So my question is when does Amazon.com split its retail operations from its AWS platform business. I’d love to see these priced separately. Actually, truth be told, I suggest Amazon.com is actually three businesses:
Earlier this year I suggested that AWS in particular could well be the totemic representative technology that inaugurates the sixth techno-economic paradigm:
Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete.
The central concept in this new option is that of the Spot Price, which we determine based on current supply and demand and will fluctuate periodically. If the maximum price a customer has bid exceeds the current Spot Price then their instances will be run, priced at the current Spot Price. If the Spot Price rises above the customer’s bid, their instances will be terminated and restarted (if the customer wants it restarted at all) when the Spot Price falls below the customer’s bid. This gives customers exact control over the maximum cost they are incurring for their workloads, and often will provide them with substantial savings. It is important to note that customers will pay only the existing Spot Price; the maximum price just specifies how much a customer is willing to pay for capacity as the Spot Price changes.
Spot Instances are ideal for Amazon EC2 customers who have workloads that are flexible as to when its tasks are run. These can be incidental tasks, such as the analysis of a particular dataset, or tasks where the amount of work to be done is almost never finished, such as media conversion from a Hollywood’s studio’s movie vault, or web crawling for a search indexing company. For most of these tasks their completion is not time critical and as such they are ideal targets for additional cost savings.
Before I go any further, let’s just say it’s pretty exciting to see vision become reality even if in this case I’m only a distant spectator. Markets in anything. Digital markets. Themes that go back to the founding mission statement of the Park Paradigm:
(December 2005) The technology of the digital age is driving an unprecedented explosion in the ability to create markets in anything. Trade anything. Not just physical goods. Not just financial instruments. But ideas. Events. Outcomes.
The emergence of these kinds of markets will – over time – impact how we view and interact with the world in all aspects of our personal and professional lives. They will fundamentally alter the current world economic and social paradigm.
Chris Swan calls them virtual resource markets and correctly points out that, at least for now, the market is “closed” – ie users cannot trade their capacity amongst themselves, however I suspect that it is just a matter of time before such a market is organized. But what would be even more useful (and exciting) than a closed market on Amazon EC2 resources, would be an open marketplace for on-demand spot computing resources. ie A marketplace which is agnostic as to where the compute resource comes from, so long as it is a robust and more or less uniform resource.* However for this to be useful for the end consumers of this computing commodity, the ability to switch automatically and seamlessly from one cloud computing source to another based on price and/or availability would be crucial. Indeed this would be the key value driver for anyone hoping to operate a compute resource exchange. Sure the price discovery and transaction mechanisms would be necessary but these are relatively trivial to build and hard (in isolation) to monetize. The real value creator for any exchange (just ask the CME) lies in clearing and settlements. (For the non-financial amongst my readers this is the back-end of the trade, fulfillment essentially.)**
Note, however, that this feature is not market-based pricing. Amazon determines the spot price and can raise that price enough to gain back capacity at will, at no real cost to itself. There is no competition. There is no commoditization. There is just consumption of what is not being used.
The truth is, real commoditization of infrastructure services–or any other cloud service, for that matter–isn’t in the best interest of Amazon or any other service provider.
Regardless, commoditization can’t happen without open standards that allow easy portability and interoperability of data and code, as well as security, control, service-level assurance and compliance systems. Those standards are coming, but it is impossible to predict when they will arrive. I only hope Amazon embraces them when they do.
I’m not sure I agree with his view however that commoditization isn’t in the best interest of Amazon. The underlying asset is ultimately relatively undifferentiated (a compute cycle is a compute cycle is a compute cycle) which is in fact the definition of a commodity. If you are a provider of a commodity – unless you can maintain a monopoly or a cartel – it is in your interest to create as big and vibrant a marketplace as possible. Supply creating demand. And particularly if you fancy yourself the most efficient, large scale producer of said commodity (as I’m sure Amazon does), all the more reason to want a big, liquid market of consumers. It is the exchange and clearer that want to create lock-in, not the producers. To be fair, for the moment AWS is both and indeed this is the point James is making I think, but I would be surprised if they had the intention (hubris?) to think this is anything but a transitionary arrangement.
Of course, as a traded market in this critical 21st century resource develops over the next decade and beyond, the business opportunities abound. Better yet, many of them are well known and can quickly be adapted (from other asset markets) to apply to the compute resource market. It’s not a business yet, but it only took a few hours before the first ticker tapes(here also) began to appear for EC2 pricing:
An entire ecosystem will surely emerge – exchanges, prime brokers, risk management derivatives, algorithmic trading… I’m sure there will also be some interesting second-order opportunities. Linking spot computing prices with spot electricity prices. Selling green compute cycles (ie powered by renewable energy sources only.) Allowing anyone to sell compute cycles into the grid (think SETI@home meets micro-generation). The mind races.
