cloud computing | Paul Wallbank - Communications Professional

Seeking salvation in the cloud

In a time of flat markets, companies struggle to find their next growth drivers. Software companies are hoping cloud computing will be their salvation

Oracle CEO Mark Hurd’s keynote at the company’s Open World conference in San Francisco yesterday illustrated a problem facing businesses around the world and its effects on enterprise software vendors like the one he heads.

“Standard and Poor’s top five hundred companies’ revenue growth is at one percent, their earnings growth is five percent.” “It means what? Expenses are going down.”

“This is the problem that the CEO has,” he says. “Why is it hard to grow revenue. All your investors want you to grow earnings and deliver growth. They have little patience for any long story about why it’s so hard.”

“They don’t care about any issues you may have. Grow earnings, grow cash flow, grow stock price. That’s it.”

Growing in a slow market

As a result of that the easiest way to grow earnings is to grow revenues but when global GDP and markets are flat, the only way to grow is to gain market share, Hurd says. “We have to know the customer better, we have to do a better job of marketing and we have to do a better job of aligning our goods and services to what our customers want. We have to improve our products and processes.”

That imperative for companies to cut their operating costs has had a brutal effect on enterprise IT budgets, “over the past five years, the growth in enterprise IT has been flat.” Hurd says, “the growth in spending has been basically zero.”

Customers drive the market

Like many things in the tech industry, the sector’s growth focus has shifted to consumers, “consumer spending on IT has almost quadrupled in the past decade. So while companies are sort of flat, consumers have been spending like crazy.” Hurd observes, “consumers are more sophisticated, more capable, more knowledgeable and expect better services than ever before.”

“Your customer experience is not being defined by your competitors but by technology fuelled consumers. For instance, AirBnB may be defining customer experience for the hospitality industry.”

“People are using a lot of social technologies in their personal lives,” “we expect ease of use, simplicity, clean interfaces are now things we expect in the enterprise side.”

Crimping innovation

In the enterprise IT sector, Hurd believes the flat market means many companies catering to the corporate market are skimping on Research and Development which in turn is crimping innovation, a factor compounded by cloud providers taking an increasingly larger share of the market.

This is underscored by cloud leader Amazon Web Services spending over ten billion dollars a year on R&D. Hurd’s boast that Oracle is spending half of that shows how the legacy players are struggling.

What stands out in Hurd’s keynote is how legacy providers see cloud computing as their salvation. However Amazon’s dominance in that space is a major obstacle for them.

For consumers, big and small, the shift to the cloud has been a good thing in shaking up the existing industry and making new technologies more accessible to smaller customers. For existing businesses like Oracle, there’s a challenge in adapting to a lower margin, commoditized and quickly changing market.

A bigger question though facing all large corporations, not just software companies, is this new normal of low economic growth. Succeeding in that environment is going require a completely different management and investor mind set to that of the last seventy years.

Retreat from the cloud

Despite the benefits, there’s a number of risks of having your data or applications hosted on cloud services.

Despite the benefits, there’s a number of risks of having your data or applications hosted on cloud services. The three most important are costs, availability and portability.

Having spent the last three days at EMC World in Las Vegas, the cost factor in public cloud services is clear for larger enterprises and many companies – including the soon to be merged EMC and Dell – are basing their business plans on corporations and government agencies bringing at least some of their IT function back in-house.

Smaller companies too are at risk from high costs as a myriad of cloud services can quickly become a big drain on a small business’ finances.

Availability has long been a problem with cloud services as they are at the mercy of internet access and, more importantly, subject to the whims of companies’ policies. Two good examples being Amazon’s arbitrary deleting of users’ kindle licenses and Google’s Real Names debacle.

In the last two days another version of this has arisen where a musician found Apple Music had deleted his collections, while there are claims this ‘bug’ this may be due to clumsy user interfaces it shows the risks in entrusting key data to the cloud.

Which leads us to the most critical point with cloud services – portability. Many online businesses are working on the basis of locking customers into their services.

Most founders asset they want to lock customers in by offering the best services but it’s not hard to see as these companies grow, the urge to use proprietary formats or convoluted exporting tools to keep clients on the platform becomes stronger.

Cloud services aren’t going away but all of us are going to have to take precautions and understand the risk. And backup locally as often as possible.

Getting academics onto the cloud

Discount and free software programs are good for educational programs but they do risk industry wide vendor lock in.

Offering free products to students and academics has long been a tactic used by software companies to build their market presence. The current fight for dominance in the cloud is seeing the same tactics being used.

