Business model Innovation – A generic Perspective

Business Model Innovation (BMI) refers to the creation, or reinvention, of a business itself. Whereas innovation is more typically seen in the form of a new product or service offering, a business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes, and its value network to enhance that value proposition, capture new market segments and alienate competitors.

Business-Model-Canvas-for-Innovation4

Evolution and key principles of the theory

Adrian Slywotzky, a consultant and author of several books on economic theory and management has highlighted the importance of adjusting the Business-Design in order to adjust to value migration or drive value value migration within an industry.

Customer Value Proposition First and most important, a successful company is one that has found a way to create value for customers — that is, a way to help customers get an important job done. By job we mean a fundamental problem, in a given situation, that needs a solution. The best customer value proposition is an offering that gets that job–and only that job–done perfectly. The lower the price of the offering and the better the match between the offering and the job, the greater the overall value generated for the customer. The more important the job is to the customer, the lower the level of customer satisfaction with current options, and the better your solution is than your competitors’ at getting the job done, the greater the value for your company.

Profit Formula The profit formula is the blueprint that defines how the company creates value for itself. People often think that profit formulas and business models are interchangeable, but how you make a profit is only one piece of the model. It consists of the following:

Revenue model (price × volume)
Cost structure (assets; direct and indirect costs; and a model of how, and whether, scale affects costs)
Margin model (How much does each transaction need to net to cover the cost structure and deliver target profits?)
Resource velocity (How much revenue do we need to generate per dollar of assets and per dollar of fixed costs, and how quickly?)

Key Resources The key resources (or assets) are the people, technology, products, facilities, equipment and brand required to deliver the value proposition to the targeted customer. The focus here is on the key elements that create value for the customer and company, and the way those elements interact. Every company also has generic resources that do not create competitive differentiation.

Key Processes Successful companies have operational and managerial processes that allow them to deliver value in a way they can successfully repeat and increase in scale. These may include such recurrent tasks as training, development, manufacturing, budgeting, planning, sales and service. Key processes also include a company’s rules, metrics and norms.

Market context and circumstances fueling BMI

Bob Higgins, founder and managing general partner of Highland Capital Partners, is quoted in Johnson, Christensen and Kagermann’s Harvard Business Review article as saying, “I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models.”

Business model innovations have reshaped entire industries and redistributed billions of dollars of value. Retail discounters such as Walmart and Target, which entered the market with innovative business models, now account for 75% of the total valuation of the retail sector. Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Over the past decade (1997-2007), 14 of the 19 entrants into the Fortune 500 owed their success to business model innovations that either transformed existing industries or created new ones.

A 2005 survey by the Economist Intelligence Unit reported more than 50% of executives believe that between now and 2010, business model innovation will be even more important for success than product or service innovation. A 2008 IBM survey of corporate CEOs echoed these results. Nearly all of the CEOs polled reported the need to adapt their business models; more than two-thirds said that extensive changes were needed.

An analysis of major innovations within existing corporations in the last decade (1998-2008), though, shows that precious few have been business-model related. And a recent American Management Association study determined that no more than 10% of innovation investment at global companies is focused on developing new business models. The authors therefore highlight five strategic circumstances companies commonly face that often require business model change:

The opportunity to address the needs of large groups of potential customers who are shut out of a market entirely because existing solutions are too expensive or complicated for them. This includes the opportunity to democratize products in emerging markets (or reach the bottom of the pyramid).

The opportunity to leverage a brand-new technology, wrapping the right business model around it or the opportunity to leverage a tested technology in a whole new market.

The opportunity to bring a job-to-be-done focus to a marketing-driven industry. Such industries tend to make offerings into commodities. But a jobs focus allows companies to redefine the industry profit formula.
The need to fend off low-end disruptors. If Tata’s 1 Lakh ($2300) Nano is successful, it will threaten other automobile makers.

The need to respond to a shifting basis of competition. Inevitably, what defines an acceptable solution in a market will change over time, leading core market segments to commoditize.

The innovation revolution spurred by venture capitalists decades ago has created the conditions in which scale enables big companies to shift from shackling innovation to unleashing it. Three trends are behind this shift:

The ease of innovation and its decreasing cost mean that start-ups now face the same short-term pressures that have constrained innovation at large companies. Taking a page from start-up strategy, large companies are embracing open innovation and integrating entrepreneurial behaviors with their existing capabilities. Innovation increasingly involves creating business models that tap big companies’ unique strengths. In this context, entrepreneurial individuals, whom the author calls “catalysts,” are working with corporations’ resources, scale, and growing agility to develop solutions to global challenges.

Here are the stories of four corporate catalysts: Keyne Monson, at Medtronic, spurred the creation of a program called Healthy Heart for All, which seeks to bring pacemaker technology to hundreds of thousands of Indians who desperately need it. Yuri Jain, at Unilever, sought and found a scalable solution to purifying drinking water–Pureit, a portable system that provides safe water at half a cent per liter. Nick Musyoka, at Syngenta, devised a program called Uwezo (Swahili for “capability”), which uses the sachet distribution model to provide smallholding farmers with affordable packages of crop protection chemicals. Colin Harrison, at IBM, was instrumental in developing the company’s Smarter Cities program, which offers bundled technological infrastructure and related services to help cities save money and improve lives.

In the complex sport of American football, teams rely on playbooks as thick as the Manhattan phone directory. But when it comes to creating innovative growth businesses—which is at least as complicated as professional football—most companies have not developed detailed game plans. Indeed, many managers have concluded that a fog enshrouds the world of innovation, obscuring high-potential opportunities. The authors believe that companies can penetrate that fog by developing growth strategies based on disruptive innovations, as defined by Clayton Christensen. Such innovations conform to a pattern: They offer an entirely new solution; they perform adequately along traditional dimensions and much better along other dimensions that matter more to target customers; and they are not initially appealing to powerful incumbents. Companies can develop customized checklists, or playbooks, by combining this basic pattern with analysis of major innovations in their markets. The key early on is to focus not on detailed financial estimates—which will always guide companies toward the markets most hostile to disruptive innovations—but on how well the innovation fits the pattern of success. It’s also crucial to encourage flexibility: Companies must be willing to kill projects that are going nowhere, exempt innovations from standard development processes, and avoid burdening project teams with extra financing, which can keep them heading in the wrong direction. Companies can create competitive advantage by becoming champions at defining the pattern of successful innovations and executing against it. But as that pattern becomes obvious—and others emerge—building a sustainable advantage on innovation competencies will again prove elusive.

