Major Disruption! (Report)
Cloud computing is disrupting more than our technological norms. It is also creating new business models and new ways of working together.
KEY MESSAGES
• Cloud computing is disrupting more than our technological norms. It is completely transforming the way businesses interact, people collaborate, and business models are designed.
• Both within and outside the IT sector, companies are capitalising on the changing landscape by using and offering cloud services. This allows them to meet customer expectations, operate in a more agile fashion,
and develop new revenue streams.
• As a result of these changes, companies are becoming both consumers and providers, sometimes simultaneously.
• New business models and changing customer expectations will lead to increased competition and declining revenue and profit opportunities
unless companies proactively change—and continue to change—their understanding of the market and their role in it.
• Survival—not to mention profitability and long-term viability—depends on a company's ability to transform its business models and go-to-market structures.
• Unfortunately, the majority of companies continue to pursue their traditional approaches, failing to satisfy customers and therefore missing out on revenue opportunities.
Technical Leaders - Working with the Management Team
Alinea partners business_model_change
1. September 2013
Contact: Leahanne.Hobson@Alinea-Partners.com
Major Disruption
Cloud computing is disrupting more than our technological norms.
It is also creating new business models and new ways of working
together.
KEY MESSAGES
• Cloud computing is disrupting more than our technological norms. It is
completely transforming the way businesses interact, people
collaborate, and business models are designed.
• Both within and outside the IT sector, companies are capitalising on the
changing landscape by using and offering cloud services. This allows
them to meet customer expectations, operate in a more agile fashion,
and develop new revenue streams.
• As a result of these changes, companies are becoming both consumers
and providers, sometimes simultaneously.
• New business models and changing customer expectations will lead to
increased competition and declining revenue and profit opportunities
unless companies proactively change—and continue to change—their
understanding of the market and their role in it.
• Survival—not to mention profitability and long-term viability—depends
on a company's ability to transform its business models and go-to-
market structures.
• Unfortunately, the majority of companies continue to pursue their
traditional approaches, failing to satisfy customers and therefore
missing out on revenue opportunities.
2. INTRODUCTION
In recent years, the widespread availability of fast Internet access and mobile devices
has changed the way consumers expect to engage with companies as well as the way
employees expect to collaborate. People demand more immediate service and
support, more powerful social and interactive tools, and a more customised
experience. They want to make purchases, obtain services, and get support in real
time, around the clock. They also want to interact more robustly and personally with
companies—on their terms and with their choice of technologies.
Today’s buyer is also more empowered, and his or her decision-making process is
faster and more self-service-oriented than ever before. On average, buyers are
reported to conduct 50 to 70 per cent of their purchase process online, either alone or
with input from a trusted advisor—before wanting any interaction with a company.
Essentially, their minds are already made up by the time they think about a
conversation.
Cloud computing has the potential to help companies meet these new expectations
and adapt to these new behaviours by becoming more flexible, nimble, and
responsive. Instead of expensive, self-administered servers and on-premise software
requiring installation and maintenance, companies can rely on virtual servers and
subscription-based applications. By capitalising on this new technology, companies
have the potential to increase profit, develop new revenue streams, and provide
increased dialogue opportunities and better service to their customers.
But cloud computing’s disruptive force affects more than just technology and the way
we use it. It is reaching into the very core of business ideals and norms. It is
transforming the way businesses interact, people collaborate, and business models
are designed. Today, change is not an option. Companies can only survive and test
the edges of competitiveness if they deviate from their traditional approaches and
radically change their business models and go-to-market structures. Many companies
have not yet adapted to the disruption unleashed by cloud computing, and many of
them have not even begun to envision strategies for thriving in this new business
landscape.
This report explores some of the new business models that are emerging as a result of
this disruption.
1. NON-IT COMPANIES CAPITALISE ON THE CLOUD
Traditionally, strong walls have separated the worlds of IT and non-IT. Now, however,
non-IT companies are embracing new technologies to improve the customer
experience and adapt to a new type of buyer's behaviours and expectations. With
more and more people using cloud services, companies outside the IT sector are
taking advantage of this growing trend to develop new revenue streams, increase
customer satisfaction, learn more about their client base, and operate in a more agile
fashion. Several examples of this strategy are described below.
