Tag Archives: marketing

Of cloud and factories

The most common metaphor for cloud computing is that it’s like your electric power company. Flick the switch on, log in to your cloud service, pay for what you use, log out, flick the switch off, go to sleep. Well, it’s a bit more complicated that that.

Power companies offer a single product: Electric Power. How many variations are there? Compare them to the myriad cloud offerings: Infrastructure as a service (virtual machines, Windows or Linux), Storage as a service (online, backup, archiving), Software (everything). To me, it looks more like manufacturing and selaling cars. And the cloud business has striking similarities to car manufacturing: Just assume that every car manufactured and sold is a month of a cloud service – any kind cloud service. What are the analogies?

  1. The infrastructure that powers a cloud service is like a car factory. There is an assembly line, pumping out a particular car model/cloud service. In both cases, the product is as good as the materials it’s made of and the quality of the manufacturing process. Also, the pricing catalog varies accordingly.
  2. Cars shipped out of the factory need an extended and reliable transport network, like rail, ports, RORO ships and so on. The same is true with cloud services: Since they are delivered over the Internet, cloud providers need multihoming (peering with at least two Tier-1 or Tier-2 providers), low latency and high bandwidth.
  3. Economies of scale and just in time production: The more cars you build and sell, the cheaper they are. Same thing with cloud services (Amazon Web Services). Also, adding more capacity as you grow is the only sustainable model for cloud providers – the analogy in the car industry is just in time production.
  4. Go to market: Building a cloud service is one thing, selling it is another. All car brands have an extensive network of resellers and dealers, cloud service providers rely also on partners and heavy Internet advertising and market awareness to bring in the sales volume to sustain their business. And volume is key to cloud services, just as it is in the car industry.
  5. Product qualities: Cars come in all sizes, shapes, colours, equipment. The same applies to cloud services. They all look alike (for example, all cloud service providers offer Windows servers), they do the same job, but what really matters is performance, capacity and reliability. What qualities would you look for if you were on the market for a new car?
  6. Common technology: Have you opened the hood of an Audi, Skoda, VW and Seat? The mechanics are the same, but the badges are different. Moreover, three technologies (soon to be four) power all cars on the globe: Gasoline, Diesel, hybrid (and electric in a few years from now). Guess what, it’s the same with cloud computing. There are only a handful of hypervisors and automation platforms that power most cloud service providers, yet, every provider has their own look and feel.

The perfect analogy would be the factory this gentleman used to run:

Adding value to SaaS

Software as a service is an entirely different animal from IaaS or PaaS. Implementing the latter two can be done (almost) with platforms available off the shelf and engaging a few consultants: Grab your favorite cloud automation platform (pick any: Eucalyptus, [Elastic|Open|Cloud]stack, Applogic, Abiquo, even HP SCA, throw in volume servers and storage, host on a reliable DC and you are good to go).

On the other hand, SaaS is something you have to:

  1. Conceive. IaaS and PaaS are self explanatory (infrastructure and platform: Virtual computing and database/application engine/analytics for rent); SaaS is… everything: from cloud storage to CRM for MDs.
  2. Implement: SaaS is not sold in shops. You have to develop code. This means, finding talented and intelligent humans to write code, and keep them with you throughout the project lifecycle.
  3. Market: Finding the right market for your SaaS is equally important to building it. SaaS is a service; services are tailored for customers and come in different sizes, colours, flavors. One SaaS to rule them all does not work.
  4. Sell: Will you go retail and address directly end customers? Advertising and social media is the road to go. Wholesale? Strike a good revenue sharing deal with somebody that already has customers within your target group, say, a datacenter provider or web hosting.
  5. Add some value to your SaaS. Cloudifying a desktop application brings little value to your SaaS product: It’s as good as running it on the desktop; the sole added value is ubiquitous access over the web. Want some real value? Eliminate the need to do backups. Integrate with conventional desktop software. Do auto-sync. Offer break-away capability (take your app and data and host somewhere else).
Let’s take two hypothetical examples: Cloud storage and CRM for doctors.
Cloud storage is a good offering for customers seeking a secure repository, accessible from everywhere. Let’s consider two approaches:
  • High end branded storage array with FC and SSD disks
  • 5-minute snapshots, continuous data protection
  • FTP and HTTP interface
  • Disk encryption
  • Secure deletion
The second approach would be:
  • WebDAV interface
  • Data retention
  • Daily replication
  • Auto sync with customer endpoints
  • Integrated content search

What’s wrong with the first approach? It is typical of the IT mindset: Offer enterprise IT features, like OLTP/OLAP-capable storage to the cloud. Potential customers? Enterprises that need to utilize high-powered data storage. Well, if you are an enterprise, most likely you’d rather keep your OLTP/OLAP workloads in house, wouldn’t you? Why bother?

