Embracing The Cloud
We love the stories of big complacent industry leaders having their positions sledge hammered by nimble cloud-based competitors. Saleforce.com chews up Oracle’s CRM business. Airbnb has a bigger market cap than Marriott. Amazon crushes Walmart (and pretty much every other retailer). We say: “How could they have not seen this coming?” But, more frequently what you are really looking at is more like death by a thousand cuts. Cloud makes this easy to do but tough to see coming.
By now, we have all heard about the dynamics involved in the Innovator’s Dilemma. The big boys’ very customers, processes, people and structure make them blind to the threat until it is too late. Seeing beyond this takes a special insight and doing something about it takes even greater strength. We applaud when we hear the stories of traditional industry leaders who can bite the bullet and recognize the world has changed. GE, a 124-year-old industrial manufacturer, goes whole hog on the cloud and the Internet of Things. Likewise, Capital One, in the very conservative banking and financial services arena, is making the leap.
But for all those great forward thinkers most are still complacent. Even today researchers report that only 5% of companies have really embraced the digital innovation fostered by cloud computing. For the other 95%, their fates do not look good. The tenure on the list of the S&P 500 grows shorter and shorter. In 1960, it was 60 years; by 2020 it will be 12 years, a five-fold reduction. Cloud was not around in the early part of that cycle but today it accounts for the ever-increasing acceleration of the trend.
Value now is created today through innovations in offerings and processes based upon digital technologies. Cloud-based platforms and tools cost-effectively enable creating those innovations. Failing fast is relatively cheap. When you shut down the platform you stop paying for it. You are not burdened with any sunk costs. Collaboration tools are available as Software as a Service (SaaS) and are inexpensive or free while intuitively easy to use. Rapid, demonstrable outcomes are achieved through agile development disciplines based on these platforms and tools. Venture Capitalists (VC’s) love this since investment requirements are low meaning they can make lots of bets and the returns of just a few winners can be staggering.
This leads to lots and lots of small investments in point solutions that enable hundreds of startups to deconstruct and disrupt the value chain of established industry leaders. This is the death of a thousand cuts. Just take a look at the Financial Technology (Fintech) phenomena. Venture Scanner is tracking 1,379 Fintech companies being funded by VC’s to the tune of over $33 Billion. Each one is focused on just one slice of the traditional business.
A few of the big banks are scrambling to respond. Citibank’s own research estimates that these Fintech companies will own 17% of all consumer banking by 2023 for annual revenues of $203Billion. Some of that is new revenue from new consumers but a lot of it is coming out of the hide of the current industry leaders. And if that isn’t enough to get your attention, Citibank also estimates that Fintech will wipe out one-third of all employment at traditional banks in just ten years.
Fintech is just one example. It seems like nothing is immune. CB Insights reports that even an area like legal services has 50 start-ups cutting away at the different professional services. Likewise, while self-driving tech receives the lion’s share of media attention, a host of less-heralded startups are targeting specific pieces of automotive infrastructure or components. Even consumer packaged goods from the likes of P&G are under assault.
Pretty sobering isn’t it? Pick any industry and you will see the same phenomena. Go ahead try it, especially for your industry. All made possible through the advent of cloud services. What are you going to do? The first step is to understand and acknowledge the threat. Until you admit that you will be at a loss to respond. But, at least you will be in good company with the 95% of most firms. Of course, it will be relatively short-lived.
By John Pientka