In today’s increasingly complex environment, business model innovation can be critical to organizational success.

In a follow-up to the “IBM Global CEO Study 2008, The Enterprise of the Future,” we analyzed 28 successful business model innovators to understand how and when business model innovation is most valuable. The business model consists of four components: the value delivered to customers, how revenue is generated, how a company positions itself in the industry and how value is delivered.

In the new economic environment, companies can start developing a strategy and transformation approach by answering two questions: (1) Under what conditions should companies innovate their business model? and (2) What characteristics support the design and execution of successful business model innovation?

Successful timing of business model innovation depends on the economic environment, the specific market and industry conditions, and a set of internal factors impacting the organization.

It was found that successful companies are innovating their business model in three ways: (1) Revisiting the enterprise model to reduce cost through new partnership models and by re configuring the asset mix, (2) Using strong financial resources to introduce alternative industry models and disrupt competitors and (3) Rethinking revenue model and value propositions to respond to a different set of customer behaviors and market requirements.

Not every organization needs to innovate its business model immediately, but the capabilities need to be established in order to act when the time is right.

Three capabilities – we call them the Three A’s – can improve the execution of business model innovation: organizations need to be aligned with customer value, analytical to gain insight from differentiated intelligence, and enabled by an adaptable operating model.

OTT Content Aggregation

For generations of viewers, television was essentially  a passive, watch-what-was-scheduled activity centered  on a single living room screen. But times—and consumers—have changed. Today’s  ubiquitous Internet access on PCs, tablets, mobile  devices, and increasingly, to in-home televisions, has  created far more sophisticated and proactive viewers  and is fueling the dramatic growth in video services  delivered on-demand to many types of screens.
As a result, companies across a variety of industries  are looking to Over-The-Top (OTT) capabilities, which  provide technology to deliver the video content over  Internet broadband connections to televisions, PCs,  or mobile devices. These capabilities hold significant  implications for both consumers and industry players.
OTT is a supremely disruptive technology that creates  both threats and opportunities: changing how  consumers access video entertainment, reshaping  how content and communications companies deliver it, and encouraging new players to bypass traditional
channels and gatekeepers to open direct relationships  with viewers and subscribers.

Cloud TV is currently the most advanced (Over the top) OTT content aggregation platform, providing television contents to multi-screen equipments. Users can watch streaming media channels in a variety of terminals, like mobile phone, smart TV, PAD and high-definition player, etc., anywhere at any time.

Users can find free and paid channels in all kinds of languages on Cloud TV. Meanwhile, they can also DIY television channels,upload and manage their own channels, using platform and technology of Cloud TVto set up their own OTT applications.

Anyone or any unit can apply for multi-screen TVbusiness on Cloud TV platform, apply for customized app, sell and distributetheir own contents or the contents in Cloud TV market.

Cloud TV aggregates thousands of channels,including dozens of languages, among which are hundreds of pay-TV channels likeChinese Mainland, Hong Kong and Taiwan package, India package, the package inEnglish and the Arab package. Besides, other channels are also included likeTVB HD Jade, HD Asia, five mainstreamHD satellite televisions in Taiwan, Phoenix TV, STAR Movies, TVB, FOX HD, HBOHD, discover and National Geographic Channel.

Content Aggregators Media Portal – NetScreens
Unlike early implementations of content aggregation OTT services, NetScreens’s solution offers a flexible multi-store digital mall. The solution provides an independent look & feel, business rules and marketing front-end to each content source, while allowing aggregators to manage infrastructure and overall operation via a sophisticated yet easy to use administration console.
Target Market: Service venture based on content aggregation, targeting a range of audiences via the Open Internet.
Solution: NetScreens Multi-Screen OTT Platform installed as a venture-controlled multi-tenant Application-Server hosting multiple content providers. All managed custom sections served as a unified infrastructure that preserved their identity.
Example: Broadband Provider’s revenue-sharing based partnership with leading content providers
Application Server: Cloud-based multi-tenant application platform, customized to the look & feel of each provider. The platform is managed independently but delivered as a single service initiative.
Video Streaming: Innovative 3rd-party streaming solution that drives streaming costs down, enabling aggressive monetization models such as Freemium and advertising-based revenue generation.

Cloud Printing

Cloud printing is the technology that enables printers to be accessed over a network through cloud computing.  There are, in essence, two kinds of cloud printing. On the one hand, consumer-based cloud printing connects any application to cloud-enabled home printers that people own or have access to. Using this technology, people can take digital media as their primary communications tool and create a printed page only when they need the content in a physical form.

On the other hand, professional cloud printing enables publishers, companies and content owners to print their digital publications by leveraging networks of production facilities through cloud computing technology. In short, professional cloud printing allows for the “ad-hoc transformation of digital information into physical forms in 2D or 3D.”

Benefits

For consumers, cloud ready printers eliminate the need for PC connections and print drivers, enabling them to print from mobile devices. As for publishers and content owners, cloud printing allows them to “avoid the cost and complexity of buying and managing the underlying hardware, software and processes” [3] required for the production of professional print products.

Leveraging cloud print for print on demand also allows businesses to cut down on the costs associated with mass production. Moreover, cloud printing can be considered more eco-friendly, as it significantly reduces the amount of paper used and lowers carbon emissions from transportation.

Providers

Only a handful of providers are currently working towards a professional cloud print solution. Most of these operate in their own niche or focus on mobile devices. Some examples include Peecho, which provides on demand printing of digital data from within mobile applications and websites through a network of global printing facilities, HubCast, a service that allows business owners to order corporate print materials through their cloud and Hewlett-Packard‘s MagCloud, which allows digital documents to be published as print magazines.

