Spotting the Next generation ...

For the best part of a decade I've worked on how business activities evolve from genesis through to products to commodity. As activities evolve then practices (such as management methods) that are applied also have to change which is why one size never fits all.

I've also demonstrated how this process of evolution creates a cycle, with commoditisation enabling further genesis (as in innovation of new activities) and the importance of inertia barriers in regulating this cycle.

These cycles also appear at the macro-economic scale and they're known as Kondratiev waves, however even more localised cycles (i.e. specific to an industry) tend to be associated with organisational change.

Hence with the commoditisation of the means of mass communication (i.e. the internet), new forms of organisation appeared known as Web 2.0. These companies had different activities, practices, strategies and structure to the more traditional, enterprise organisations that existed before.

In general terms, this cycle of evolution and its interaction with inertia barriers creates three economic eras - peace, war and build. During the peace era, sustaining change is particularly high, companies fight to maintain their relative position and inertia barriers to change help support the status quo.

The war era occurs when an activity evolves from one state (such as products or rental services) to another (such as commodity or utility services) and during this time disruptive change dominates whilst inertia barriers become a hindrance to survival. Companies literally are fighting to survive, often against their own internal culture and inertia to change.

So during the last IT war, caused by the evolution of the means of mass communication, these new web 2.0 organisations formed and the rate of disruptive change was high. Those traditional, more enterprise like companies that were impacted but survived the war had adapted and learnt many of the lessons of web 2.0. Today, social networking, social media, rich internet applications are the norm.

However, cloud computing - which is nothing more than the evolution of a wide range of activities from products (and rental services) to commodity (and utility services) - has initiated a new era of war.

The models predicted (and this is what we found) that there are three main forms of IT organisation in the wild - the traditional enterprise who have adapted, the web 2.0 players and a new breed of Next generation companies. The practices, activities, strategies and organisational memes of these Next generation are the ones which will tend to diffuse and dominate our industry.

The underlying framework, models and principles of how this works is part of a report I'm finishing for the LEF. Including in-depth surveys of over a hundred companies, it provides a reasonable hypothesis of organisation evolution across activities, practices and strategies. I say reasonable because it's more than postulation as there is data that demonstrates the pattern but this is not peer reviewed, the sample sizes are small and hence its only a reasonable hypothesis and requires a good dose of scepticism.

I'm not going to go through the report but I thought it might be useful to just comment on how to identify the Next generation in general terms.

If your organisation :-

• embraces change and is acutely aware of inertia barriers
• has primary goals based upon disruption of existing markets and growing ecosystems rather than a focus on profitability and growth into emerging geographical markets
• views commoditisation not as a liability but an opportunity
• operates through small, highly empowered teams building and creating services
• builds and exploits ecosystems by enabling others to build upon its services
• uses data analytics rather than metrics to determine action
• continually challenges and removes processes
• understands evolution and avoids one size fits all mentality
• builds distributed systems designed for failure that use commodity IT where possible
• considers itself to be as, if not more, efficient than Amazon
• games behaviour both internally and externally
• views culture as malleable and focuses on talent density
• views open source as a tactical weapon
• is seen by others to be simultaneously highly innovative, customer focused and efficient despite what Porter said on the subject

... then you're Next generation. If this isn't you, you're not. If you're not, then just hope this war doesn't stretch into your industry or that IT isn't a major barrier to entry into your space or this hypothesis is completely wrong.

I've provided a comparison between the traditional enterprise and the next generation in the following table.

Along with retail, media, travel firms and others who have already suffered in the last war - we should see software products & hosting, insurance and retail banking dragged firmly into this one.
Of course, along with this war era comes a build era, a golden age where the genesis of new activities flourishes and we see periods of frenzied growth.

The cycle is continuous, and the next major war after this one should be related to the commoditisation of the manufacturing process itself ... now, that'll be a big one. For me, this is personally important as it creates an opportunity to test the hypothesis.

What we should see as the means of manufacturing becomes more of a commodity (driven by 3D printing, printed electronics and hybrid printers) is a high degree of disruption in manufacturing industries as inertia barriers to change are broken by new entrants whose practices will be remarkably different from the existing players. The practices of these Next Next generation of company will diffuse and become the norm.