But first, what forces are breaking down these walls? Increasingly, the line is blurring
between companies and consumers. The consumerisation of IT, combined with
employees' desire to have technology autonomy and BYOD (Bring Your Own Device),
have toppled barriers between work and personal life. As a result, a new generation of
workers and customers expect agile collaborative tools, faster communication, more
3. accurate information, round-the-clock access, engagement via social networks, and
more customised services.
Example: Airlines
For quite a few years now, we have seen the airline industry enhance its customer
proposition by offering new services such as in-flight Wi-Fi access to travellers. Just
recently, Norwegian Air Shuttle became the first airline to offer high-speed broadband
on flights within Europe. The company described Wi-Fi as a "huge competitive
advantage." In the United States, 38 per cent of domestic flights offer Internet
connectivity.
Airlines are providing Wi-Fi to capture a new source of revenue while meeting their
customers' growing demand for uninterrupted connectivity, no matter where they are
or what they're doing. This type of service also gives airlines a competitive edge and a
way to stand out. As cloud technologies evolve, airlines will have the opportunity to
offer passengers even more Internet-based tools and services, satisfying their
customers' desire for convenience and up-to-date information.
Airport kiosks, for instance, currently run off local servers, so they are simple and
limited. Cloud-powered kiosks, by contrast, would be more flexible, allowing airlines
to control the interface and pursue partnerships enabling customers to check in, book
hotels, rent cars, and access other services from the same place. Airports may also
transition their IT operations from data centres to the cloud, a shift London Gatwick—
which also has a BYOD strategy—is already making.
Example: Walmart
Another non-IT company is also developing new business models that take advantage
of cloud technologies. That company is Walmart, which not only is the world's largest
retailer but also boasts the world's largest database, estimated in 2004 at more than
500 terabytes. In May 2013, WalmartLabs, the technology arm of Walmart's global e-
commerce division, announced the acquisition of two cloud computing start-ups,
OneOps and Tasty Labs.
While further details have yet to emerge, it is likely that the retail giant will rely on
OneOps' expertise to rapidly develop, test, and deploy new cloud-based applications
onto its e-commerce sites. Tasty Labs is known for launching Jig.com and Human.io,
where Internet users could crowdsource help with obtaining items and accomplishing
small tasks. Again, details have yet to emerge, but the acquisition may help Walmart
engage with its customers, build communities, encourage social networking, or even
assign work to freelancers.
The success of these initiatives remains to be seen. Still, it is significant that a
company of Walmart's size is seizing new opportunities in the cloud space and
developing a cloud strategy. It is adapting its business model in order to give
customers better service, constant access, opportunities for engagement and
dialogue with the company and each other, an easier shopping experience, and more
information about products.
Example: Virgin Media Business
Also in May 2013, the UK-based Virgin Media Business, a business Internet and
telecommunications provider, announced a three-year deal to resell a suite of cloud
services from Outsourcery, a provider of cloud-based IT and communications services
to large companies and small and medium businesses. Virgin Media Business clients
4. will now have the option of using cloud-based business applications such as
Microsoft Office 365, conducting cloud-based video conferences, and securely storing
their data in the cloud.
This is a growing trend among non-IT companies, to enter the cloud business by
subscribing to cloud computing services such as Amazon Web Services, Rackspace
or others, then passing on those capabilities to their own customers. This business
model is expected to become more common as companies respond to their clients'
needs and expectations. Another way companies could profit from the cloud is to rent
out cycles within their own data centres to cloud services providers.
2. CLOUD PROVIDERS ARE ADDING NEW SERVICES
Cloud computing services are sold on a subscription or pay-per-use basis. Customers
are more comfortable with these pricing models than with fee-based plans because
upfront costs are limited and the level of investment reflects actual usage.
For cloud providers, however, these pricing models necessitate gaining many new
customers in order to balance the revenue stream previously provided by set, fee-
based projects throughout the year. Rather than showing large sums earned and
spent at distinct moments, the business profit and loss statement would reflect a
small but recurring revenue stream that increases over time.
Eventually, once cloud providers achieve significant scale, the recurring revenue
stream from subscription-based services can provide substantial cash flow. But
successful companies in this space will not rely exclusively on selling subscriptions.
Instead, they will actively seek out sources of value-added revenue. These may be in
the form of managed services or "bought, leased, or built" consultancies. (In other
words, companies will acquire or partner with a company that already has the desired
capability, or they will build the services internally.)