Significantly large steps have also been taken in the consumer market with Google Cloud Print. Xerox and Ricoh followed in Google’s footsteps with their mobile cloud solutions, while Hewlett-Packard implemented a similar mechanism with their ePrint solution.

Industry experts believe that as these services become more popular, users will no longer consider printers as necessary assets but rather as devices that they can access on demand when the need to generate a printed page presents itself.

Digital publishing is growing rapidly and our affinity for consuming real-time media shows no signs of stopping. Despite this, as GigaOM’s Mathew Ingram recently reported much of the content we put online is actually getting lost in a non-stop stream of information. The problem is, hard-copy print is still best for some jobs — or for some audiences.

 Peecho, a free service that lets people turn digital content into a physical product. Peecho’s service infrastructure draws on cloud printing, a technology that helps transform digital data into printed products by tapping into networks of production facilities through the cloud. Other companies in this arena include HubCastMagCloud, and Shapeways.

Here’s how the cloud print model can streamline the process. A big financial services company typically prints tens of thousands of annual reports it sends out to shareholders — most of whom promptly toss the reports in the garbage or recycling. What if that company instead asks its shareholders to specify print or digital versions of that report. Then the company uses a digital network  of providers to print copies just for those who will really read them, eliminating wasted materials, carbon emissions creating and shipping the hard copy product, not to mention postage. Since printing remains a volume business, the price per copy is higher now, but total cost to the company falls. And as more printers see the opportunity of cloud print, the economics may improve.

In the recently published Cloud Print Manifesto,  cloud printing has a unique potential to revolutionize publishing. It promotes full-blown digitization by allowing for the “occasional” transformation of digital data into 2D or 3D objects on demand. This would help preserve valuable digital data while foregoing the aforementioned environmental costs of mass production.

Let’s explore the potential of cloud print to revolutionize publishing.

Trading virtual content for atoms 

The use of paper as the primary means of communication is coming to an end. For example, a few weeks ago, the Guardian reported that Amazon’s Kindle eBook sales are outstripping print for the first time, in line with the declining hardcover revenues reported by the Association of American Publishers in June 2012. With digital content exploding, it is hard to envision a future for print. Yet some content — lost amidst an ever-increasing amount of blog posts, status updates, tweets and videos — may be more persistent than daily news and carry deeper personal meaning.

This is exactly the kind of content that begs for the level of engagement and permanence provided by a physical product. Turning personalized, high-quality digital content into professionally managed physical objects is a service that will be increasingly in demand. Or as John Bracken eloquently states: “As more and more of the content we consume is based on bits, the ability to engage with atom-based media will, for some, gain value.”

A few applications are already embracing this model, using print to monetize digital content. PostagramPrintstagram and Canvaspop are some of the simplest examples, built to monetize Instagram photos.

The enormous amount of data on the Internet leads to a staggering market potential for these companies, but the execution is not that simple. So far, transforming digital data into physical objects is by no means a commodity.

Print as a Service

For website owners, the print feature should just work — like water from the tap or electricity in the home. In reality, the cultural differences between the digital world and the realm of mechanical product manufacturing pose a significant challenge. As a result, huge sums are spent on negotiating and integrating with one or more printing facilities, international expansion, global delivery, monitoring orders and customer service.

Therefore, simple infrastructure is required to provide Print as a Service instead. By accessing professional print as a hosted commodity resource, users can avoid the cost and complexity of buying and managing the underlying hardware, software and processes.

Why didn’t anybody successfully implement this idea before? Only recently has the print industry started to shift from mass pre-production to the production of unique items on demand. Secondly, connecting a website to a service is much easier these days, using simple technologies like REST, JSON and JavaScript. However, the most important change is the decreased cost of the infrastructure itself.

Enter cloud print

The web contains a lot of content, but almost none of it conforms to required production standards: sizes, quality and aspect ratios differ greatly and cut marks, color management, spines, bleed margins or ISO certificates are unheard of. To put it bluntly, it is a mess. Transforming such heterogeneous online data to standardized, print-ready components requires serious processing firepower.

To keep associated costs and energy usage relative to revenue, systems should be able to scale up and down with demand. In other words, to cope with the Christmas peak and the January low at realistic cost levels and with as little energy consumption as possible a system should be fully elastic.  Cloud computing can offer this.

So, a profitable business case for Print as a Service can only be made by using automatically scaling cloud print.. 

The provider void

So far, significant steps towards a cloud print solution have been taken in the consumer market. Xerox and Ricoh followed in the footsteps of Google CloudPrint  with their mobile cloud solutions, while Hewlett-Packard implemented a similar mechanism with ePrint.

However, professional cloud print is not yet a commodity. Only a few independent players  – Hubcast, MagCloud, Shapeways and my company —  have ventured into this area, providing professional, on demand manufacturing of 2D and 3D products from digital assets using a network of printing facilities.

Cloud print will revolutionize publishing

 The potential of cloud print to revolutionize print publishing should not be underestimated. Websites, applications and games could be powered by a single cloud print infrastructure that allows access to a network of professional print facilities, leveraging print as a shared commodity resource while avoiding costs and complexity.

By providing eco-friendly, on-demand manufacturing, cloud print providers could support the global transition away from mass paper production towards full-blown digitization, promoting sustainability in the industry.

However, there is no dominant cloud print infrastructure provider for professional products yet. What do you think this provider should focus on? Join the discussion in the comments below and check out cloudprintmanifesto.org. 

Cisco and Xerox announced today that are pairing up to offer cloud printing services for enterprises. Cisco has added Xerox Managed Print Services (MPS) to routers, switches, data center servers (UCS), Vblock, virtual desktops and the CIUS client. The cloud print services will be for sale through Cisco’s channel this summer.

In addition to simply allowing users to print from mobile devices across a Cisco network, a public cloud or a private cloud, the plan lets network administrators monitor printers and implement policies that the companies say will protects confidential data.

The companies will build print agents into Cisco routers and switches, starting with the branch-office ISR. They will tap into Cisco’s WAN acceleration gear to help print jobs travel faster, and will use Cisco security tools to keep the data from going from winding up in unauthorized hands, the companies said.