Welcome to the sixth paradigm.
* like a bond futures contract, one could imagine allowing any compute resource fitting a certain minimum specification into the “basket” of deliverable resources; typically in this scenario there would be a “cheapest-to-deliver” resource in the basket which presumably would get allocated first.
** I can’t help but wondering if the amazing technology developed by our portfolio company CohesiveFT couldn’t be adapted or re-purposed to form the core fulfillment engine of a compute resource exchange. The fact that they are Chicago based and their CEO/Founder is ex-O’Connor makes me wonder even more!
I thought I’d play a little markets jeopardy with the headline to this post. The question of course is: “what would happen if Google stopped mucking around and just came out and said it?” Said they were going to take their massive dataset, brilliant algorithms and (hire) all the smartest people in all the lands and offer a free service to “do anything anyone anywhere might conceivably want to do.” That should be enough to cast a pall over even the most profitable or promising companies. Sell everything (else) and buy Google, right?
Many of you are of course thinking no, not right: the premise is far-fetched (not to say ridiculous) and even if you accept it in the spirit of the thought experiment it so obviously is, the conclusion – that they take out every other competitor at the kneecaps – is not a given by any stretch of the imagination. And yet, when Google announced that they were going to launch a free property listing plug-in to enhance their UK maps product, the market reacted pretty much as if Google were indeed Merlin the Magician and just by waving it’s googly wand it could take over any market at will just by unleashing its fierce intellect and sizzling technology on the hapless incumbents. In this particular instance, Rightmove’s (the leading UK property portal) shares collapsed on the news trading down 10% on the day and c. 15% in all since the story broke. Now to be fair, having traded as low as 156p at the start of the year, RMV shares have had a pretty solid 2009, hitting a high of just over 600p and trading around 550p before the Google ‘news’ hit the market. And since investing (and especially trading) is not about picking the prettiest asset but picking the asset you think most others will find prettiest, I don’t blame any fund manager for selling first and asking questions later. And I have much sympathy for those that think that Rightmove’s market leadership is vulnerable in the medium term; only I don’t harbor much fear that this threat will come from Mountainview. The competitor that Rightmove’s shareholders should be keeping a close eye on isn’t Google, but Zoopla of course. (Reminder: we are investors in Zoopla.) Ah, but Zoopla has a silly name, it can’t be a real threat. Google however…
And it’s not just UK property where I think the mainstream markets and pundits breathlessly get it wrong about Google. In area after area they have proven not to be a very successful or threatening competitor and in other areas their entry has often been a boon for specialist competitors in the segment due to the legitimizing power Google brings to the table. They are able to (implicitly) validate new business models in ways a smaller, more specialist start-up could never dream of, and yet this market validation very often plays right into the hands of folks who, well, know what the hell they are doing.
Don’t believe me? Let’s take just a couple areas where – if you believe the logic in the argument used to justify Rightmove’s downtrade – Google should be causing wholesale panic and disruption:
Financial Information: maybe I’m wrong but I don’t exactly see Thomson Reuters or Bloomberg shaking in their boots, and yet here is a sector that is tailor made for Google’s engineering, distribution and technology assets, and one where they have had years to refine the value proposition; and yet Google Finance remains essentially a working prototype of a back-of-the-napkin sketch of what a Google financial information portal could become. Umair challenged CEO Schmidt to take up this challenge a couple months ago but I’m not convinced it would be as easy as it looks.
News aggregators: Google News is all we need right? (Perhaps supplemented with Google Reader…) There’s no reason for sites like Digg or Daylife or the Huffington Post to exist. I mean what are these guys thinking: some of them even started after Google News went into public beta. Crazy. Except they actually work, they have customers willing to use them despite Google News existing. But really, how long can this last?
Advertising: I must be joking now. After all advertising is the one market Google owns; the market that gave them their billions that allowed them to hire all the smart (non-evil) people and enter and take any other market at will. Right? Well if you think so, have a look at this recent post from Paul Kedrosky. It’s why vertical search and specialist sites exist. It’s why you (usually) go to Amazon.com if you know you are searching for a book, and not necessarily via Google.
And I could go on. But the point of this post is not to say that Google are useless, yesterday’s game, past their prime. In fact my best Google-fanboy guess would be that they are far from the point of diminishing returns and structural foolishness. My point is rather that they are not – or at least not universally – the ‘destroyers of all economic worlds’; that as they grow to become a company of thousands of employees in dozens of locations they will inevitably have to deal with some of the structural pathologies that this involves, including rising mediocracy and products looking more like camels than horses. Oh yeah and evil too. Yes they are a fierce competitor and certainly there is some risk that they could destroy your business model and take your business with it. But this is far from certain. They are human. They make mistakes. They execute poorly. They don’t always (or even often) win. And best of all, once you’ve proven that you can beat them, they just might buy your company.