If this hold true, then I'll have enough to finally put the work up for peer review - having initial data (covering 4,000 data points), a hypothesis which describes a pattern from that initial data and has been preliminarily shown to exist in this current war through a survey (providing in total over 6,000 data points across 100 companies) and finally a pattern which is predictive.

If it doesn't and is falsified then it's back to the drawing board. The downside is I'll have to wait many years (possibly as much as a decade) before the next war starts ... if only companies were more like bacteria that I could grow in a lab.

Strata Conference

The O'Reilly Strata Conference NYC has now finished and I have to say it was a blast. The standard of speakers, corridor chat and the general environment was exceptionally high. If you're interested in speaking, they've already opened up the request for proposals for the Feb'12 event, so get writing.

There was something magical about the event in NYC created by a convergence of people, technology and ideas. I haven't seen a conference with this much buzz and excitement since ETech. You can guess that I was truly impressed, it was O'Reilly at its finest and that's a tall order given the very high standard of their conferences. If you missed the conference, then you can find many videos from the event on the O'Reilly channel.

I was also fortunate enough to be asked to speak, the video of my talk is below. In my session I covered commoditisation, innovation and the role of big data by examining some of my new research into the evolution of organisations. As per normal, the title of the talk is my usual Situation Normal, Everything Must Change and the talk itself is different from any other previous example i.e. the title applies to the talk itself.

By the way, if you have enjoyed my talks and you're interested in helping out with my research then please take 20 minutes to complete my online survey, as that would be really appreciated.

OSCON 2010: "Situation Normal, Everything Must Change"

The abuse of innovation.

Innovation is a term which is widely abused and this abuse prevents us from seeing patterns in how business activities evolve.

It is difficult to see what changes when everything is called an innovation in the same manner that it's difficult to see the difference between commodification (assignment of economic value) vs commoditisation (shift from imperfect to perfect undifferentiated competition) because of the catch-all nature of the term commodification (i.e. it's used to mean both).

Take for example the utility provision of computing infrastructure (as per Amazon) - is it an innovation?

When it comes to computing infrastructure, the innovation of modern computing probably started with the Z3 in 1941. This act of innovation created an entirely new class of activity - computing infrastructure - which has evolved over time through various stages with custom built examples (LEO etc), products (IBM 650 and onwards) and eventually led to commodity and utility provision. For reference, the full cycle is innovation, custom built, product (with rental services) and commodity (with utility services).

Two things should be noted, firstly that the pathway of evolution is common for activities (and knowledge) though it's not a time based sequence. Secondly, the innovation of the Z3 created a new class of activity rather than evolved an existing class (as with the first phone, the first radio, the first ...)

When it comes to the shift from products to utility, this simply represents an evolution of an activity and not the creation of a new form i.e. infrastructure existed before Amazon. However, it is perfectly true to say that this evolution enables (through creative destruction) and accelerates (through componentisation) the innovation of higher order systems i.e. as infrastructure has evolved we've seen an explosion of innovation in big data, mash-ups etc. This is perfectly normal as commoditisation (the common term used to describe this evolution) creates a cycle with innovation.

So, we have a difference between innovation of a new activity and evolution of an existing activity - both of which we unfortunately call innovation.

To complicate matters there's also the consumer and provider perspective. Whilst electricity is a commodity provided through utility services to consumers, behind the interface (the plug) has been a world of innovation of novel activities (wind farms, solar power, geothermal etc) aiming to create some form of operational advantage. However, it is worth noting that this provider innovation doesn't suddenly turn a consumer commodity into an innovation.

Finally we have terms like sustaining and disruptive innovation. As an activity evolves, in many cases changes to the activity (such as feature differentiation in the product stage) are sustaining and occasionally they are disruptive.

When an activity evolves across a boundary i.e. shifts from products to utility services (as with cloud) then this shift is generally disruptive because the incumbents have huge inertia to the change caused by their past success in the previous stage of evolution (i.e. product or rental vendors).

