “cloud” to most of their products even if the product has little to do with the cloud.
Nevertheless many innovations in the consumer IT industry remain under-utilised in the enterprise:
- You cannot capture all the benefits of the cloud infrastructure (that was built to run scale out applications) if you do not do something about your legacy apps. The expectation of many IT managers that by moving their existing application stack to the cloud they will resolve most of their problems is alas nothing but a dream; in reality your operational problems may be exacerbated if you move to the cloud and do not hold a firm grip over key processes and procedures.
- The emergence of this new class of IT infrastructure sucks the oxygen out of the enterprise IT vendor ecosystem. Organisations get more leverage towards their vendors but also face higher risks as vendors merge, go private, change focus and sometimes go out of business.
- User experience is increasingly important to consumers and all your users, customers and suppliers are also consumers when they are off work. Millennials and increasingly older people as well will not be enthusiastic about having to work with a heavy laptop running legacy apps on a legacy OS. If you wish to remain attractive, you need to learn the lessons about ease of use and multi-platform support that consumer services offer.
- Security is of paramount importance to cloud services companies (they cannot afford a large scale security breach) and in many respects they are doing better than traditional companies. There are many lessons to be learned about the way you can offer security without degrading the user experience and killing convenience.