Update:
I forgot to send you to a great essay by John Borthwick, thinking about the challenges Google faces going forward and highlighting the structural shortcomings of trying to regulate behavior in the fast moving world of technology, inspired by Ken Auletta’s book Googled: The End of the World As We Know It.
And of course Jeff Jarvis wrote a book about the opening premise of this post (which perhaps Santa will bring me) called What Would Google Do?
Anyone who has ever used an Apple product understands that a key part of the value flows from the design aesthetic that covets simplicity, intuition and beauty; harnessing these attributes to provide solutions and services that users find a joy to use right out of the box. The complexity of their products is hidden from view, Steve Jobs having understood that the extra effort needed to transform complexity into simplicity was something that created tremendous value both for his customers and his shareholders.
Creating simplicity is hard. Much harder than creating complexity. Entropy and all that. But it is very often worth the effort. Helpfully, John Maeda wrote a great guidebook “The Laws of Simplicity” where he articulates 10 basic laws:
Reduce: The simplest way to achieve simplicity is through thoughtful reduction.
Organize: Organization makes a system of many appear fewer.
Time: Savings in time feel like simplicity.
Learn: Knowledge makes everything simpler.
Differences: Simplicity and complexity need each other.
Context: What lies in the periphery of simplicity is definitely not peripheral.
Emotions: More emotions are better than less.
Trust: In simplicity we trust.
Failure: Some things can never be made simple.
The One: Simplicity is about substracting the obvious, and adding the meaningful
Finance and financial markets are often complex. This complexity can arise within products (exotic derivatives), infrastructure (clearing, settlements and payment platforms) or regulation. And most financial services firms (and professionals) revel in this complexity. Not only do they not seek to hide it away, but they often compete vigorously to show it off in all its glory (and of course by association they seek to validate their virility and cleverness by navigating all this complexity on behalf of their hapless customers.) Of course – sticking with the computing metaphor – this ‘look how clever I am’ approach is very Microsoft-ian (and no, that isn’t a compliment) and very rarely does it provide the most utility or best value for the customer. So one of our key investment themes is to find and nurture companies who are to finance as Apple is to computing (and media!) The complexity of modern finance and markets is the ideal substrate for simple products and services, to quote John:
Simplicity and complexity need each other. The more complexity there is in the market, the more that something simpler stands out. And because technology will only continue to grow in complexity, there is a clear economic benefit to adopting a strategy of simplicity that will help set your product apart. That said, establishing a feeling of simplicity in design requires making complexity consciously available in some explicit form. This relationship can be manifest in either the same object or experience, or in contrast with other offerings in the same category—like the simplicity of the iPod in comparison to its more complex competitors in the MP3 player market.
One of our portfolio companies does exactly this. They take a simple service, using technology and their market knowledge to engineer a solution that keeps the complexity away from the customer and behind the scenes. (Where it should be.) A solution that embraces simplicity and transparency in a market heretofor characterized by complexity and obfuscation. It’s not a new music site or social network. It’s probably not something anyone would get too excited about. It’s boring. But it’s big. Billions big. And important. And for many individuals and corporates, unavoidable.
The service is foreign exchange (aka FX) and international payments. And the company, as you might now have guessed, is FX Capital Group. (See also my FX 2.0 post from this spring.) And the reason I am writing about them today is that they have just launched their new website and online trading platform and it is by far the best FX user experience I have seen. Simple. Transparent. Complete. Easy-to-use. From the initial client take-on, all the way through to the onward payment to the account of your choosing, every last detail of the process has been engineered to make the customer’s life simple. The “iTunes of foreign exchange”. After all selling one currency to buy another should not be that hard.
And now, it isn’t.
FX Capital Group’s vision is to combine technology and traditional phone base services with competitive and transparent pricing to deliver on the promise of simple, cost effective, and customer friendly foreign exchange and international payments services for clients.
Leveraging experienced individuals, the best technology and a deep understanding of both international foreign exchange and payments markets, FX Capital Group brings transparency, simplicity and automation to meet the foreign exchange needs of clients in a robust, easy and effective manner.
Buy, Sell and Hedge Currencies: A full range of phone based and online services to buy/sell currencies and hedge currency risk. Competitive, consistent and transparent pricing for all customers.
Manage Currency Risks: Guidance on strategies to hedge currency risk within your business. A great service for firms who contract in multiple currencies or import / export goods and services.
Sell on Your Website in Multiple Currencies: Expand your online customer base by selling to customers in multiple currencies using our real-time FX API’s at rates that are better than those “bundled” with merchant service providers.
Invoice in Multiple Currencies: Invoice your international clients in local currency. Embedded hedging of any currency movements and no need to maintain bank accounts in multiple currencies.
Make International Payments: Our international payments service (online and phone) will save you money over you bank for making international payments and may be free if you transact your FX with us.
