While many (but not all) music lovers can remember buying albums and CDs, the music industry is in a very different place today. Peer-to-peer file sharing drastically changed the music industry years ago, and now cloud technology — with its ability to let consumers store their personal music selections in the cloud, tapping into it whenever and wherever they want — has the potential to alter the industry’s landscape even further.
As today’s industries across the board find themselves with increasing amounts of digital content, and cloud computing has become more commonplace, the music industry serves as an early example of how cloud is moving quickly from the back office to the business strategy arena where it will power new waves of innovation.
Five years ago, businesses were tentatively applying the use of cloud for email and file sharing. Fast forward to today, and they are actively tapping it to support the launch of new products/services and new revenues. By providing a new platform for creating and delivering business value, cloud computing is becoming a springboard for innovation and new revenue streams, and has the power to fundamentally shift competitive landscapes.
In a recent global survey IBM conducted on the business use of cloud computing, we found that only 16 percent of respondents currently use cloud for sweeping innovations, such as entering new lines of business or industries, reshaping an existing industry, or transitioning into a new role in their industry value chain. However, within the next three years, this trend is going to shift dramatically. In fact the number more than doubles, with 35 percent of respondents indicating they’ll be relying on cloud for business model innovation by 2015.
Recent technology and social connectivity trends such as the proliferation of mobile devices, the growing popularity of social platforms and the rapid, realtime availability of “Big Data,” have all created a perfect storm which has companies looking for ways to innovate their business models and develop new opportunities. And many are looking to the power of cloud to accomplish this transformation.
Through our survey of business and technology leaders, we discovered that organizations – both big and small, across geographies and in virtually every industry – are embracing cloud as a way to reduce the complexity and costs associated with traditional IT approaches. For instance the number of respondents whose companies have substantially implemented cloud is expected to grow from 13 percent today to 41 percent in three years.
But they’re not just relying on cloud to enhance internal efficiencies; they’re targeting more strategic business capabilities. In fact, the number-one objective for adopting cloud is an external capability – increasing collaboration with external partners. Only one of the top seven objectives cited focused on internal efficiencies. All the other highly rated opportunities, such as new channels, delivery markets and revenue streams, also relate to improved business capabilities.
Cloud’s six business enablers
We identified six key cloud attributes or “business enablers” that are being used to power business model innovation:
Cost Flexibility – More than 31 percent of executives surveyed cited cloud’s ability to reduce fixed IT costs and shift to a “pay as you go” cost structure as a top benefit. This was definitely the appeal for Etsy, an online marketplace for handmade goods which we interviewed. This firm has taken advantage of cloud’s cost flexibility to gain access to more powerful analytics online, and consequently is able to cost-effectively analyze data from the approximately one billion monthly views of its Web site and use the information to create product recommendations — providing it with access to tools and computing power that might typically only be affordable for larger retailers.
Business Scalability – In addition to IT scalability cloud also allows an organization to easily scale its business operations. By allowing for rapid provisioning of resources without scale limitations, cloud helps a company to benefit from economies of scale without achieving large volumes on its own. Recognizing cloud’s ability to facilitate efficient growth and expanded options, approximately a third in our survey viewed business scalability as a top cloud benefit.This attribute is particularly attractive to organizations that have uneven and unpredictable computing requirements such as news organizations whose computing resource requirements peak around breaking news stories.
Market adaptability – Companies continuously seek ways to improve their agility to adjust to market demands, and a third of the executives we surveyed believe cloud can assist in this respect. ActiveVideo, a creator of CloudTV, a cloud-based platform that unifies all forms of content- Web, television, mobile, social, video-on-demand – onto any video screen, is pursuing this strategy. CloudTV leverages content stored and processed in the network cloud to significantly expand the reach and availability of Web-based user experiences, as well as to allow operators to quickly deploy a consistent user interface across diverse set-top boxes and connected devices. By placing the intelligence in the network, rather than the device, they enable content creators, service providers and consumer electronics manufacturers to create new television experiences for their viewers.
Masked complexity – Cloud computing can also help companies hide some of the intricacies of their operations from end users, which can help attract a broader range of consumers. Because complexity is veiled from the end user, a company can expand its product and service sophistication without also increasing the level of user knowledge necessary to use or maintain the product or service. A number of print-on-demand services take advantage of this attribute by hiding all the data management and file conversion processes from the user.
Context-driven variability – Because of its expanded computing power and capability, cloud can store information about user preferences, which can enable product or service customization. This context-driven variability allows businesses to offer users personal experiences that can adapt to subtle changes in user-defined context, providing a more user-centric experience. Examples of this application can be found in some of the capabilities being developed around Internet TV which has the potential to offer targeted, personalized advertising tailored to people’s TV viewing history and preferences. More than half the respondents cited this business enabler as important for their organizations.
Ecosystem connectivity – About a third of survey respondents like how cloud helps facilitate external collaboration with partners and customers. Health Hiway, an online health information network that enables the exchange of health information and transactions among healthcare providers, employers, payers, practitioners, third-party administrators and patients in India is using this strategy. By connecting more than 1,100 hospitals and 10,000 doctors, the company’s software-as-a-service solution facilitates better collaboration and information sharing, helping deliver improved care at a low cost.
How will your firm use cloud?
Looking at this landscape through a business strategist’s lens, we see three ways companies are approaching cloud:
Optimizers use cloud to incrementally enhance their customer value propositions while improving their organization’s efficiency.
Innovators significantly improve customer value through cloud adoption, resulting in new revenue streams or even changing their role within an existing industry ecosystem.
Disruptors relay on cloud to create radically different value propositions, as well as generate new customer needs and segments -and even new industry value chains.
The specific category a company chooses to belong to usually depends on a variety of factors, including how much risk they are willing to assume and their current competitive landscape.
Some organizations are raising these ideas about technology enabling innovation in their strategy planning and boardroom sessions. Yet many still grapple with a chasm between the C-suite and the IT department. In order to take advantage of the opportunities cloud can provide, a certain level of partnership and collaboration will be required between the business management and technology teams.
The industry your company sits in also makes a difference. Companies in some industries are moving more quickly towards cloud adoption because their product is digital vs. physical in nature. However as more and more physical products are increasingly adding value through their digital information components, we anticipate the adoption pace to continue to gather steam. We also believe that the more digital or information-based businesses will move more readily into the innovation and disruption categories.