Xerox introduced the mobile printing system earlier this year, though this partnership with Cisco makes it a little easier for the enterprise to use it. Previously, the integration with devices was left to the enterprise or system integrator.

Cisco and Xerox aren’t the first to the table with cloud print services. In March, HP announced that it was joining forces with Google to support Google Cloud Print, which lets Gmail and Google Docs users print from mobile devices like smartphones, tablets, or even Windows 7 netbooks. Google Cloud Print lets you print documents over an Internet connection without downloading printer drivers.

Users of the HP/Google combo don’t need enterprise IT to step in and provide the service. Likewise, IT professionals are given no control or security over where documents are sent.

With the HP partnership, Google Cloud Print lets users remotely print documents over the Internet to select HP printers with the EPrint capability, in which an email with print instructions is sent directly to the printer. The mobile application needs to have Google’s Cloud Print extensions. Users have to add the email address of an HP EPrint-enabled Photosmart, Envy, Officejet or LaserJet printer to a unique Google account tied to a smartphone or tablet. Multiple printers can be tied to one Google account, and on pushing the print command, users will be able to select the printer of choice. If a printer is powered down, the command will be added to a print queue.

Without the special HP hooks, a tablet user can still use Google Cloud Print but its not geared for enterprise use. A user sends documents from the tablet/smartphone to a PC connected to a printer. That PC has to have the Google Cloud Print connector downloaded and enabled in Chrome.

From an IT standpoint, offering cloud printing as a service, and gaining some aspect of management and security policy, seems to be a smarter choice than just letting users have at it by through services like Google Print. The companies say that they will eventually support other wares, too … not requiring a Cisco network from end to end and supporting printers from companies other than Xerox.

Google Cloud Print is a service that helps users send documents to printers from a variety of devices. This includes personal computers, as well as mobile phones and tablets. Because this service uses the Internet to send documents, users can send a document to a printer from anywhere, regardless of distance.

To get started with Google Cloud Print, Google recommends having a cloud-ready printer. Newer printer designs from companies like Brother, Canon, Dell, Epson, HP, Kodak and Samsung are mostly cloud-ready. Users can also find a detailed list of cloud-ready printer models on the Google Cloud Print website.

Setting up a printer for Google Cloud Print involves installing the Google Chrome system on the sending device. Users will have to navigate Google Chrome settings to sign into Google Cloud Print and enable a connector for printers. Advanced instructions can be found in Google Chrome, where a customized interface supports cloud print functionality.

Users can find additional details for handling Google Cloud Print jobs on manager printers in their Google Chrome accounts. Google also offers a side note that Windows XP users may need additional software installed to be able to use Cloud Print successfully. Those who are using Windows XP should also know that Microsoft intends to end support for this operating system, so it may make sense to transition to a newer version of Microsoft Windows if cloud printing is a desired feature.

After connecting printers and devices to Google Cloud Print, using Cloud Print is much the same as using a local area network wireless connection, which is also supported by many modern printers. The difference is that Google Cloud Print may use either Internet connections or 4G wireless connections to get a signal from a mobile device to a printer.

Case studies ETSY , Netflix

As a Web site where individuals can sell handmade, vintage items, and craft supplies, Etsy.com provides a market for creative members to sell their items online. When people join Etsy, they can post their items under applicable categories, enabling buyers to search for and locate items quickly. Etsy members reside in over 150 countries across the globe.In 2009, the company acquired Adtuitive, a startup Internet advertising company. Adtuitive’s ad server was completely hosted on Amazon Web Services and served targeted retail ads at a rate of over 100 million requests per month. Aduititve’s configuration included 50 Amazon Elastic Compute Cloud (Amazon EC2) instances, Amazon Elastic Block Store (Amazon EBS) volumes, Amazon CloudFront, Amazon Simple Storage Service (Amazon S3), and a data warehouse pipeline built on Amazon Elastic MapReduce. Amazon Elastic MapReduce runs on a custom domain-specific language that uses the Cascading application programming interface.
Etsy

Today, Etsy uses Amazon Elastic MapReduce for web log analysis and recommendation algorithms. Because AWS easily and economically processes enormous amounts of data, it’s ideal for the type of processing that Etsy performs. Etsy copies its HTTP server logs every hour to Amazon S3, and syncs snapshots of the production database on a nightly basis. The combination of Amazon’s products and Etsy’s syncing/storage operation provides substantial benefits for Etsy. As Dr. Jason Davis, lead scientist at Etsy, explains, “the computing power available with [Amazon Elastic MapReduce] allows us to run these operations over dozens or even hundreds of machines without the need for owning the hardware.”

Dr. Davis goes on to say, “Amazon Elastic MapReduce enables  to focus on developing Hadoop-based analysis stack without worrying about the underlying infrastructure. As  cycles shift between development and research,  software and analysis requirements change and expand constantly, and [Amazon Elastic MapReduce] effectively eliminates half of  scaling issues, allowing  to focus on what is most important.”

Etsy has realized improved results and performance by architecting their application for the cloud, with robustness and fault tolerance in mind, while providing a market for users to buy and sell handmade items online

How Cloud Computing Helped Netflix Emerge as a Streaming Media Powerhouse

Netflix may be getting a lot of bad press in recent times due to its management’s ill-advised decision to raise subscription rates by almost 50% resulting in widespread customer dissatisfaction and a groveling apology by CEO Reed Hastings, but it was not long ago that it was considered the epitome of home entertainment.Netflix is another new-age company that owes its success to cloud computing, the same way that Zynga, the creators of Facebook game sensation Farmville, does (See: Zynga, the Latest Cloud Computing Success). And not surprisingly, for both of them, the cloud provider of choice is Amazon, perhaps the earliest player in the game.

Although Netflix began life as a DVD-by-mail service in 1997, it was with the introduction of the on-demand streaming service that it saw a huge expansion of its customer base. In fact, when it crossed 10 million subscribers in 2009, it “attributed the recent surge in subscribers to growing consumer recognition of the value and convenience offered by Netflix and increasingly more ways to instantly watch a growing library of movies and TV episodes from Netflix on PCs, Intel-based Macs and TVs.”