And other brokers and financial intermediaries are also welcome to partner with FX Capital Group, either via API or white label agreements. Indeed, first and foremost this is very much a platform company, FXaaS really. The customer facing website is in fact just an implementation of the underlying platform, and shortly the company will be launching the second implementation – RabbitFX – which will be tailored specifically to private and retail clients. Going forward we hope that many other partners choose to build innovative and customized services on top of the core FXCG platform. We also are excited by the ability for partners to integrate FX into their products and workflows simply and powerfully. Imagine for example an ERP provider, or online accounting services, or an ad network, etc. etc. …the list of potential partners is almost endless.
One area that is particularly close to my heart is the ability to allow even the smallest start-up to offer their customers payment in any currency – easily, cost effectively and transparently. Or helping start-ups with geographically dispersed operations pay employees, contractors and suppliers in any currency without having their eyes ripped out by their bank or payments provider. I’m sure most of the seedcamp finalists from the last few years have foreign exchange payments to make from time to time, many on a regular basis. In the spirit of helping to get the ball rolling on this front, I’ve convinced them to sweeten the bargain for all the companies that have applied to seedcamp (or mini-seedcamp) over the past three years.
If you have been a seedcamp applicant, finalist or winner, if you open a corporate account and do a trade before December 25th, FX Capital Group will send you a £25 iTunes or Amazon gift card and also contribute £25 to the charity of your choosing. Just let them know when you register for which seedcamp event you applied or attended. They’ll do the rest. And then sit back and save time, money and energy and never worry about managing FX payments again.
Like all good start-ups a big part of the excitement and frustration is knowing what is ‘in the pipeline’ and wanting it all to be released to users ‘yesterday’. However we also know that the best ideas and certainly the best prioritization algorithms emerge from getting a product into the wild and so after 9 months of development and private alpha, I can’t wait to hear ways in which customers and developers will want to use the platform. So for all you early adopters out there, know that the platform is probably not perfect (although we’ve stress-tested it up to 250,000 trades a day without any problems, which gives us a bit of headroom to grow into! lol) but (we think) it’s damn good and would rather challenge you to help us make it even better than pretend we’ve got it all figured out.
In case you were wondering, the team is indeed working on putting a screencast/video demo of the trading platform online and but in the mean time they are more to happy to walk you through a short online demo if you are interested. Alternatively you can go yourself to https://demo.fxcapitalgroup.co.uk/ and use the following credentials:
username: demo@splashypants
password: demosplash
pet’s name: splashy
favorite animal: whale
favorite city: atlantis
Have a go and be sure to let the team know what you think. Best channel is probably twitter where you can find them at @FXCapitalGroup or on Facebook.
Finally it’s important to make clear that I’m not just writing this post as an investor, commentator or director but first and foremost as a customer. My entire adult life I have had to deal with managing FX risk and struggle with the pain and cost of doing international transfers. When the founder Nigel Verdon came to me with his vision, I thought ‘Hallelujah!’ – at last. It may not be the sexiest business in the world but there is real pain and real profits to be made in using technology to disrupt the old way of doing business and give customers a better deal. And so I did a ‘Victor Kiam’. So next time you have to make a foreign payment, whether its for yourself or your company, give FXCG/RabbitFX a chance, I’m sure you won’t be disappointed.
Using the tried and tested TED 20min format, it was a great opportunity for me to collect my thoughts into (what I hope was) a coherent overview of how I think technological and economic forces will shape the optimally adapted ‘industrial stack’ for the sixth paradigm. It’s a great summary of the prism through which we look at potential investment opportunities and I hope will help us articulate this more powerfully to entrepreneurs and prospective investors.
I’d love to hear any feedback (good, bad and ugly) from any of the eComm delegates who saw my presentation and hope to continue the conversation with you and others here. You can also follow me on twitter @nauiokaspark.
Thanks to Paul and Lee for inviting me and especially to those of you who took the time to respond to my call for input – it was tremendously valuable in helping me to shape and refine my thinking and in building the presentation; just a few years ago, assembling this kind of distributed brainpower would have been impossible, and I hope I never lose my ‘childlike sense of wonder’ at the boundless possibilities that technology enables.)
I was very kindly invited by Paul and Lee to attend my first ever eComm conference, which will be in Amsterdam from October 28th to 30th.
The Emerging Communications (eComm) Conference & Awards was created to promote and accelerate communications innovation. Telecom, mobile and to a lesser extent, Internet based communications, had been innovation stagnant for far too long. Yet the opportunities for innovation had never been greater. Those opportunities are only going to grow as drastic changes further impact the multi-trillion dollar a year telecom industry.
The speaker line up looks fantastic and I’m the spare tire on an otherwise star-studded panel Thursday afternoon, that is if they still want me after my plenary talk that morning at 9:30:
Platforms, markets & bytes: the economic landscape of the 6th paradigm(?)