The second approach offers services that are not delivered from your enterprise IT machinery. It’s added value to a cloud storage service and at the end of the day, they are deemed too expensive or complicated to implement in house. Potential customers? Enterprises that have not implemented these services but would seriously consider renting them.

Let’s consider now a cloud CRM for doctors. What would be some value added features for private MDs, apart from a database with customer names and appointment scheduling? I can think of a few:

  • Brief medical history of patient delivered to the doctor’s smartphone/pad. Can save lives.
  • List of prescribed medicines with direct links to medicare/manufacturer site. Patients can forget or mix up their prescribed drugs; computers never forget.
  • Videochat with patient.
  • Patient residence on Google maps and directions how to get there

Building a cloud

Question: How many people do you need to build and run a cloud?

Answer: As many as you can fit in a meeting room.

A cloud offering IaaS and SaaS to customers is nothing more than a compact and complex technology stack. Starting from the bottom to the top, you have servers, storage (NFS/iSCSI/FC), networking (LIR, upstream connections, VLANs, load balancers) , data protection (snapshots, replication, backup/restore), virtualization (pick your flavor), cloud management (Applogic/Openstack/Cloudstack/OpenNebula/Abiquo/vCommander/you-name-it), metering & billing (eg WHCMS), helpdesk (like Kayako), user identity management, database platform (Hadoop), application servers, hosted applications and web services. All this stuff has to work. And work efficiently, if you want to attract, retain and expand your customer base, simply because your customers simultaneously use all these resources: From their browsers, customer actions ripple through firewalls, load balancers, switches, web and application servers, databases, hypervisors and disks, crossing the entire cloud stack up, down and sideways.

The only way to run this stack is… to use humans. Of what skills? System engineering, storage management, networking, security, application architecture, coding, coding, coding, web marketing, technical management and more coding. And all of them must be able to sit around the same table, talk and understand each other, if you want your cloud stack to simply work. This calls for a small headcount of gifted people (and well compensated – slide 8) that can not only deliver on the technical side but understand the cloud business and the Internet business as well.

The trick question: What kind of company can host this ecosystem? Service providers? Datacenter hosting? Web hosters? Software vendors? Well… this would depend on the company DNA. Take for example Amazon and Google. Neither was a datacenter/network provider or software vendor; Amazon is the largest online retailer, Google is the king of online advertising. Yet, both of them fostered the right kind of people that spun off what we have and use today.

Will your cloud make money?

What comes first, the horse or the carriage? If you want to start your cloud business, do you need first to come up with a solid revenue model (how can you make money out of it) and then figure out how to implement it, or first you build it with what you know and then figure out a way to make money?

Actually, the most successful cloud companies did not follow either path. Google started as a search engine and then figured out a smart way to sell advertising to the millions eyballs skimming the text results. Amazon spun off IaaS from their main business, beating others on pricing options and rich technical choices. LinkedIn capitalized the business social network. Salesforce started from plain sales automation, now offers a full portfolio of business software. What do all of these have in common?

First, their revenue model constantly evolved down the road. Some started as spinoffs from an entirely different line of business, others offered free web services or subscription-based, yet, all of them changed their revenue models and adjusted their pricing strategies almost every quarter.

Second, they own their software and infrastructure. Instead of shopping around for bits of software, they control their code (by paying good money to talented humans to write, maintaind and update software) and their infrastructure: They own their datacenters. Large ones, with huge economies of scale.

Third, they control their supply chain and rely on partners and affiliates either for pure retail business or for added value services. If you are using their services, you pay them directly. If their services go down, you go after them directly. They do not maintain channel networks to resell their solutions, since the Internet is omnipresent and their portals one click away from your home page, so, why bother setting up a reseller or distribution network?

Fourth, and most important: They control their revenue model. Google capitalizes on hundreds of millions people using their free services. Amazon is perfectly aware that their IaaS services do not address their direct customers, but the customers of their customers and have adapted their pricing and services accordingly. LinkedIn offers a rich business communication platform where online recruiters and businesses can directly interact with their members. SalesForce constantly adapts and add new services that their existing customers can readily use.

The question is:  Can I do the same without biting the bullet and instead get bits and pieces off the shelf? For example, get some branded hardware with 24×7 support, rent some rack space, run Azure/VMware/Citrix/RH, get a decent cloud management platform, strike a few deals with cloudified software vendors and bring channel partners to do the reselling and distribution of my services?

