Insights from Silicon computing, the ubiquitous mobile, social networking, video, winners and losers?

I recently spent a week in Silicon Valley, California - visiting some leading and potentially bleeding edge technology providers.  Accompanied by fifteen UK based COOs, CIOs and CTOs it gave us the opportunity to identify new trends in the technology marketplace, the impact for us as business consumers, and insights to the challenges we may soon face.  We visited a mix of large scale suppliers and some start-up companies, all recommended to us by a group of friendly valley-based venture capitalists. 

I have endeavoured to pull out the key themes from the trip, written as an enthusiastic business consumer, not a technologist per se.

Theme One: the revolution that is cloud computing 

Cloud computing is a widely misused term.  We define it as: IT resources and services that are abstracted from the underlying infrastructure and provided on-demand and at scale in a multi-tenant environment via a thin client such as a web browser.

There are currently three main strands ‘in the cloud’: Infrastructure as a Service, Platform as a Service and Software as a Service [1].

Infrastructure as a Service (IaaS): bundles storage, processor, operating system (plus virtualisation) and bandwidth.  Clients can upload their own software stacks and run them on IaaS e.g. Microsoft Windows Azure.

Platform as a Service (PaaS): bundles hardware, infrastructure, storage, database, workflow, security, and a user interface that allow users to create and host powerful business application e.g. Google App Engine provides functionality for developers to build web applications. 

Software as a Service (SaaS): also known as software on demand - software is deployed over the internet and the provider licenses the application to customers through a subscription or a “pay-as-you-go” model e.g.

There are several deployment models:

Public cloud - cloud made available to the general public.

Private cloud - operated solely for an organisation.

Hybrid cloud - composed of two or more clouds that inter-operate or federate through technology.

Community cloud - shared by several organisations and supporting a specific community.

Virtual private cloud - simulating the private cloud experience in the public cloud infrastructure.

Technology providers claim there are significant benefits in radically lower costs, speedier application development, flexibility and agility along with greater opportunities for innovation and improved security. 

It seems a compelling argument, and Gartner appear to agree: as part of their Top Predictions for 2010 earlier this year they declared ‘cloud computing is the #1 strategic technology of 2010…. by 2012 twenty percent of businesses will own no IT assets’[2].

But there are hidden dangers …… many cloud systems are proprietary platforms that tie in the application owner to the hosting provider – something which is rarely mentioned or recognised. Nevertheless, the same risks associated with using proprietary platforms must be considered[3].

For an organisation such as Pelicam with the need for rapid distributed deployment across boundaries to support our client assignments, with significant growth rates, SaaS cloud computing provides significant strategic and tactical advantages – accessibility, agility, scalability, security and cost control.  It allows us to focus on delivering client value – not messing about with the technology[4].

In organisations with more architectural complexity (legacy, interfaces etc) cloud computing should still provide an opportunity for CIOs and IT departments to focus on innovation and create rapid strategic value, but the need to integrate “on premise” systems with the cloud will significantly slow down development timeframes and the consequent rate of change. This is a big issue for CIOs - when to make the investment and how to justify it to the CFO.

Overall, it appears undeniable there is significant potential for cloud computing to change the IT landscape across the UK.  Whilst the early adopters have predominantly been mid market companies, the argument is compelling for large scale enterprises also….. 

Footnote [1]: Forgive me if these terms are already well understood but it merits a brief explanation in layman terms.
Footnote [2]: I don’t know what confidence Gartner attached to this statement (if any)…..
Footnote [3]: The term cloud computing like most technological terms is open to any number of definitions and misinterpretations.   I suspect there are many suppliers using the hype of cloud to sell hosted solutions that just run in the data centre – true these platforms may be virtualised but to call them “cloud” based is not strictly true.
Footnote [4]: At Pelicam, we have used IaaS in the past but it is less attractive since the onus is on us to manage the software application - we are moving to SaaS where we can.

