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Blogs > Banks Statement

What has technology to do with the cloud?
Martin Banks By: Martin Banks, Proprietor, Lian-James Consultancy
Published: 12th March 2013
Copyright Lian-James Consultancy © 2013

With Yahoo changing its description from 'media business’ to 'technology business’, when it is even more a media business than ever, the question needs to be addressed—are we now too hung up on the hook of technology just as much of the world moves post technology’?

Just before Christmas, in amongst a set of predictions for this year, 2013, I wrote the following:

Start of a 'Post Computer’ World
Cloud-delivered services carry with them an important difference—the focus of attention on the service being provided, what is actually required from it and what benefits it brings to the business as a whole. In many ways, the means of delivery is less relevant.

With IT, however, there still remains a great deal of emphasis on the 'T’—technology. This means technology for its own sake.

It would seem that the backlash against what some have started to call a post-technology world has already started. It seems technology for its own sake is setting out to defend itself early. It seems like the technology companies are starting to feel that if they stop getting written about—and being important as technology creators and providers—they will cease to exist.

But when it comes to the cloud at least, they are no longer that important. It is the services that are built upon the technology which, to a growing number of end users, are the important element. Many tech companies seem to be missing the point of this change and why it is more important than the tech itself.

For example, according to a recent press report, Yahoo has changed its official description of itself in important US Federal documents. In its latest 10-K filing with the Securities and Exchange Commission Yahoo now refers to itself as a global technology company. In the past it has called itself a digital media company.

Another press report covered a presentation made by Anthony Miller, Managing Partner in the analyst firm, TechMarketView, to the recent annual conference of Intellect, one of British technology industry’s main representative bodies. In it, Miller suggested that the cloud—and SaaS services in particular—could evaporate over the coming year.

The move by Yahoo—a company that has been a cloud service provider and a digital media business before either concept was acknowledged in the marketplace—is arguably amongst the dumbest marketing moves ever. As already stated, the technology is not actually irrelevant in practice. But it is in marketing terms, especially when it comes to cloud and digitally-delivered services.

The number of people who really need to know how services are created, delivered or managed is reducing rapidly, while the level of technical knowledge for most users is going (relatively speaking) down. Most people who use Google have no idea they are using a cloud service, or even what a server is. They don’t know what a Gigabyte is, they just know that it now stands for a bit of storage, like a bookshelf or two’ while 500 GB equals a fair-sized library.

What the users want is a service, like being able to text, talk, take pictures and look up pizza parlours on a mobile phone. They don’t need to know the transmission frequency.

But by becoming a technology company Yahoo is doing a couple of backward-thinking things. One, it is showing it is stuck in the Silicon Valley mentality where tech for its own sake is seen as next to godliness. Two, there is a whole world out there that doesn’t give a damn about it, and it is those people which now represent the real marketplace.

Yahoo would seem to be configuring itself to ignore its primary marketplace—the end users. Instead, its self-description suggests it has decided it wants to be known as the maker of piston rings, rather than the source of the dream of the open road.

I know some describe this as an example of a model known as 'Technology as a Service’ (TaaS), and I can see where they are coming from, but I still end up feeling it misses the point. The key driver now is what users actually do, what they aspire to achieve with the technology rather than the ability to appreciate its coolness. TaaS, like 'Private Cloud’, is arguably a good intermediate descriptor through which business users—larger enterprises in particular—can transition their corporate mindsets. But in practice it is very much like saying really only slightly different from on-premise.

To me, it is rather like saying Leonardo da Vinci was a 'paint application technologist'—he was. But is that the summation of his capabilities, talent or contribution, or was there something else about him, and was that perhaps more important?

As for Miller’s reported assertion that SaaS will evaporate I can see why he might view the situation that way, though I feel it is a viewpoint that comes from a technology-first standpoint.

Miller himself is reported to have voiced the opinion that vendors that take their existing on-premise applications and push them out into the cloud as SaaS services may not be doing the most sensible thing. Their chances of success are likely to be limited, and will primarily play to the natural conservatism of larger business users.

History already shows the trend that SaaS brings in its wake. It used to be Siebel for CRM, but in the cloud it is Salesforce, or perhaps SugarCRM. SAP still holds sway in Big Enterprise ERP systems, but in the cloud it is more likely to be NetSuite. And while Hyperion is the daddy of on-premise Corporate Performance Management systems it is companies like Host Analytics that are carving out the SaaS-alternative trail.

Miller makes a couple of interesting, if debatable, points about SaaS, such as it costs more to deliver software as a service than it costs to deliver software on a disk, and that the flexibility inherent with SaaS should come at a premium, not a discount.

The first one I would view as being slightly contentious, not least because it is not really comparing eggs with eggs. Getting an application on a disk is only the start of the cost cycle for the end user, though it is the end of the delivery cycle for the vendor. From that point on, everything else is an additional cost, usually for the lifetime of the application.

SaaS costs the vendor more to deliver, not least because there are resources and bandwidth to provide, even if that is only rented from another service provider. But SaaS is also like the semiconductor industry, where it costs $billions to make one processor chip, but after a while they are being stamped out for a few bucks-a-chuck.

In the same way, new users for many SaaS services become an increasingly marginal cost for the service provider as important cost areas such as system management and support are shared between the user-base, rather than being an individual, total cost that each user has to bear.

When it comes to flexibility then yes, that is currently being delivered as a cost saving to the end user, rather than a premium. But stating that is to also forget that SaaS is at the beginning of its life as a marketplace. Flexibility, and more importantly end user business agility, will no doubt come to be valued worthy of premiums—particularly where the flexibility and agility is delivered by service providers that understand the real service needs of end users.

Miller also points to how SaaS' posture child, Salesforce, is still making a loss and boasting about it. Yet all businesses make a loss in their early years, especially if introducing disruptive developments. It is hardly unusual. And others might point at established big systems manufacturers with a penchant for big hardware and complex on-premise systems software that still make most of their revenue from printer inks.

And let’s not forget that lasers were first seen as a 'solution in search of a problem’ but are now the backbone of broadband Internet. And 1Kbit semiconductor memory chips were considered 'interesting, but won’t replace ferrite core memory systems in computers’. Yet I am now not alone in having 16Gbytes of storage on my key-ring in a freebie memory stick. I would venture to suggest that SaaS is unlikely to evaporate, regardless of how hard the technology-delivery businesses try.

As a final thought, Miller himself is reported as bemoaning the decline of IT as a marketplace, which is said is in the sixth consecutive year of market decline. He suggests that the IT market will grow less than GDP till the end of the decade, and probably indefinitely. But that is to assume that IT as an industry is a core marker of economic activity. It may have been for a while, but I would suggest that it will be the businesses that best exploit the capabilities of IT and the new ways it can be delivered and consumed which will be the coming touchstones of economic success, regardless of their actual marketplace or business sector.

After all, Google is already best known for its cloud-delivered services and applications rather than being one of the biggest manufacturers of server systems, though big in server making it certainly is. But making its own servers is not core to its business, it is just the most convenient and economic hook with which to catch a much bigger fish.

That means Google does not buy servers from the marketplace, thus contributing to its decline. And that is a fact of life. The technology vendors face an uncertain future of declining revenues and declining influence. SaaS, and the cloud in general, faces a much stronger future where making a loss at the moment is likely to be a passing fad.

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