So the pattern we have is :-

1. Innovation of a genuinely new activity which is distinct from the evolution it enables.
2. Evolution of an activity to custom-built, product (rental) to commodity (utility services). This process is commonly called commoditisation.
3. Sustaining changes dominating within domains (i.e. product)
4. Disruptive changes dominating between domains causing a discontinuity with the past (i.e. product to utility services)
5. Enablement and acceleration of the innovation of higher order systems through commoditisation of lower order subsystems (i.e. creative destruction and componentisation)
6. A difference between consumer and provider perspective.

Now, the problem with the abuse of the term innovation is we end up with :-

1. Breakthrough Innovation
2. Feature, Product and Service Innovation
3. Sustaining Innovation
4. Disruptive Innovation
5. Loads of Innovation (paradigm shift etc)
6. It's my product, of course it's an Innovation ...

We normally shorten this to Innovation, Innovation, Innovation, Innovation, Innovation and Innovation.

Or in other words Innovation.

You have no hope with spotting the pattern under such circumstances and it's no wonder that people get confused with this subject. This has severe impacts on management practices but that's a post for another day.

As for Amazon's EC2, it represents an evolution of an existing activity which is disruptive, will enable breakthrough innovation of higher order systems and for the provider has probably involved a mix of different types of innovative pursuits in operations.

I hate to give up on words, however "innovation" has become so widely abused as to be meaningless. For the future I'm tempted to use the word "Genesis" to describe the creation of a new activity and to put "innovation" in my book of pointless words along with "Cloud" etc.

Hosting Con Keynote

I was very fortunate to be asked to give the opening keynote at Hosting Con 2011 covering commoditisation, business evolution, leadership and what the various tactical plays in the cloud computing space mean to hosting companies. The audience was fantastic, I had a great time and despite using excessive numbers of slides, no-one was hurt in the process.

Continuing on the theme from my OSCON tutorial, I've uploaded a summary set of slides which are highly condensed but give a taster to what we covered.

Alas, there's no video and as per usual I'm six years into writing my book and around 30% of the way there. The subject matter keeps on giving me more areas of interest to explore, so don't hold your breath for me to finish any time soon.

Summary of Hosting Con 2011 keynote

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OSCON Tutorial

I gave a three hour tutorial at OSCON on innovation, commoditisation, business evolution, organisation, leadership and various tactical plays in the cloud computing space. The talk was a blast, I really enjoyed it and judging by the feedback it hit some home runs with many of the audience.

However, the presentation is 1,041 slides long and so - I'm not uploading that or creating a video. Instead I've made a summary presentation which covers the main points.

Be warned, it's highly condensed.

Situation Normal Everything Must Change

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Is Microsoft's biggest enemy … Microsoft?

Last year at OSCON, I examined mechanisms by which a company could use technology evolution to disrupt an existing player with minimal fear of retaliation. To quote myself :-

"it's the incumbents existing model which will protect you"

This year at OSCON, I'll be giving a three hour tutorial which will explore the entire subject of organisational warfare in far more detail. To give a taster of what is to come, I thought I'd expand upon some of the reasonings behind the above statement.

Anyone who has been following my public presentations over the last seven years or has been exposed to my exploration of this subject over the last decade+ will be well versed in much of this practice. For those uninitiated in this field, I'll start with some basics.

All business activities evolve through a common lifecycle and Cloud Computing is simply an example of this. Unfortunately, whilst we know how things will change, we cannot say when. The pattern of evolution is independent of time which is why the lifecycle graphs that I use have no time axis. But then they could never have a time axis, the future is an information barrier we cannot see past.

Fortunately, there are also barriers to the process of evolution and these give us a sense of when things will happen. In order for an activity to evolve from the domain of products to that of utility services then the following four factors are required - concept, suitability, technology and change in attitude. These factors are our "clue" that change will happen.

So we can predict how things will change, just not when - at least not with any great accuracy.

As any business activity evolves along its lifecycle its characteristics change from more chaotic (e.g. appearance of constantly changing, highly uncertain) to more linear (e.g. appearance of being defined, predictable, measurable). Using this change of characteristics we can develop organisational models which cope with evolution. An example of this is the Innovate-Leverage-Commoditise (ILC) pattern which can be found with many cloud companies.