Not surprisingly, this model was soon adopted by many other providers like Fox’s Hulu, Amazon and even Google, who created a paid version of YouTube content. Now, running such a service required a level of flexibility, resource optimization and redundancy that traditional data centers were ill-equipped to provide (See: Virtualization: The Virtual Way to Real-World Benefits). That is why Netflix today relies almost exclusively on cloud services for its infrastructure.

This point was reiterated by Netflix Cloud Security Architect Jason Chan in his presentation “Practical Cloud Security” at the United Security Summit in San Francisco. During his presentation, Chan articulated the advantages that being on the cloud provided Netflix, advantages that were not possible with traditional IT infrastructure.

Chen explained that in a traditional data center, applications are long-lived, code is pushed to running systems, and it can be difficult to enforce deployment patterns such as patches. However, on the cloud, new versions are written which replace the old ones entirely with new instances, eliminating the need for patches. Also, while earlier repeatable tasks such as adding a user account, changing firewall configurations or forensic analysis required multiple steps and interfacing with multiple systems, “these tasks are a simple API call with cloud.” Moreover, with systems being added to groups that control the connectivity, “there’s no one chokepoint” like the traditional firewall.

The key lesson  learned is you have to leave the old ways behind,” However,  that moving to the cloud did introduce some specific security concerns that had to be addressed. With Amazon having launched a similar service in direct competition with its own customer Netflix (See: Is Amazon’s Cloud Player a Game Changer in the Music Industry? ), this space should see some interesting developments in the near future.

Amazon web services : Business Innovation in cloud

Amazon Web Services (AWS) is making the case for its cloud platform as a driver of business innovation, saying that as the cost of using its infrastructure falls, so does any risk associated with a new venture.

The firm also argues that AWS is now a mature and robust enough platform for enterprise workloads, citing some customers using its infrastructure to operate even mission-critical applications.

At the AWS Summit in London, chief technology officer Werner Vogels said the cloud platform has had a fundamental impact on how IT has evolved since it launched in 2006. He stressed the firm’s commitment to openness and value as reasons for the success of AWS.

“We do not lock you in to any type of technology. You can choose any operating system and any application; you can run them all on AWS. There is no contract to force you to be our customer for say, five years, and this means we need to be on our toes – if you not satisfied, you can just walk away,” he said.

As Amazon continues to expand, this drives economy of scale and cuts costs, which the firm passes on to customers to keep them happy, with some customers seeing a 40 percent reduction in their bills at start of 2012. But this also helps to ensure customer success, according to Vogels.

“If we can get the cost of computing down low enough that you don’t need to worry about it, then the type of new applications we can help create will be enormous. Our aim is make infrastructure so cheap that it will drive innovation,” he said.

Vogels claimed that economics rather than technology is driving cloud uptake, with customers realising that they can gain access to IT resources quickly without any purchase cost, and only pay for what they use.

“You increase innovation when the cost of failure approaches zero, and so you can stop wasting money on IT, and spend it on the things that really matter for your business – building better products,” he said.

Amazon: cloud computing driving business innovation

Meanwhile, Amazon’s chief information security officer Stephen Schmidt detailed some of the lengths the firm goes to in order to safeguard customer data. These include ongoing security vetting of staff, restricting access to the AWS infrastructure to key staff, and all accesses logged.

The firm is clearly doing something right, as it was able to line up several customers at the AWS Summit which are increasing their use of the Amazon cloud platform.

News International chief information officer Chris Taylor said that AWS now provides about 20 percent of the organisation’s total compute power, and this is likely to expand.

“We’ve virtualised 90 percent of our infrastructure now, and will soon be at 100 percent. After that, the desire is to move it to the cloud,” he said.

AWS gave News International early access to its DynamoDB cloud database service to power the access control system behind the publisher’s paywall, according to Taylor.

DynamoDB is a fast, fully managed NoSQL database service that makes it simple and cost-effective to store and retrieve any amount of data, and serve any level of request traffic. All data items are stored on Solid State Drives (SSDs), and are replicated across 3 Availability Zones for high availability and durability.

With DynamoDB, you can offload the administrative burden of operating and scaling a highly available distributed database cluster, while paying a low price for only what you use.

“That allows us to deal with over 45 million transactions per month from just two mid-size EC2 instances,” he claimed.

The Dutch central bank has also approved AWS as an outsourcing platform for the financial services industry, according to Amazon. Vogels also offered some predictions for future trends, including real-time analytics and use of encryption to protect data becoming routine.

“Analytics is still in flux. In the next two years, many prods will go real-time with feedback loops based on real-time analysis of data,” he said.

Meanwhile, Hadoop and MapReduce will become invisible, according to Vogels.

“Expect to see many layers built on Hadoop to make it more efficient and easier to use, with richer environments built on top of Hadoop and MapReduce.”

Vogels promised that customers can expect to see new encryption tools from AWS in the near future to help protect data.

“Encryption is going to be the most important tool to use in the coming years. You should be using it not just in the cloud, but also on-premise to protect your customers,” he said.

Innovation Types with cloud computing

A commonly held belief is that cloud computing—a utility model for computing capacity, software and business functionality—is a phenomenon whose value resides primarily in reducing IT costs. In fact, the flexibility that the cloud makes possible for infrastructures, services and processes means that it is also capable of driving significant innovation.

This is a key finding of new research from the London School of Economics and Accenture, based on a survey of 1,035 business and IT executives, as well as in-depth interviews with more than 35 service providers and other stakeholders.

The innovation trajectory of the cloud will be cumulative. Beginning first with technology and operational changes, its effects will then be felt at the business process level, changing the way companies operate and serve customers. It will be capable of delivering market innovations that enhance existing products and services, create new ones and enable entry into new markets. Finally, the cloud will support new ways of designing corporations themselves.

Reducing the friction: Operational innovation

One of the key ways that cloud computing supports operational and technological innovation is by moving an organization more briskly through the experimental or prototyping stages—or, as some of our interviewees put it, by “reducing the friction” of development. In a cloud model, companies acquire processing, storage or services when they need them, then can quickly decommission those resources when they are not needed.