In a world where everything can be expressed as 0s and 1s, are the traditional ways of defining sectors and industries (as verticals) still relevant? If not what new business models and industry structures are likely to emerge? Oh and what’s the difference between a bank and a telecom company really?
Now at the risk that tumbleweeds blow through the comment section, proving once and for all that all my dear readers are in fact spambots (but in which case no one will see this and no embarrassment suffered), I thought I’d take a page out of the legendary Fred Wilson’s book and ask you all for thoughts and comments on this theme that I might incorporate them into my presentation. (Or not!) So fire away!
I’m going to keep this short, mainly because I’m not an expert by any stretch of the imagination. So discount this as a layman’s viewpoint as needed.
The most common, almost Pavlovian, stock response I hear from (both IT and senior management) financial services firms with respect to why they don’t see cloud computing as relevant to their high-level business strategy (ie ok around the edges but really just an IT cost/benefit thing..) is:
Of course you know, our business is different, it needs to be secure. The hardware needs to be sitting under my desk.
Ok, fine I made the last bit up, but you know they’re thinking as much. So without digressing into a debate as to just how secure most financial services IT is, the question I always respond with is this: does your organization know how to run a more secure data centre than Amazon or Google (or any other present or future specialist cloud infrastructure supplier)??? Really think about it. Do you make your own hardware? Perhaps you can make banking microchips better than Intel… (From Appirio’s CIO Guide to On-demand: )
On-premise does not equal secure: the biggest driver towards private clouds has been fear, uncertainty, and doubt about security. For many, it just feels more secure to have your data in a data center that you control. But is it? Unless your company spends more money and energy thinking about security than Amazon, Google, and Salesforce, the answer is probably “no.”
VPN-Cubed® is the first commercial solution that enables customer control in a cloud, across multiple clouds, and between private infrastructure and the clouds.
VPN-Cubed provides an overlay network that allows YOU control of addressing, topology, protocols, and encrypted communications for YOUR devices deployed to virtual infrastructure or cloud computing centers. When using public clouds your corporate assets are going into 3rd party controlled infrastructure. Enterprise checks and balances require you to exhibit control over your computing infrastructure. VPN-Cubed gives you flexibility with control in 3rd party environments.
The other myth to dispell is that no one is suggesting migrating any or all infrastructure to a cloud environment overnight, or even as soon as possible. The decision whether or not to move existing infrastructure to a cloud (private or public) and when is indeed probably more of a ‘routine’ (but big) question for IT (although management should be interested in the answer.) The point I’m trying to make, the point that is relevant for the executive committee is:
How does the nature of my business – what products and services I provide to my customers and how – potentially change because of this new technological substrate?
This is the question that should animate the weekend executive strategy retreat. In order to answer that question, you need to have some understanding of the technology but not how it works so much as what it can do. I don’t need to know how the microchip works in a digital camera to think about how I can use that camera. The question management should be brainstorming is:
If we were to start with a blank page, with the technology that exists today (and will likely exist in the next 5-10 years) how would you best build a company to serve our customers, present and future? What does FaaS (Finance as a Service) look like?
This isn’t going to happen overnight so the suggestion is not to ‘throw the cards up in the air’ and panic. And incumbents have many advantages on their side (customer inertia being the most valuable). But it will happen. And quickly in the geological timescale of large organizations so they need to start moving, start mapping out this future. And – here is a shameless plug for Nauiokas Park – one facet of that should be placing a lot of small bets on emerging, disruptive start-ups that have the luxury of moving more quickly, experimenting more radically, with faster evolutionary cycles. (Like a genomics company experimenting using fruit-flies and mice first to isolate winning adaptations.) While at the same time preparing their supertankers for a significant change in direction.
Maybe we should offer to moderate these strategic retreats. Do you think we would get any takers? If you work in a financial services company, ask your CEO and let us know.
Update:
If you are looking for a good (albeit long) explanation of what VPN-Cubed does and why it really is a “game-changer” read this post from Mark Masterson who sums it up as follows:
So, let’s sum up. Enterprise cloud computing is a type of cloud computing that is suited to the specific requirements of existing companies, and allows them to leverage resources in the Cloud to provide economical ways of adding capacity to their existing environments. First, their existing data centre (or some portion of it) is virtualised. Once this is accomplished, capacity from external cloud providers can be added (and dropped) dynamically, using technologies like VPN-Cubed, allowing enterprises to use the cloud to elastically (and transparently) scale out to the cloud. And because all network traffic is securely encrypted, enterprises can effectively make use of public, cloud infrastructure as if it was part of their internal datacentre — entirely behind the (virtual) firewall. Moreover, the same technology can be leveraged to allow the use of multiple, disparate cloud providers, effectively solving the ‘eggs in one basket’ problem. Different cloud providers can be leveraged to allow for failover redundancy, load balancing, even the leveraging of different providers on a dynamic basis, using metrics such as SLA compliance, or changes in cost. And an enterprise might want to do this not because it will reduce costs, or allow a switch from capital to operating expenditures (although both of those things might be true or not, depending on the context), but because it will increase their overall agility.
Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete.
And yet all too often, I’m met not with disbelief but with apathy, indifference. You can see the thoughts forming in their heads: “I’m a CEO, a business man, a producer! Why is Sean boring me with this technology stuff? Why doesn’t he just talk to the CIO?” Worse, too often when I talk to senior technology managers in big corporations, they also are disdainful, thinking: “Yeah, yeah, that’s all fine for your start-ups and Web2.whatever companies, but this is a real business. Serious. Not some website for teenagers to swap gossip.” Ok I’m exaggerating but a lot less than you think. Sometimes I figure I must not be saying it right. So I’m always on the lookout for good articulations of the potential and importance of cloud computing and its incredible relevance to anyone who is pretending to run a business. Especially a big one.
In short, Enterprise IT must extend out to Consumer IT, otherwise those companies simply won’t be able to compete. As we’ll explore, Web 2.0 has changed the landscape with social networks, and companies can ill afford to ignore the shift…
…Cloud computing isn’t just about on-demand IT; it’s about on-demand business innovation…
…Cloud computing isn’t just for small- and medium-sized companies and garage startups. Cloud computing makes it possible to create new business platforms that will allow companies to change their business models and collaborate in powerful new ways that weren’t practical before. What’s important for companies to consider is that cloud computing isn’t about technology, it’s about technology-enabled business models.
So if you know a CEO, or any senior managers (in any business) pass them this article. It will only take 10 minutes to read. And maybe it just might make them reconsider. And maybe they’ll invite me to lunch!
If innovation grows at Nauiokas Park, some of the best seedlings come from the fantastic seedcamp nursery. We were particularly pleased that folks like Timetric, CityOdds and GymFu walked away winners from the London Mini Seedcamp in April after we had encouraged them to apply. And so with this in mind I want to encourage ambitious, intelligent and passionate entrepreneurs, young and old(er) to test out their vision, ideas and execution skills at seedcamp week 2009. There is only two weeks left to apply and I sense that the competition for places will be very keen indeed, so don’t leave it until the last minute to get working on your application.
On behalf of Nauiokas Park, I would particularly like to encourage and see more start-ups focusing on disruptive innovation in the financial services arena. There is so much opportunity in this vast sector of our economy and yet it seems as if many or most entrepreneurs tend to avoid applying their technological or business model creativity and innovation to this market. Clearly there are some barriers that don’t exist in other sectors or markets but by the same token, in many instances, the potential rewards are accordingly significantly higher.
In any event, for any ambitious start-up in Europe (or even further afield) today, applying to seedcamp is a no-brainer: even if you aren’t selected as a finalist, the work needed to submit a robust and cogent application will serve you in good stead as you look to build out and finance your new business. If you are a finalist, the contacts you make and the information you will absorb during the week are something that can not be bought for any amount of money. And if you happen to win – well that’s just icing on the cake! So what are you waiting for? Apply! You’ve really got nothing to lose.
For the last 15 years of my life, the biggest, most consistent and important professional challenge I have faced is convincing (usually well-paid) professional middlemen that the forward march of information and communication technologies is:
Inevitable. And as Andrew Carnegie once said, it’s a waste of time to criticize the inevitable. Get over it.
Sort of like electricity. Dangerous to those who are ignorant of it (don’t stick a fork in the power outlet); and extremely powerful and useful to those who understand it and/or can harness it.
Of course there are variations, and this is strictly anecdotal based on my very own proprietary inside-my-head number crunching, but typically the population in question looks something like:
If you are tasked with managing or catalyzing a paradigm shift, you don’t need to worry about the “Aging Rock Stars”, these people are either too old or too good to care about paradigm shifts: either they will adapt naturally or gracefully retire and most of them don’t mind either outcome (ie they can afford it.) They won’t support change per se, but neither will they actively resist it as they don’t suffer normal insecurities. Ignore them.
The second category you should ignore (“Toast – Clueless”) might come as a bit more of a surprise, especially as they typically make up approximately half the population; these are folks that are clearly doomed in the new world (in the sense that nothing they do today will be recognized as valuable, not that they can’t do anything else if/when reality dawns…) but are blissfully unaware of their impending irrelevancy. Like the rock stars, this group will not support change but you’ll be surprised how little they resist it – at least in ways that are potentially effective. I chalk this up to they fact that they don’t see the train coming so what is there to worry about? Resist what? Don’t get me wrong, on balance this population will be against change but there won’t be any depth to the resistance and so you can get sidetracked if you expend your energy here.