Last week I had the opportunity to talk to Amazon Web Services’ Glenn Gore about his company’s academic support program.

Part of that conversation ended up in a story for The Australian about how researchers are now using cloud computing services and it’s worthwhile looking at how AWS are using this program to cement their products’ market positions.

“We work with the majority of universities across Australia,” Gore said. “It’s part of an international focus around how we support the education sector in general.”

In some respects AWS’s behaviour isn’t new, for years Microsoft, Autodesk and Adobe have had programs offering free or deeply discounted products for academic or student use. The success of those schemes in becoming defacto industry standards is no small reason why these companies have dominated many sectors.

Microsoft themselves have the similar Bizspark program for tech startups and it’s easy to see how that initiative is helping push Azure’s adoption into a field that has been dominated by AWS.

One of the drawbacks though with cloud computing services is the risk of ‘sticker shock’ where customers end up with big bills. One of the universities I spoke to in researching the story recounted how 0ne of their faculties was presented with a huge AWS invoice because their engineers didn’t provision the services correctly.

This is where AWS’s team steps in with advice for researchers, “in the case of Koala Genome Project use the on-demand model, the standing pricing model for the cloud,” recounts Gore in pointing out the nature of their work could use spot-pricing to take advantage of cheaper prices in off-peak times. “As a result of making that one change they were able to do eighty percent more research.”

Getting more research time is always attractive for researchers and Dr Rebecca Johnson who leads the Australian Museum’s part of the koala consortium was particularly effusive about the support from AWS staff,

“What we have been able to access via this partnership with AWS is compute time and compute capacity that we just would not have had access too,” Dr Johnson said in a media release. “It would have cost us thousands and thousands of dollars to create and we just would not build such a computer system these days. You would not create your own computer infrastructure as we would only use a fraction of it anyway. So, it is great for us to piggy back off these already built systems.”

Being a relatively small institution, the Australian Museum is a good example of how cloud computing can work for those without the resources of big universities or corporations in the same way small businesses and startups can access resources formerly only available to enterprises.

Amazon’s programs though show the Microsoft model of getting students and startups onto their systems early pays dividends. It’s good for academic institutions but one wonders whether it’s also another form of vendor lock in.

Creating a digital spaghetti divide

A business digital divide could be fatal for those caught on the wrong side of it.

Are we seeing a new digital divide develop between big and small businesses, particularly in areas like retail and hospitality?

This thought occurred to me during a radio spot earlier today where we were talking about Apple Pay’s Australian launch. Many small businesses don’t have the capital or expertise to implement many of these new technologies.

A number of factors contribute to this including the legacy systems installed in small businesses, the proprietors having a poor understanding of technology and, most importantly, the lack of either capital for reinvestment or cashflow to fund the monthly charges that are standard for cloud computing services.

The expensive cloud

One unstated factor with cloud computing services is how the cost of services add up. For example a Premium 10 Xero customer with Receiptbank attached is looking at a $100 a month in charges. It’s not hard to see how adding cloud based Point of Sale, rostering and customer service software could see a small business incurring $400 a month in fees, throw in Salesforce and you could be looking at a very expensive exercise.

No doubt for those companies that can afford these services this is money well spent but for many margin or low turnover businesses, the charges could be a deal breaker.

Spaghetti Junction

Another aspect to the cloud services is the myriad of different platforms that need to be stitched together in most businesses, one cloud service founder calls it “digital spaghetti.”

Managing this bowl of complexity isn’t easy and raises a number of business risks as different services apply varying policies and practices to the data they collect and store. A breach or service failure at one could cause a ripple effect through all business operations.

For many small business owners, particularly older proprietors, managing this complexity is intimidating if not downright scary.

It may well be there’s a number of opportunities for a canny service provider to offer an out of the box small business solution, but for many older small operators with limited capital and restricted cashflow affording such a product might also be difficult.

The risk though for those businesses is they will find themselves falling further behind as markets, consumer demands and the workforce’s expectations evolve. A business digital divide could be fatal for those caught on the wrong side of it.

Killing the business of complexity

A simpler business environment means lower margins. If you profit from complexity you have a problem

“The cardinal sin of the computing industry is the creation of complexity,” is quote attributed to Oracle founder Larry Ellison and often repeated at the company’s Open World forum which I’m attending at the moment in San Francisco.

For the computer industry that complexity has been a very profitable profitable business with everything from the local computer shop through to the big technology vendors and integrators.

One of the biggest beneficiaries of that complexity were the salespeople, big complex enterprise deals meant big commissions.

