The Cloud Economy

Economic history is replete with creations that have changed our world.  

From steam power to the internet, human innovation moves forward in great leaps and bounds, thanks to technology.

Here, I present my arguments as to why I believe we are on the threshold of a new economic era: the cloud economy.  

This is not about how we feel about clouds, it's about the cloud's potential to change the nature of the world we live in, perhaps faster than we thought.

I think it's always useful to start with a quick historical perspective.  Indulge me?

Steam power was invented in 1762. For the first time, you could deliver substantial mechanical power almost anywhere.

It marked the start of the Industrial Revolution, among other things.

As with any innovation, there were plenty of disruptions at hand.

For example, if you were in the stagecoach business, the idea of steam powered trains didn't exactly thrill you.

About a hundred years later, we started to use steam power to generate electricity. For the first time, power could be consumed at a distance from where it was generated.

This picture is from the 1920s.

If you look carefully, you can see that the gas streetlights have been updated with electric lamps.

Probably not so good for the guy who was selling natural gas.

In the 1950s, we realized that, not only could electricity do great things in the physical world, it could also do great things in the information world.

The first computers came into use, kicking off another transformation.

This picture is from 1960 where computers were used for the first time in an attempt to "predict" an election.

It didn't work out well back then either.

In the early 1990s, we started to appreciate the power of connecting computers together in one big fabric -- a network of networks -- the internet. As we all know, this was another big step forward.

Which brings us to our current digital era. Just about everything we do: read, eat, shop, relax, work -- has been transformed by the internet.

And there are no signs of anything slowing down.

What Can We Learn From History?

I want to step back from these events, and see if there are any common patterns we can learn from them.

I think there are a few lessons worth considering.

First, disruption of the established players is the norm. As a familiar example, retail after the internet will never be the same again.

And we can safely say that these economic evolutions are happening at a faster pace. Steam power took about a hundred years to be universally adopted. Electrification, maybe 60 years. Computing, perhaps 20 or so years. The internet? Less than a decade.

Things are coming at us faster than before.

I like to remind people that the iPhone came out about ten years ago. You get tired trying to list off all the different industries that were impacted by a single device.

Think about it: handsets, telecom companies, cameras, nav systems, music on the go -- even watching Netflix on your phone instead of on a TV. All from one device, and all in a very short period of time.

I think of these eras as building blocks, each new one building on the previous ones. Steam power was used to power electricity. Electricity powered computing, which in turned powered the internet.

The other important thing was that the use cases that people quickly came up with were very different from their initial intent.

The first application for steam power was draining water from coal mines. The point is this: that vast waves of innovation inevitably result when these new models come along.

You'll also notice that consumption as a service has become the preferred model, vs private ownership and consumption.

I think that's for two reasons: one, of course, convenience -- but also structural economics.

For example, in the early history of electrification, some people thought the best way to capitalize on electricity was to build and operate your own powerplant for your own use.

These days, we realize that a shared utility model wins, most every time.

If you dig a little deeper into the stories of people who lived and worked in these times, an interesting picture emerges.

First, you'll find stories of people I call mobilizers -- people who understood the threat, or the opportunity, or perhaps a bit of both -- and did something about it in their world.

The factory owner who invested in steam power before it was everywhere.

The CFO who invested in computerization back when they were big, expensive beasts.

The marketeer who realized that there was this new thing called social media, and it changed the game.

These mobilizers had to think in terms of new organizational models in a redesigned world. Yes, you still did finance, or marketing, or manufacturing, but you were going to do it differently than before.

And finally, whatever platform they used to run their business had to change as well. In the age of steam power, owning lots of horses and stables didn't make sense like it used to.

What's Next?

So with that historical perspective in mind, what's next?

I call it the cloud economy.

It builds on what has come before. And I think it marks the beginning of a new historical economic epoch.

The next big thing, if you will.

And not because I happen to work in tech.

If you cut through all the noise, I think there are three big ideas behind cloud.

First, it's an enabler.

Applications, tools, data, resources -- all there, all ready to be put to all sorts of innovative new uses -- at least, when you put them in the right hands.

Second, it's an economizer.

Even if you don't use it to innovate, it fundamentally changes the cost structure of familiar IT.

Third, it's an equalizer.

In the cloud economy, little guys have just as much firepower as the big guys.  How you feel about that depends on whether you're a little guy, or a big guy.

If we go back and look at all the other transitions, part of the disruption was that there was a new way to get things done faster and cheaper than before.

In economics, we call this a "new means of production".

In the cloud economy, cloud is the new means of IT production for one simple reason: a shared services model always wins out -- every time.

But there's something even more powerful at work here.

Cloud bends the innovation curve.

Cloud-native innovation is exponentially faster and cheaper than trying to innovate using traditional IT methods.

And it's easy to see why this is: in the cloud, you've got the very best applications, the very best tools, the very best data sets, the very best infrastructure -- all ready to go at a moments notice.

And entirely new things are possible as a result.

So, how does this impact those of us who are business leaders, and thinking hard about the next thing?

Impact On Business Leaders

I think most of us are busily re-imagining what our organization's value proposition should look like in a few short years.

Entirely new things are possible -- how will be capitalize on them? Or protect ourselves from others who are also innovating?

Once we have some clear ideas, we'll have to start thinking about transforming the pieces of our organization to adapt and thrive in the new cloud economy.

We'll have to get really good at out-innovating the other guys.

I think -- in the cloud economy --  people will need a new platform to do business on. The platform you're probably using today was built for a different time, and a very different set of rules.

The last time the world forced this kind of change, it was the internet. I'd argue it's happening again, only faster this time.

And -- at Oracle -- we have a few perspectives about how you might think about your next business platform.

The Oracle Perspective

Let's start at the top: your application platform. Your business processes are what defines your business as it runs today.

In the cloud economy, your application platform must become a platform for business process innovation.

Doing things in a new way, much faster than before.

Our recipe is conceptually simple: standardize your business around a modern core, extend and innovate around the edges, and position yourself to take advantage of all the great technologies coming our way: AI, internet of things, advanced analytics, chatbots and whatever else is out there.

We think that a great application platform should be built on a great information platform.

In the cloud economy, information is the new currency.

We will all have to get very skilled at extracting the value from information: ours and others.

We'll need to be able to gather and organize it in all its forms. We'll need to be able analyze and put new insights into action quickly.

And we'll have to do so in such a way that we don't expose ourselves to digital risk.

And, finally, we'll need cloud infrastructure. Think of it as the modern factory for the cloud economy.

You'll want it to be cost-effective and open. You'll want it to be secure and resilient.

And you'll want to deploy it in any location of your choosing: someone else's data centers, or maybe in your own.

Perhaps you realize something new is in the air, and you've started to think hard about your next business model, and how you're going to capitalize on this generational opportunity.

Oracle's Role

People ask me why I work for Oracle.  

The answer is simple: we can help leaders thrive in the cloud economy.

We bring the cloud platforms that our customers require for success.

We bring very broad expertise: technology expertise, functional and organizational experise, and vertical industry expertise

And, perhaps the most important thing of all -- we guide leaders in crafting their individual strategies to move forward in the cloud economy.

I would argue that we are in the early days of the cloud economy.  

I wonder how long it's going to take for everyone to figure out that -- once again -- the rules have changed.

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Comments

[Raj Srinivasan, CCS Technologies]

Very elaborately written. The Cloud Economy definitely has the potential to be the next big thing.