Will this work? No.

First, you do not control your revenue model. You depend on a channel to resell your services, which means that you depend on your partner’s revenue model. In turn, you are also a reseller of somebody else services and products: You resell a hosted CRM or Azure/VMware/RedHat virtual servers and software platforms. And finally, you do not own your infrastructure, which means that you cannot control running costs of support and hosting.

Are these a bad thing? Yes.

In terms of money: Channel partner = $$ (their markup). Branded servers = $$ (acquisition & support). Renting rack space = $$. Azure, VMware and friends = $$ (licensing and support).

In terms of agility: Introducing new features and services is not a single step process: From tuning your heterogeneous software and hardware stack up to communicating the new services to your channel partners weeks, if months, pass, without revenue flowing in.

And then in terms of customer experience:  Figure out what’s wrong when something breaks (is it the application? Is it the virtual server? Is it the hardware?), call the cavalry (contact the appropriate vendor) and have them fix it. During all this time of this fascinating game of fault tracing and bug whacking, your customers’ business is directly affected: It’s down.

The cloud quest: Who are your customers?

Cloud computing and marketing have one thing in common: They are elastic. You can stretch the term “marketing” to cover everything, from constructing smart “elevator pitches” and making glossy brochures to designing highly technical blueprints and shopping them around to CxOs. The same principle applies with cloud computing. Cloud services are cool smartphone applications, full blown ERP & CRMs but also virtual or physical computing.

However, there is a concept in marketing which is not (yet) so obvious in cloud services. In marketing, we have two distinct segments: B2B and B2C – Business to Business and Business to consumers. B2B means we do business with other businesses like us, meaning wholesale and selling stuff in beige carton boxes and pallets. In B2C we are retailers and sell stuff in fancy glitter cute packages strategically placed in shop windows. Should cloud computing be any different? No.

The people doing technical marketing (including myself) find very easy to categorize cloud stuff and name “distinct” packages and solutions with four letter acronyms (IaaS, PaaS, SaaS, DaaS etc). It’s convenient for us, it is something we understand from a technical aspect and it is completely unintelligible from the customer. Would you sell a family car with the term “Four wheel front drive vehicle, 81 kW horsepower, front drive, 1320 kg kerb weight”, or a bulldozer describing it as “tracked vehicle, one seater, yellow with tinted windows”?

Let’s step into the customer shoes. Cloud customers can be smartphone or smartTV users downloading apps that connect to their cloud backend. Or, small businesses looking for a cheap and usable CRM to run their own business. Or an enterprise looking for elastic on-demand computing and storage infrastructure for some new projects. Or a software company shifting their products to the cloud and looking for pay as you go resources for database and application hosting. Or some guy setting up his blog and at the same a small e-shop. All these are cloud customers, but they are not the same: The reds are customers, the blue ones have customers. In other words, red ones are cloud B2C customers and the blue ones are B2B customers:  Any organization small or large that consumes cloud resources for internal use only is a consumer, whereas if they consume cloud services to build up services for others have consumers. The same applies to the blogger who starts up a small online shop: He is a consumer of cloud services (blogging) and at the same time will attract customers consuming cloud services.

B2B cloud services are quite different from B2C, regardless of their flavor (IaaS, PaaS, SaaS). B2B offerings address consumers beyond the reach of the cloud provider customer, yet, these consumers utilize the same infrastructure as the Tier-1 customer – the cloud provider infrastructure. Resilience, predictable performance and elasticity are key features here: If the cloud provider infrastructure blows up, your customers’ business will blow up and their customers will be terribly annoyed… Now, if the self service management portal is using a hideous font and tacky colors, that does not matter much. On the contrary, B2C services focus on other attributes: Pricing, usability and evolution are sought after the most by end consumers. Service hiccups can be tolerated, but the service must be smart, fancy, usable and innovative: Your service has to be cooler than the app store next door. Consequently, the entire cloud provider technical and operational stack undeneath has to be structured in an entirely different manner: B2B services should be designed to just work, B2C services should be designed to tolerate failure.

So, maybe it’s time to shift from the established segregation of *aaS acronyms and assorted labeled services and look at cloud services from a different perspective: The customer view. Google have done exactly that. Google focused on B2C from day one, offering free and paid services for the end consumer (Gmail, Docs, Android via OHA) and at the same time capitalizing on these to offer B2B services (advertising, Apps for Businesses, AppEngine, Android market). And it just works.

PS Check out also this cool B2C to B2B domestic example.