As a change-agent, most of your time, energy and resources needs to be concentrated on those who are doomed and realize it (“Toast – Know it”), they will fight change kicking and screaming; and those who accept the inevitability of change, (usually) get the potential upside and downside but are scared/unsure as to whether or not they will succeed at adapting. With the first group, you need a two step process: see if any can be brought into the second camp, for those that cannot (usually 80%) the only recourse is to try to isolate them and prevent them from doing harm: accept that you cannot please all the people all the time. The second group (“Good but scared”) is where you should spend most of your time and resources, showing them and helping them to understand and become comfortable operating in the new paradigm. Demystify. Be honest: “you know that thing you used to count as your best skill, well it’s useless now, BUT this thing you are very good at that wasn’t so important before well now it’s key…” Win them over.
The last group (“Looking to breakthrough”) are the adopters – they are your allies, but be careful don’t get too close: they see this (rightly) as an opportunity to become the new rock stars and don’t necessarily care about the overall market; if you align yourself too closely too them, you’ll scare off the 20-30% ’swing vote’ that can make or break the success of your company’s/industry’s transition. Also you’re selling to the sold.
Which brings me (at last!) to my story. It’s about seeing the future of an industry by looking at the recent past of another. It’s about understanding that property markets in 2009 are like bond markets in 1989. And Estate Agents in 2009 bear a frightening resemblance to bond salesmen c. 1989. Both define themselves in terms of relationships and proprietary, local knowledge. Their ability to extract value from their chosen marketplace depends to a significant extent on exploiting an information asymmetry. Of course this is not all that they do, and certainly the best do much more and in fact rely on information arbitrage only tangentially, but nonetheless for a significant majority of practitioners, take away this asymmetry and you’ve taken away their raison-d’etre. (For those of you who didn’t have the good fortune of working on a fixed income trading floor in the 80s or 90s, but want to get a better feel for what I’m saying, both Liar’s Poker and Bombardiers are excellent reads.)
Often, perhaps even most of the time, the bond salesman of 1990 had an adversarial relationship with their clients; it was certainly a relationship based on power – the salesperson was seen as a necessary evil: they had access to the market, to prices, to information. If you wanted to participate in that market, well…there really wasn’t any alternative to paying an agent to look out for your interests, however expensive and/or poor the service. You could say this could have been true of any capital market but in the bond market it was especially acute: the information asymmetry is structurally orders of magnitude more significant than say for listed equity markets: even 20 years ago, the fixed income markets consisted of hundreds of thousands, even millions of individual securities. Clearly most had a core of consistent defining characteristics – currency, coupon, maturity – but beyond these their was a multitude of idiosyncratic variables that were very hard to keep track of but often crucial to determining value. The fine print mattered. And a professional bond salesman ostensibly knew how to navigate the fine print. And nobody – including the salespeople – had robust tools for managing, searching and analyzing this vast universe of securities – the banks and brokers were at best one-eyed men in the land of the blind.
And then the future mayor of New York invented the Bloomberg. And the folks in Seattle put a spreadsheet on every desktop. And a few crazy scientists in Switzerland invented the world-wide web. And before you knew it a bond trader could make markets in a 1000 securities instead of 100. And an investor could run an analytic screen on thousands, or tens of thousands of securities, without ever talking to a salesperson. And then electronic trading and bookbuilding came along and the customer could even trade without picking up the phone once. So did the salesman disappear? Well yes and no. The bond salesman of 1990 is no more: the job that essentially revolved around collecting, parsing and organizing scarce and opaque information in order to make a turn on a trade has been consigned to the dustbin: the most rudimentary use of 2009 technology by an intern would produce a service that is an order of magnitude better than the world’s best bond salesman could produce in 1990. But the value of a truly excellent salesperson today – even post crisis (perhaps especially post-crisis) – is higher than ever, as such a person can leverage the enormous power of the information gathering and analytic tools serving the market and synthesize what is relevant or valuable for each of her clients.
Hopefully you’ll have jumped ahead and understood that the property market bears a striking resemblance to the bond market. Take the UK: 26 million residential properties. Each one a bit different, but also large numbers that are relatively similar and can be benchmarked by size or postcode or property type (detached, etc.) It is abundantly clear that this market is more than ripe for disruption: most people now intuitively feel that the pricing structure is wrong and the business model is wrong. Information is no longer scarce and so people will increasingly resent being asked to pay for it. Think back if you can 15 years to 1994: you want to buy or sell your property, what is it worth? You can get a sense from the property ads in the papers but not much more. The implicit knowledge embedded in your local estate agent is worth something. Fast forward to 2009: using tools like Zoopla, anybody now has access to more powerful pricing tools than were available to the best agents 15 years ago. The same model doesn’t work anymore. (That in reality this model is still largely intact as I write is testimony more to the power of inertia and the fact that most significant business model changes happen relatively suddenly and violently rather than slowly and linearly than to the possibility this business is immune to change.)