Such a model supports “seed and grow” activities and faster prototyping of ideas. With traditional IT models, a decision to prototype a new system generally involves the procurement and installation of expensive hardware, with the associated checks and delays that conventional purchasing requires. Cloud provisioning, on the other hand, can be implemented rapidly and at low cost.

That means the cloud can also reduce the risks of operational innovation. Projects and processes that would have been too risky to attempt if they required a large capital investment become worth attempting if unsuccessful experiments can be decommissioned easily.

Language of the business: Process innovation

A distinctive feature of cloud computing is its ability to hide the technical complexity of solutions. The acquisition and deployment of IT becomes almost secondary. Companies are actually deploying a process or service, and that means business and IT executives need no longer try to communicate across a technology gap. They can speak a common language about what the business seeks to do and how it intends to do it.

Steve Furminger, group chief technology officer of global digital marketing agency RAPP UK, underscores this point by noting that the cloud is providing his company with the ability to produce solutions more rapidly without needing to be concerned at such a detailed level about how they are going to do it from a technical perspective: “Just a few years ago, that was a massive concern. Now we can almost forget the technology and just think in terms of what we want to do from a business perspective.”

To illustrate this point, consider an organization’s desire to innovate within its processes and technologies related to sales support—the ability to track contacts, manage and convert the sales pipeline, and generate revenue. With older models of IT solutions, a company would be restricted to particular packages or platforms—forced, in other words, to change its processes to match the software. With a cloud model, companies can think about processes at a level that is more detailed and personalized to their individual needs, but the solution will not need to be customized in older, prohibitively expensive ways. The company could provision a combination of software as a service for sales, along with an enterprise system or financial management system. Sales personnel could have access to specialized sales support over the cloud.

This ability to envision new combinations of cloud-based solutions and create new ways of performing end-to-end processes presents companies with new opportunities to be innovative in new-product development as well as in service and support.

Alignment of development cycles: Business innovation

Information technologies from their earliest days have represented enormous potential to deliver game-changing innovations. Although IT has become the lifeblood of the modern corporation, the path from point A (IT innovation) to point B (business value) has often been a tortuous one.

In part, this is because IT capability cycles and business demand cycles have rarely coincided. It has often taken up to 10 years for a new, major IT capability (client/server computing, for example) to be fully realized in terms of business value, while most businesses operate on near-term planning horizons. But the short development times made possible by cloud computing mean that business and technology have reached a fortuitous point in both cycles where they intersect.

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This alignment enables IT innovation to more effectively drive business innovation. Service providers must maintain constant relevance. As Tim Barker, vice president of strategy for Europe, Middle East and Africa of Salesforce.com notes, subscriptions or renewals are due every quarter or even every month. This supports the alignment of a company’s entire business to the success of that project and the success of the customer.

Although moving to the cloud may be disruptive to the existing IT function, it enables CIOs to have meaningful answers to board-level questions about the value being delivered by the current organizational IT environment, including how much it costs and how quickly new services can be provisioned.

The next phase: Innovation in business design

For especially forward-looking companies, cloud computing may provide a platform for radical innovation in business design—to the point where executives are actually provisioning and decommissioning parts of the business on an as-needed basis.

This is a step beyond software as a service or infrastructure as a service, and amounts to the offering of “business processes as a service”—configured business services and processes provided from the cloud. These would be assessed not just through typical service-level agreements but against key business performance indicators.

Although extremely promising in concept, the idea of adaptive business design heightens the importance of the integrator role. The traditional systems integrator would become, in effect, a business integrator charged with managing complex collaborations across a broader ecosystem of internal resources, partners, vendors and others. As business design or business architecture innovators, integrators would connect and manage business services in configurations that change as business needs and goals change.

Such collaborative, innovative relationships hint at a new agile and adaptive organizational form. Knowing what such a corporation might look like is difficult, but we can see glimpses of it by looking beyond the business community to the organization of particle physicists working at CERN on the Large Hadron Collider (LHC).

To make possible the staggering 15 million gigabytes of data that are being produced every year by the LHC’s experiments, there was a need to create a global organization of collaborators. More than 140 computer centers (each part of a university or research facility) work together to pool their processing resources into a grid computing infrastructure. A globally distributed platform–based on cloud technologies and run as a service—was developed. It is managed collectively by a loosely organized confederation of physicists and their data centers.

Organizational governance in this environment evolves to match the challenges and opportunities. The new organization connects the computer centers through loose memoranda of understanding and business processes, particularly around support, data analysis and technology upgrades. The bureaucratic hierarchies are limited in scope and power, and most work is achieved through collaboration among equals. This structure provides a kind of first look at how an agile, innovative global organization can be created when founded upon collaboration and shared cloud-based technology.

Some companies will perform better than others, of course, when it comes to harnessing cloud-based innovation. Organizational readiness will be key—that is, the ability of the corporate culture and leadership to recognize innovation-based opportunity and move quickly—as will implementation abilities. Above all, companies who are able to collaborate across a wider ecosystem of internal and external players will be at an advantage in capitalizing on the responsiveness and agility that the cloud delivers to the business.

 Infrastructure as a Service (IaaS) – Startups requiring the power only supercomputers can provide are able to deploy the resources of massive data centers without one dime in capital investment. With funding from family and friends, Animoto was started by a some young techies that worked for MTV, Comedy Central and ABC Entertainment who knew how to make professional quality video animations. Now their Cinematic Artificial Intelligence technology that thinks like an actual director and editor and high-end motion design bring those capabilities to anyone wanting to turn their photos or videos in to MTV-like videos. At one point, aside from some monitors and an espresso coffee machine Animoto had few actual assets. That’s because everything, including server processing, bandwidth and storage, is handled by cloud computing, a pay-as-you-use model. So when the Animoto application launched on Facebook, causing the number of users to soar from 25,000 to 750,000 in four days and requiring the simultaneous use of 5,000 servers, business carried on as usual. Without the ability to handle a spike like that, their business couldn’t exist. Meanwhile, it’s not just youngsters using IaaS. The New York Times processed four terabytes of data through a public cloud by simply using a credit card to get a new service going. In a matter of minutes it convert