With the shift to cloud services and apps, those fat margins and commissions have evaporated, leaving the lucrative old models of business stranded. IBM are probably the greatest victim of this while Microsoft are, once again, showing the company’s ability to evolve in the face of a fundamental market change.

For the salespeople the days of fat commissions are over, with thinner margins it’s not possible to pay big lump sums for winning contracts.

The simplification of the computer industry is changing the fortunes of many IT businesses, but that change isn’t limited to the tech sector or their salespeople as those fundamental changes are rippling into other sectors.

A constant claim by Internet of Things evangelists is that the IoT will squeeze inefficiencies out of businesses and this is exactly what we’re seeing with cloud and mobile based services like Uber and AirBnB.

If you’re in a business that profits from market inefficiencies then it might be time to figure out how to survive in a low margin environment. The challenge facing companies like Oracle is one whole industries are now having to face.

Rethinking business IT

How is business being reinvented in a world of cloud computing.

Last week at the AWS:Reinvent conference in Las Vegas, I had the opportunity to interview the company’s Global Head of Enterprise Strategy, Stephen Orban about where he and Amazon see the direction of the cloud computing market and how business practices are being reinvented.

Among the things we discussed was Orban’s seven best practices for a company’s journey to the cloud, gleaned from his own experiences in his AWS role of advising clients on adopting and his previous experiences as a technology officer at Dow Jones and Bloomberg.

Orban laid out what he thinks are the keys to success in a company heading to the cloud in his own blog post and during our conversation he expanded on his ideas which also very much reflect the changing role of the CIO or IT manager.

Supporting the C-suite

The first point is the IT department has to understand the business and align technology with the organisation’s objectives.

“Somebody who understands technology who can merge technology with the business needs” will be better able to win the confidence of management says Orban.

Doing that is the key to winning support from the executive suite Orban believes. Once CIOs have that trust from senior management it gives their teams the space to experiment with new ways of delivering value to their companies.

Education

“The second thing is to provide training and education,” Orban says. “People tend to get a bit anxious of what they don’t know, particularly when it affects their jobs.”

In Orban’s experience, having informed staff makes them more open to change within the business, “with the transformation I went through at Dow Jones, most of what we accomplished was because of the people who’d been there a long term. They had the institutional memory but they were very open minded.”

Foster a Culture of Experimentation

One of the great benefits of cloud computing is how it lowers the costs of experimentation and development, “gone are the days when it cost hundreds of thousands of dollars, even millions, to try something.” Orban says.

Learning what works and fails is essential, he believes. But as long as there is executive support then a tolerance towards unsuccessful experiments will develop in the organisation.

Working with partners

Outside parties are essential to most organisation’s IT systems and Orban believes partner ecosystems have changed with the advent of cloud computing. “There’s a whole new breed of partners that have been going through this,” he says in citing ‘born in the cloud’ software developers and systems integrators who are changing how projects are being delivered.

Build a Center of Excellence

“Creating a center of excellence is, I think, one of the key practices any organisation should invest in. You want a body of people who can institutionalise best practice within an organisation,” observes Orban.

As cloud services take away the complexity of computer systems it becomes an opportunity for organizations to rethink boundaries between the IT department and business operations.

Move to the cloud

Given Orban’s employer it’s not surprising he sees cloud computing as key to a company’s transformation however he admits that few organisations will make the jump straight into cloud services.

“Hybrid will be a part of every enterprise’s journey. Any company who’s been doing IT for any period of time will have existing investments,” he says. “Our view is that we will make it as easy as possible to create that bridge.”

“We do believe in the long run that enterprises will find they become so much more effective over here (in the cloud) they will move in that direction.

A Cloud-First Policy

Once an organisation has its cloud strategy and experimentation culture in place then having a ‘cloud first’ policy, “it reverses the burden of proof away from ‘why would you use the cloud?’ to ‘why wouldn’t you?'”

While Orban is emphasising the Amazon Web Services view of the world where ultimately all business computing will be done on the cloud – preferably their cloud – his views illustrates the change facing businesses as they implement online technologies.

For most, the availability of easily accessible cloud computing services is an opportunity to rethink their business processes and how organisations can deliver the best products quickly to their customers.

Xero and the US cloud accounting challenge

Xero starts its serious push into the US cloud accounting market

Last month I wrote a piece for Business Spectator on how competition in the Australian cloud accounting market was hotting up with the re-entry of Intuit and Sage.