Theme Two: the ubiquity of mobile / smart phones and the rise of social networking

The smart phone market is growing rapidly[1] and it is fragmenting.  Blackberry and Windows Mobile were the dominant enterprise smart phone players in recent years but the iPhone and Android phones have made significant inroads into the consumer market.  This is largely due to:

The impressive devices- with Apple's Iphone leading the way with its depth of application and greater user experince, but Android, RIM, HP/Palm, Samsung and Nokia, to name but five, are sure to catch up.

3G now (and 4G to come) and consequent mobility of devices used to access the internet.

The video and data management capabilities[3].

Additionally, there is widespread anticipation that a sub $200 computer / netbook device will soon be available to support web applications only. 

We have also seen a large shift in usage from Google to social networking sites such as YouTube, Twitter and Facebook[4].  In Silicon Valley (and spreading through the world) these have become the primary launch pads into the web.  Thus technology usage is moving beyond the browser to interactive, connective applications that should transform business operations.  As a result, and a significant move from previous years, internet traffic growth is now being driven by APIs (Application Programming Interfaces) built into the cloud, social and mobile applications[5].

As a consequence, the US IT directors I met recognised their enterprises will have to adapt previously constrained technology policies to incorporate these new devices (smart phones, iPads et al) to foster participation and innovation within their companies.  Traditionally IT have fought hard to fend off the use of these applications and devices internally, however, we are sure to follow the US in this respect.  The challenge for the technologists is how to allow these devices to access corporation information in a controlled manner and maintain security[6].

So it is clear that social networking will have an increasing impact on the business environment as organisations find it impossible to resist the trend as employees demand a ‘consumer quality experience’ in the workplace. Additionally the complexity of application being built in the cloud will offer a whole new set of business opportunities. Finally if (when) the vast majority of users can be served by web based tools the expectation is this will drive a mass change in the consumer and business desktop space[7].

Footnote [1]: According to Mary Meeker (a well respected Internet guru from Morgan Stanley) the mobile Internet is ramping faster than desktop Internet did and more users may connect to the Internet via mobile devices than desktop PCs within the next 5 years.
Footnote [2]: And battery life is set to be cracked – the valley believe they are close to a breakthrough.
Footnote [3]: And consequently video/data volumes are beginning to surpass voice.
Footnote [4]: Source - Morgan Stanley Research – Internet Trends April 12, 2010.
Footnote [5]: EBay services over 6 billion API calls per month and 60% of all its listings are added via APIs. AND: more than $7 billion worth of items on eBay are sold through APIs (according to Mark Carges, eBay’s CTO).
Footnote [6]: Use of these devices is now being enabled within the corporate technology environment in Silicon Valley.  Cisco told us they focus on “standardising the core” to “enable the edge”.  N.B. For some UK IT directors there was also acknowledgement of the need to tighten security for Blackberry platforms using Facebook.
Footnote [7]: Perhaps the thin client will truly be achieved… note this may be an area where corporate adoption for very thin netbooks will come before consumer acceptance.

Theme Three: The potential for visual communication and data storage consequences

Already today Hulu and You Tube, between them, use more than twice as much as the whole internet backbone capability in 2000.  The growth rates are staggering.

At Cisco they referenced the growth in social networking and the need to design a whole new set of routers and switches for rich media (moving from small intermittent packet handling to streaming?) and combining hardware, software and networking to provide a complete solution.  But additionally they passionately talked up the use of video as a business communications tool: the drive towards visual collaboration across multiple devices using rich media/video across internet and extranet.

They assert video massively contributes to and supports human interaction and it will soon transform future business processes. Cisco told us their senior management team (including John Chambers) regularly issue video messages instead of emails to deliver key communications to their internal audience.  The quality of the communication far exceeds that of an email in their experience[1].

So given the explosion of unstructured social data and video where does that leave us with data traffic and storage capacity?  There seemed widespread agreement the pipes are large enough to handle the growth but we seem to have a problem with storage.  I can understand this being an issue as previous generations of storage were mainly built for databases and not for unstructured data.  We were advised that unstructured data is increasing at 80% pa and needs to be on-line most of the time (I can’t corroborate this).  Since storage costs are only decreasing by 20-25% per annum, it is becoming an extremely expensive element of many organisations operations. There are however some innovative cloud based storage solutions emerging.  