So does the estate agent disappear? No of course not. Many individual estate agents will perish, but the best – including many new entrants to the profession – will not only survive but thrive. Indeed the individual or team of estate agents will become more important than the brand (ie Note to Private Equity firms: make your LPs happy, don’t buy anymore Estate Agencies…) The superstar agent of 2015 will enable his customers, embrace innovation: interesting property – how about a blog? and not compete on price discovery but embed these tools in an overall process that will create trust and a real value-driven relationship with their clients (who will be much more likely to become clients for life.) There is a fantastic opportunity to transform perceptions, to create a true profession. To become massively successful by adding real value to 99% of home buyers or sellers who today are at best ambivalent towards the agents and agencies they feel compelled to work with, and a worst are outright hostile to them.
If this sounds too easy, well it is but only because the informational substrate and transactional platforms now exist (or are relatively easy to invent.) That wasn’t the case 15 years ago, and probably not even 5 years ago. But somethings never change: listening Alex walk on eggshells as he articulates the benefits of Zoopla to estate agents is like deja vu all over again, as I remembered the first presentations of electronic trading and book-building to room full of frowning bond salesmen, arms crossed, minds closed. But a few of those men and women got it, and got it quickly. Ten years later they are now in charge. The lesson? Yes you need to be careful not to antagonize an important constituency in your marketplace. You may even go out of your way to be helpful to them. But also remember the pie chart above: don’t waste your energy on the irreconcilable, empower and co-opt your supporters they will be small in number but they exist and spend most of your time and energy ‘holding the hand’ of the strong minority who “get it” but are intimidated by the potential pace and/or scope of change.
It’s just a guess, but I suspect this approach – the empowered individual – is about to become more and more the rule rather than the exception at the top of the property brokerage world. I’m even wondering if it’s something I should just do myself…
Research conducted by the blog UberCEO.com looked at Fortune’s 2009 list of the top 100 CEOs to determine how many were using Facebook, Twitter, LinkedIn, Wikipedia, or had a blog — and found they were mostly absent from the rapidly growing social media community.
The study found only two CEOs had Twitter accounts and 81 percent of CEOs did not have a personal Facebook page.
Only 13 CEOs had profiles on the professional networking site LinkedIn. Three CEOs stood out with more than 80 connections but they were all from technology companies — Michael Dell from computer maker Dell Inc., Gregory Spierkel from technology products distributor Ingram Micro Inc., and John Chambers from Cisco Systems Ltd.
…Not one Fortune 100 CEO had a blog. (my emphasis)
“It’s shocking that the top CEOs can appear to be so disconnected from the way their own customers are communicating. They’re giving the impression that they’re disconnected, disengaged and disinterested,” said Sharon Barclay, editor at UberCEO.com who runs executive PR firm Blue Trumpet Group.
The important thing isn’t whether they are blogging or not – it’s not for everyone – or that Facebook is critical for their job or their company. The important thing is that no knowledge – and (too) often outright hostility – to social media, the real-time web, etc. means that their understanding of the world in which they operate is frighteningly lacking. This has been a problem for time eternal for leaders of large organisations and is not specific to the advent of social media per se, but I would suggest that this time it is even more unfortunate than usual. One the speed of change and the deep structural paradigm shift that our society and economies are experiencing is more profound than normal ‘linear’ change. Secondly, their ability to ‘do something about it’ is real. In the past, I would of had much more sympathy for the corporate or political leader who said – “ok fair enough I’m a bit out of touch up here in my ivory citadel but what can I do about it”. Today that doesn’t wash. Or to a much much lesser extent.
So why are these leaders seemingly so ignorant and on the face of it disdainful of this new paradigm? Partly I’m sure it’s because they are really busy and have a never ending call on their attention: the urgent pushes out the important. This happens to all of us. More disappointingly – and here I can only speculate, I don’t know any of these 100 CEOs – I suspect that for many it is driven by fear. Not fear in a cowardly sense, but fear of looking dumb. Most people are afraid of this, and I’m sure toiling under the spotlight associated with running a Fortune 100 company only exacerbates this. These smart, ambitious, driven men and women must feel some annoyance after having spent 20 or 30 years climbing the corporate ladder to reach the pinnacle, only to find the rules of the game changed.
Here’s a suggestion. The Boards’ of these companies should ask there CEO’s to take a 1-2 month sabbatical to immerse themselves in the 21st web, preferably supported by a mentor or coach. When they came back they still might not blog. Or tweet. Or have a Facebook page. And that might be ok. But I’m certain they would have a much better understanding of why they don’t and what tools they might actually want to adopt. But most importantly they would have a better understanding of the world in which their company operates. First hand knowledge; not “Oh yeah my kid was telling me about that and tried to get me signed up. Damn teenagers!”
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and 
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