One of the divides between vendors was whether online accounting services scale globally with one group – including MYOB and Reckon – saying that deploying services in different jurisdictions added complexity while others believed a global product was necessary to achieve scale.

The most obvious member of the global scale camp was Xero, the company that has pioneered the growth of cloud accounting software. Two years ago we interviewed the company’s founder Rod Drury about his ambitions for the company and the direction of the cloud accounting market.

For Xero though, growing globally isn’t easy. While its most successful market has been in Australia, that country has many similarities with Xero’s native New Zealand and the company has found the UK and US markets tougher.

Renewing Xero’s US push

To deal with a much bigger and diverse market, the company appointed Russ Fujioka, a veteran of Dell, Abode and the various venture capital companies, to lead its revamped operations in the United States and Decoding the New Economy caught up with Russ recently at Xero’s San Francisco office.

For Fujioka, the key to growth in the United States market is the small business sector with the US recording nearly half a million new business registrations across the nation each year.

“You see the M in ‘SMB’? We don’t want to be playing to that market,” says Fujioka in emphasising the Xero’s focus on the small business sector.

Fujioka also sees opportunity in what he calls the ‘pre-accounting’ sector, the roughly 18 million self employed contractors and freelancers who don’t need a full fledged accounting service but need access to basic bookkeeping, invoicing and expense tracking.

Dealing with diversity

While the 28 million US small businesses represent a huge opportunity to Xero, the market also presents challenges with, unlike the New Zealand, Australian and UK markets, hundreds of banks and thousands of different state and local tax regimes.

To deal with the complexity of local tax and employment rules, Xero announced a partnership with Avalara to provide the data feeds for calculating sales taxes and payroll obligations, something that is essential to Xero’s business plans, “payroll is fundamental to our offerings.” Fujioka says.

Also fundamental are accountants and book-keepers where co-opting them as sellers of the service has been part of Xero’s success in Australia and New Zealand with Fujioka seeing a fifty-fifty split between those businesses signing up directly and those going through advisers.

The changing accounting industry

Like the rest of the world, the accounting profession is going through major changes as much of the transactional work becomes automated, Fujioka sees this as an opportunity for companies like Xero to add value to the industry and help individual firms become more akin to system integrators and technology advisers to their clients.

The ultimate aim for Fujioka is to make Xero the site, or app, that every small business starts and ends their day with, “we really want to be that single pane of glass for small business – you start your day with us, you end your day with us and during the day you check your status on your Apple Watch.”

For Xero, the key to global success is cracking the US market. The challenge for them is to capture a new generation of business owners and accountants.

Paul travelled to San Francisco as a guest of Salesforce and Splunk

Managing the data stream

Managing the data deluge is where Salesforce is focusing its efforts in a competitive market

One of the world’s biggest tech events – if not the biggest of the vendor shows – is Dreamforce, Salesforce’s annual spectacular that this this year attracted a 150,000 attendees to San Francisco’s Moscone Center.

Every year sees the company – which now holds the title of the world’s fourth biggest software company – and its CEO, Marc Benioff, defining the direction of the company in the face of a rapidly changing market. Despite being a pioneer in cloud computing, the company is as vulnerable to disruption as anyone else in a rapidly changing marketplace.

This year, the focus is on analytics and automation along with a strong leaning towards the Internet of Things and app development on the Lightning platform they announced last year.

With the Thunder platform, Salesforce is offering a service that allows businesses to connect devices onto their platform where users can build up rules based business automation. One notable part of this is the integration with Microsoft Office 365, another example of Microsoft’s reaching out to previously hostile companies.

For Automation, Salesforce is building upon its RelateIQ acquisition from last year, now branded as SalesforceIQ. The company says “Relationship Intelligence technology that utilizes advanced data science to analyze company relationships and drive actions.”

The Wave analytics service, which was also announced at last year’s Dreamforce, is a key part of the the business automation and IoT services in providing the insights into the data being collected. In many respect, Wave is going to be the glue that holds most of the products being announced this year.

Complementing the Wave, Thunder and SalesforceIQ products is the Lightning platform, again announced last year, that allows users to use the company’s AppCloud to quickly build business applications.

For Salesforce, the direction being laid out from this Dreamforce conference is in making helping customers deal with the masses of data coming into the enterprise. As Tod Neilsen, the company’s Executive Vice President of the App Cloud says, “we’re look at making the data usuable for spreadsheet users.”

As businesses struggle to manage and understand the masses of data flowing into their organisations, this may well be a powerful selling point for Salesforce.

Paul travelled to Dreamforce 2015 in San Francisco as a guest of Salesforce