ed scans of more than 15 million news stories into PDFs for online distribution—$240! Look, Ma, no New York Times IT infrastructure needed. Both Animoto and the New York Times observed new opportunities made possible in the Cloud, and acted decisively.
Platform as a Service (PaaS) – With PaaS, software developers can build or “mashup” Web software without installing servers or software on their computers, and then deploy those software applications without any specialized systems administration skills. PaaS service providers not only incorporate traditional programming languages but also include tools for mashup-based development, meaning that deep IT skills are not needed to build significant software. The implications for business innovation center on rapid development and rapid testing via multiple OODA Loops in the Cloud, making it possible to bring new products and services to market without the traditional 18-month IT development cycle or capital expenditures. Innovations that don’t pan out can be shut down, allowing a company to fail early, fail fast. Remember, innovation must allow for failure, else nothing really new is being done. On the other hand, innovations that prove successful can be scaled up to full Web scale in an instant. In short, PaaS takes traditionalIT software development off of the critical path of business innovation.
Software as a Service (SaaS) – With SaaS we are witnessing a huge shift from IT to BT (Business Technology). In the past, IT was about productivity. But now, BT is about collaboration, a shared information base and collective intelligence (the wisdom of crowds, social networking and crowdsourcing). SaaS is the delivery of actual end-user functionality, either as “services” grouped together and orchestrated to perform the required functionality or as a conventional monolithic application (e.g., CRM, ERP or SCM). The real driver for SaaS isn’t the traditional IT application; it’s the “edge of the enterprise” where business users require a flexible model to deploy new technologies to improve front-office performance. As a growing number of business units tap SaaS offerings without going through their central IT department, we have the advent of “Shadow IT.” The key significance is that while IT has a major role in the enterprise back office(transaction processing and systems of record), these new requirements are directly associated with “go-to-market” activities and will be subject to constant change via OODA Loops. These new requirements must be met very quickly for competitive purposes; some are likely to endure for only a few months; and their costs will be directly attributed to the business units consuming theneeded “services” and paying as they go.
Now consider operational innovation inside a huge company like GE blending both internal clouds and going beyond the firewall to reach out to suppliers in the Cloud. GE’s supply chain is huge, including 500,000 suppliers in more than 100 countries that cut across cultures and languages,buying up $55 billion a year. GE wanted to modernize its cum
bersome home-grown sourcing system, the Global Supplier Library, build a single multi-language repository, and offer self-service capabilities so that suppliers could maintain their own data. So did CIO Gary Reiner and team start programming? The short answer is “ no.” GE looked to the Cloud for a solution. GE engaged SaaS vendor Aravo to implement its Supplier Information Management (SIM) SaaS that would ultimately become the largest SaaS deployme nt to date. GE is deploying Aravo’s SaaS for
100,000 users and 500,000 suppliers in six languages. When GE goes outside its firewall toinnovate, you can bet that other CEOs will be asking their CIOs lots of questions aboutharnessing the Cloud for operational innovation.
BPM as a Service (BPMaaS) – Business Process Management (BPM) is what sets “enterprise cloud computing” apart from “consumer cloud computing.” Because the average end-to-end business process involves over 20 companies in any given value chain, multi-company BPM is
essential to business innovation and maintaining competitive advantage. Bringing BPMcapabilities to the Cloud enables multiple companies to share a common BPM environment and fully participate in an overall end-to-end business process. BPMaaS can be implemented as a“horizontal” Business Operations Platform (BOP) that has a Business Process Management
System (BPMS) at its heart. This is similar toPaaS, but rather than programming tools being accessed, the BPMS is being accessed for fu
ll process lifecycle management and specific process services such as process modeling and business activity monitoring. For example, using
a Business Operations Platform from Cordys, Lockheed Martin has deployed a Cloud-basedCollaborative Engineering systemto orchestrate the work of hundreds of subcontractors that have disparate product lifecycle management(PLM) and CAD/CAM systems. This represents
one of the world’s most complex enterprise computing environments now being addressed by
cloud computing. Meanwhile, Dell, Motorola, Boeing, Avon, Panasonic, IBM and othermultinationals use e2Open’s Business Network to provide complete demand and supply chain management in the Cloud.
Nowhere is the OODA Loop more applicable than in supply chain management, especially if you consider the massive disruptions that resulted from the tsunami in Japan or the need to bring newproducts and services to market with greatspeed. While BPMaaS can enable companies tomanage business processes more efficiently, it’s real business innovation impact is that it canalso empower entirely new business models that dynamically integrate demand-supply chain partners into virtual enterprise networks that offer compelling value to customers. Jasmine Young,a Facilitator at the Haas School of Business Institute for Business Innovation, summarized, “The Cloud is about leverage, the way credit is leverage in the financial industry. Businesses need to think about how they can leverage their suppliers and partners—and customers. And that’s how
the case toward innovation in the Cloud can best be driven.” By aggregating more and moreofferings for their customers, industry boundaries become blurred as smart competitors enter markets outside their primary industries. ExxonMobil is in the gourmet coffee business. Starbucks is in the Internet business. Wal-Mart is in retail banking. Microsoft is in the telephone businesswith its acquisition of Skype.
For now, let’s just leave it that all this OODA Loop activity happens in the Cloud, for it’s not Industrial Age assets that must be managed, it’s digital immediacy and the weaving of a digital tapestry among our customers and trading partne rs that counts in the 21st Century business innovation dogfights
Jason Stowe, founder and CEO of Cycle Computing, about his experiences as an entrepreneur who built his business on the cloud and offers the chance for others to do the same is as follows. Cycle delivers high-bandwidth supercomputer capabilities to scientific, engineering and technical firms — many of which are startups.  “Any size organization can now tap into supercomputing power, from big companies to start-ups to individual researchers,” he says. He even coined a term for what his firm is offering: “utility supercomputing.” Essentially, thanks to cloud, Cycle can make supercomputing power available to the masses.And lots of startups and small businesses are taking advantage of this relatively new cloud resource.  Stowe gives examples: a chip design firm runs simulations of its digital circuits on his firm’s CycleCloud clusters. Researchers at a bioinformatics start-up use Cycle’s cloud to index and query genomics data to help fight disease. A young, up-and-coming scientific instrument company uses Cycle’s clusters to process the high volume of data that comes off their products.“In these cases, start-ups can focus on their core-competency while still accessing a supercomputer that only Fortune 100s could build and operate before,” says Stowe.  Many of the startups he works with would not have been able to get off the ground without cloud offerings such as that Cycle is offering. “Science-heavy start-ups would require much larger capital investments to get off the ground if they didn’t take advantage of cloud and utility supercomputing offerings,” says Stowe. “For example, 30,000-core cluster for top-five pharma would have cost $5 to $10 million and about six months to build.”  With Cycle’s cloud offering, the project took eight hours to implement, at a cost of about $10,000.