Footnote [1]: Perhaps unsurprisingly - they have been pushing this for a while. Despite my cynicism of Cisco’s motives the argument for video communications nevertheless has significant merit.

Theme Four: Significant investment in R&D and critical times for major players

There is a widespread belief in the valley they are now reaching a point where there will be significant winners within the current major suppliers (creating massive market penetration and more wealth) and also some significant losers (taking current major players to the point of destruction).  The numbers being poured into R&D are staggering:  Microsoft alone is investing $9.6bn [1].

Microsoft’s response to cloud computing appears to be ‘Azure’ of which only the physical infrastructure is multi-tenant – the hardware is shared, but organisations are responsible for managing the virtual machines, including provisioning and configuring the various software stacks for different applications and tiers.  Whilst they have just released a free online version of the Office 2010 suite with slimmed down versions of Word, Excel, OneNote and Powerpoint, it is unclear how supportive they are of the cloud. has deployed in over 70,000 companies and has over 2 million paid subscribers – all worldwide services are provided from just two data centres. Additionally, Salesforce claims organisations can build applications 5 times faster (and at half the cost) compared to traditional on-premise Java or .NET developers due to the number of pre-built, pre-tested, and pre-integrated components of the platform.  Despite ground breaking products and great brand awareness with revenues of $1.6bn it is relatively small scale.

There are more than 25 million Google Apps users across 2 million companies worldwide, growing at  three thousand new Google Apps users per day [2].  It is acknowledged that Google Apps offers a limited set of features but recognise that average MS Office users only utilise approximately 20% of the functionality available to them.  Given the costs involved in running the infrastructures to operate MS products there seems an inevitability to the move – certainly the Valley IT directors we met have recognised running large IT teams in-house to deliver this stuff is not clever – and they are actively managing projects to swap elements across[3]. There remains a conundrum as to how the power users (generating complex excel and powerpoint solutions) will be managed? Additionally, given we won’t all changeover ‘overnight’, it seems the import and export (round-tripping) to MS Office will be key – according to some of the party not all the issues are yet fully resolved[4].

It is difficult to say yet who the winners and losers will be.  The penetration of Google Apps will continue through government bodies, consumers and into the corporate world.  I expect to see most UK companies at least experiment with Google Apps this year or next – the cost model is too compelling to ignore.  Salesforce continues to excel in its market (we use it and love it).  Given what we have said about the $200 netbook web browser, it is not easy to see how the desktop space will develop.  Interesting times.

Footnote [1]: R&D investment as a percentage of revenues:  IBM 7%, Microsoft 14%, Cisco 12%, Intel 16%, HP 4%  based on 2008 revenues. Having noted this, there is also widespread realisation in the valley that not enough good people are going into science and engineering…. It is not seen to be ‘cool’.
Footnote [2]: But isn’t this a mere speck compared to worldwide Office usage? But there is an agility and synthesis of platform that sets companies like Salesforce and Google Apps apart.
Footnote [3]: There is some evangelism going on here, but, Salesforce don’t use Microsoft Excel anymore –they only use Google Docs.
Footnote [4]: Needs some careful planning but given a defined set of power users, a business case can be established – we anticipate many organisations piloting Google Apps in the very short term – they seem determined to disrupt the market.

No more themes - just observations:

1.     We don’t want to read manuals anymore – everything should be intuitive (look at the iPhone).

2.     We are moving towards the day when every information item has a single URL and search is built into every application.

3.     The power of the crowd in the cloud – in a move designed to help customers more easily build contact lists in their Salesforce databases, a US company “Jigsaw” was acquired by Salesforce in April this year for $142m.

4.     Security of the cloud remains a major concern – IT directors remain nervous but technological issues will be overcome – there does however remain a potential need for a higher level of intervention / government involvement

5.     Cloud radically changes the game in terms of application sales, supply, benefit delivery and consulting.

6.     And finally……beware of the person who introduce themselves “I’m not BOA” …………….(Big On Acronyms).

2010, ChangeKatie MayerComment