Example: Prediki
This strategy is exemplified by Prediki, a company that developed a cloud-based
opinion research service that employs advanced prediction market technology proven
to outperform opinion polls. The company has begun to generate additional revenue
by partnering with business and marketing consultancy firms that recommend or refer
to Prediki, then offer post-sales consulting to its clients.
In a similar fashion, bookkeeping firms can expand their portfolio by reselling cloud-
based financial applications, as Synergy Business Solutions does with Intacct. And
marketing companies can resell social media and lead generation tools, as Haystak
Digital Marketing does with HootSuite Pro.
Example: Miratech
Another example is that of Miratech, a leading IT outsourcing provider included in the
Global Outsourcing 100 list of the world's best outsourcing service providers by the
International Association of Outsourcing Professionals. Rather than partnering with or
acquiring another company, Miratech opted to build value-added services internally.
In June 2013 it unveiled a full set of services designed to help clients benefit from
enterprise mobility solutions.
5. 3. TRADITIONAL COMMUNICATIONS OPERATORS AND IT SERVICE PROVIDERS
CONVERGE
Today, people appreciate the convenience of paying all their bills online, completing
multiple tasks on their mobile devices, and filling the same virtual shopping basket
with diverse items. It is no surprise, then, that customers and buyers want to purchase
or access all of their services from as few providers as possible and through a trusted
source. Their goal is to create a "one-stop shop" experience.
Cloud services providers now have the opportunity to join forces with
telecommunications companies that boast established positions and longstanding
relationships with customers. They can build strong partnerships based on a united
sales and marketing strategy as well as shared revenue goals and targets.
This type of partnership benefits both parties, allowing cloud services providers to
gain access to new markets while granting telecommunications companies more
revenue opportunities and a way to continue meeting their customers' needs. It also
benefits customers, who can take advantage of the latest technology while enjoying
the comfort of buying it from a trusted provider.
Example: Deutsche Telekom’s Business Application Marketplace
A compelling example is Deutsche Telekom’s Business Application Marketplace,
which was announced in March 2012. The company saw the opportunity to offer
additional value to its 8 million-plus customers—2.8 million of which are business
customers—while generating more revenue. Along with more than 20 professional
business application vendors such as Microsoft Office 365, Box, and Symantec,
Deutsche Telekom offers professional business applications to small and medium-
sized companies. Through the Business Application Marketplace, professional
business application vendors can tap into the German market. Meanwhile, Deutsche
Telekom gains an additional revenue source and keeps its customers happy by
offering new and relevant services.
4. CROWDSOURCING AND CROWDFUNDING, MEET CROWD LABOUR
These days, it's all about the crowd. Crowdsourcing is radically altering the way ideas
for innovation are gathered, assessed, and put into action. Crowdfunding has opened
up new avenues of investment and venture funding, allowing new businesses and
projects to see the light of day.
And then there is the potentially revolutionary trend of crowd labour. Already, throngs
of telecommuters and virtual workers log in each day from their homes, subway cars,
Starbucks locations, and remote offices around the world. Crowd labour has the
power to transform the way we work, collaborate, and conduct business. Once
technological and organisational barriers to this new approach are surmounted,
companies can reap the benefits of an inexpensive, on-demand, elastic, and agile
workforce.
Some businesses have already harnessed the power of crowd labour to quickly,
efficiently, and cost-effectively divide up work across the Internet. For instance, in
2011 the online shoe retailer Zappos.com used Amazon's Mechanical Turk, an online
marketplace for "human intelligence tasks," to hire remote workers to edit millions of
product reviews. Mechanical Turk, CrowdFlower, ShortTask, and a host of other sites
6. allow companies and individuals to farm out online "micro-tasks" to people around the
world.
5. ALTERNATIVE EMPLOYMENT MODELS THROUGH THE CLOUD
Global unemployment rose by 4 million in 2012 to reach 197 million, or 6 per cent of
the population, according to the International Labour Organization. Underemployment,
another pervasive problem, affected 17 per cent of the world in 2012, according to
Gallup. These dismal job rates, combined with reduced pensions and rising costs of
living, are inspiring people to take charge of their own futures and consider non-
traditional employment solutions.