Cloud Computing Now Makes It Easier (and Cheaper) to Innovate: Study

 It’s the new mantra of organizations large and small as they attempt to navigate and get the upper hand in today’s hyper-competitive and unforgiving global economy.

But innovation is not cheap. It can be extremely risky, since  a relatively small percentage of innovations actually deliver results in the end. The challenge is trying to figure out where to invest wisely, and which innovation is the potential winner. The natural reflex in the business world has been to avoid going overboard with innovation, since it means sinking considerable time and resources into ideas that don’t get off the ground.

However, cloud computing technology may be clearing the way to turn formerly hidebound businesses into innovation factories.  That’s because it now offers a low-cost way to try and fail with new ideas. In essence, the price of failure has suddenly dropped through the floor. Failure has become an option.

A recent survey of 1,035 business and IT executives, along with 35 vendors, conducted by the London School of Economics and Accenture, has unearthed this new emerging role for cloud computing — as a platform for business innovation. Many people these days still see cloud within it’s information technology context, as a cheaper alternative for existing systems. But this may only be the first and most obvious benefit.

The study’s authors. Leslie Willcocks, Dr. Will Venters and Dr. Edgar Whitley — all of the London School of Economics and Political Science — identified three stages cloud computing moves into as it’s adopted by organizations:

1) Technology and operational changes. The one-of-one exchange of traditional applications and resources for those offered as services through the cloud — such as Software as a Service.

2) Business changes. Altering the way companies operate and serve customers, such as enabling faster service, faster time to market.

3) New ways of designing corporations themselves. “For especially forward-looking companies, cloud computing may provide a platform for radical innovation in business design—to the point where executives are actually provisioning and decommissioning parts of the business on an as-needed basis,” the study’s authors observe.

It’s in that third phase where things get really interesting. Cloud computing, the authors point out, enable companies to quickly acquire processing, storage or services as needs dictate. They can just as quickly shed those resources when a project is completed. As a result, companies with more advanced cloud sites are able to rapidly move through experimental or prototyping stages:

“Such a model supports “seed and grow” activities and faster prototyping of ideas. With traditional IT models, a decision to prototype a new system generally involves the procurement and installation of expensive hardware, with the associated checks and delays that conventional purchasing requires. Cloud provisioning, on the other hand, can be implemented rapidly and at low cost.”

An example, cited in the study, is an effort to innovate within processes and technologies related to sales support—for example, tracking contacts, managing and converting the sales pipeline, and generating revenue. Change would be difficult, if not impossible, for processes locked into traditional on-site IT systems. Consider the possibilities with cloud:

“The company could provision a combination of software as a service for sales, along with an enterprise system or financial management system. Sales personnel could have access to specialized sales support over the cloud. This ability to envision new combinations of cloud-based solutions and create new ways of performing end-to-end processes presents companies with new opportunities to be innovative in new-product development as well as in service and support.”

A couple of years back, Erik Brynjolfsson and Michael Schrage made similar observations about technology’s promise to lower the costs and risk of innovation in an article in MIT Sloan Management Review. It’s all about the power of online real-world simulations and samplings, which reduce the cost of testing new ideas to pennies. For example, with a Website, “companies can test out a new feature with a quick bit of programming and see how users respond. The change can then be replicated on billions of customer screens.” This capability can be extended to supply chain management and customer relationship management systems as well.

Implementation of new ideas is blindingly fast, Brynjolfsson and Schrage stated. “When a company identifies a better process for screening new employees, the company can embed the process in its human-resource-management software and have thousands of locations implementing the new plan the next morning.” Brynjolfsson and Schrage also predicted that thanks to technology, many companies will shift from conducting two or three real-world experiments to 50 to 60 a year.

“Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago,” they said.  “Innovation initiatives that used to take months and megabucks to coordinate and launch can often be started in seconds for cents.”

We’ve already seen the impact of technology to shave tremendous time and costs in such areas as energy exploration and engineering. But now the ability to quickly test and deploy new innovations is available to all types of businesses. Add the ability to provision those workloads to on-demand cloud resources, and a huge weight — in cost and risk — has been lifted off innovation.

Over the past several months, Forbes has published a number of pieces in this space about Oracle’s adventures in the wild, wild world of cloud computing.  They have touched in the business value the cloud can create, the profound impact the cloud is having within companies and across entire industries, and the vast potential the cloud offers for liberating IT dollars to fund innovation.

The cloud and its potential to help companies shift their IT spending away from infrastructure and integration and toward innovation, revenue growth, and customer engagement. Unless CIOs and their colleagues can get this IT-spending ratio under control, their companies will be unable to fund innovative new initiatives, and their ability to compete will decline. And cloud computing is the best way to begin attacking that problem.

The Cloud Revolution and Creative Destruction.  That’s the central issue: what customers are doing with cloud solutions, how they’re able to free up more funding for growth and innovation, and how they’re able to adapt more rapidly and effectively to life in our customer-driven world. They ’ll begin to see the real the real creative-destruction power of the cloud unleashed when  they begin to define the cloud in terms of what business customers want and need, and when stop diddling around with inside-baseball constructs that mean little or nothing to the businesspeople who are ready to spend many tens of billions of dollars on cloud solutions that focus on and deliver business value.”