Cloud computing has opened up alternative avenues for starting new companies,
conducting business, and recruiting talent. Some innovative entrepreneurs are taking
cloud labour and virtual commuting to the extreme, founding nimble, lightweight start-
ups with limited office space or even none at all. Instead, everything is in the cloud,
allowing employees in disparate locations to work together over the Internet. Tools
and applications are optimised for real-time collaboration across teams and
organisational boundaries.
Example: Nexeda
An example of this new type of business is Nexeda, an independent information,
competence, and resource hub for executives and organisations, which brings
together experienced executives and specialists who collaborate and provide
business solutions through a cloud platform. Using open innovation tools and crowd
collaboration techniques, the company provides a framework for the exchange and
co-creation of knowledge and the mobilisation of collective intelligence in and across
companies.
Example: IBM's Liquid Challenge
The cloud has also enabled large, established companies to experiment with
alternative models for running their business, as IBM's Liquid Challenge
demonstrates. A crowd-based software design and development initiative, this pilot
project invites professionals to develop small components of the technology giant's
applications on an open markets basis. Participants work from anywhere and are paid
for what they deliver. This elastic approach allows the company to access a global
pool of talent while creating a more flexible organisation.
6. KEEPING CUSTOMERS SATISFIED
As cloud computing continues to disrupt traditional business models, it is crucial to
keep the end goal in mind: satisfied customers. Today's customers and buyers are
more digitally connected than ever before, and, as discussed previously, they have
high expectations in terms of speed, reliability, access, service, and customisation.
They interact with companies through multiple channels, including social networking.
As a result, the relationship between consumers and companies has fundamentally
changed, and business success requires both adaptability and insight into the
customer's changing context.
According to a report by Ovum entitled "The Customer-Adaptive Future," today's
environment presents major opportunities for companies willing to become CAEs, or
customer-adaptive enterprises. A CAE "has highly acute peripheral vision and is
driven by a desire and strategic intent to create and deliver value and be persistently
7. relevant to its customers." Companies can achieve this by delivering a superior
customer experience, creating value, and using continuous innovation to remain
relevant to their customers.
Successful CAEs boast core ethical values, a customer-centric vision, empowered
employees, optimised mission-critical processes, an optimised and engaged
workforce, and a culture that promotes collaboration across organisational
boundaries. They must be able to act quickly, agilely, and collaboratively, whether it's
to make a decision, deploy an application, engage with a customer, or respond to
changing needs and expectations.
To keep customers happy and loyal, companies must remember that their storefront—
whether it's virtual or physical—is a critical showcase for their brand and a crucial
point of client interaction. Along with implementing the necessary organisational
changes to become a CAE, companies should continue to optimise the customer
experience from the frontend (their website, customer relationship management,
marketing, etc.) and the backend (data collection, enterprise resource planning, etc.).
A negative interaction can result in a customer taking their business elsewhere and
publicly airing their grievances via social media.
The example of banks provides a cautionary tale of what can happen when
companies fail to remain relevant to their customers. According to the World Retail
Banking Report 2013, banks are at risk of losing more than 50 per cent of their
customers as they struggle to provide more personalised customer experiences.
Within the next six months, 10 per cent of retail banking customers surveyed globally
will likely leave their bank, and an additional 41 per cent of customers say they are
unsure if they will stay or go. The report found that the quality of mobile service
significantly influenced young customers' decisions to choose or leave a bank,
providing more evidence that successful companies adapt to new technologies and
understand their customers' behaviour.
7. CONCLUSION
Companies tend to operate in two different ways. There are those that focus on the
past, analysing their successes and preserving traditional business models that have
historically proven valuable. Then there are those that focus on the future, observing
and anticipating emerging trends and technologies in order to fully capitalise on them.
Established companies excel at maintaining value through greater efficiency and
effectiveness. Over time, however, these businesses run the risk of growing irrelevant.
Start-up companies, on the other hand, are great at spotting unmet needs, operating
nimbly, and pursuing unconventional paths to powerful results. But they often wind up
discovering their business model lacks sustainability.
During this time of disruption, as cloud computing and other new technologies
transform the way we do business, companies need to embody qualities of both these
archetypes. They must adapt in response to changing needs and expectations while
respecting the core missions that have historically driven them, not least to achieve
high customer satisfaction.
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