So we can predict what will happen and though we can't predict precisely when, we can design an organisation around evolution.

There are two tactical plays that I'd like to discuss which can be used in such an environment. The first is around creative leadership, think Steve Jobs' Apple. The other is around disruptive leadership for which the best example would probably be Amazon.

Amazon is a company which rarely seems to create a new activity but instead specialises in commoditising activities and disrupting existing players. Infrastructure existed before EC2, book distributors existed before Amazon.com and the paperback existed well before the kindle. Amazon is extremely good at the disruption game.

To illustrate this disruption play further, figure 1 provides a rough tactical map of Salesforce. Whilst the incumbents are firmly entrenched in the product world for provision of CRM (& sales automation), Salesforce has commoditised this activity through provision of a standardised service. It also appears to be operating an ILC pattern i.e. core services around which a growing ecosystem is used to encourage innovation and identify new successful patterns which are then subsequently commoditised to core services - hence innovate, leverage and commoditise. This model is little different from Amazon's play in the infrastructure space.

Figure 1 - Tactical Map of Salesforce (click on image for higher resolution)

On closer inspection, Salesforce seems to be doing more than just commoditisation with an ILC pattern, as can be clearly seen from Radian's 6 acquisition. They also seem to be operating a tower and moat strategy, i.e. creating a tower of revenue (the service) around which is built a moat devoid of differential value with high barriers to entry. When their competitors finally wake up and realise that the future world of CRM is in this service space, they'll discover a new player dominating this space who has not only removed many of the opportunities to differentiate (e.g. social CRM, mobile CRM) but built a large ecosystem that creates high rates of new innovation. This should be a fairly fatal combination.

But, how is Salesforce able to get away with this? Why was it that Amazon and not a hosting company created this future world of infrastructure provision? The answer would appear to be … inertia.

The existing players in the CRM world are stifled by their very own success in the product world. This past success creates an inertia barrier to change. Whilst the causes of the inertia barrier can be traced back to the early stages of a companies formation, by the time a company is of a reasonable size it is often embedded in the organisation, culture and reinforced by external financial markets. Figure 2 provides an overview of this.

Figure 2 - Causes of Inertia (click on image for higher resolution)

So, back to the question about Microsoft. Whilst Microsoft is now making some strong moves into the service world, the problem for MSFT is this space is being even more aggressively commoditised through open plays. Whether it's VMware's necessary play into open source platform with CloudFoundry or the Openstack attempt to out-commoditise Amazon's out-commoditising of the existing industry.

Both efforts attempt to exploit the natural end state for ubiquitous and well defined IT activities i.e. good enough components provided through a marketplace of providers based upon common open source reference models. Both efforts will seek to create higher order revenue streams such as assurance, exchange, marketplaces and brokers alongside the normal business of being a service provider. 

Whilst MSFT has made much of a fanfare about its recent moves into the cloud, it was a probably a significant internal battle for MSFT just to make the change from products to services. However, this new world is likely to be rapidly commoditised to marketplaces based around open source and hence the real question becomes whether MSFT will be able to make the further change necessary to survive in that world?

Microsoft's future business should be intertwined with open source in the domain of utility services. Unfortunately, the last group of people who are usually willing to accept such a change are those who have built careers in the previous domain e.g. products. The bad news for Microsoft is that group probably includes a large chunk of its own organisation. Hence Microsoft itself is probably its own greatest threat to future survival.

Or as the great Bill Gates once noted:-

"Success is a lousy teacher."

That's one of those basic lessons which often gets forgotten in business. In this world of competition, there are two fronts to fight on. The external front includes those competitors who attempt to either gain a creative leadership position or to disrupt your existing model. The other front is internal and against your own past success.

Which is why in my latest research I've been looking into the web 2.0 world to see if we can't find techniques, strategies and methods for managing IT and the business more effectively in a continually changing world. Of course, I already know that there exists significant competitive advantage in organisational design and the application of cybernetic management as was demonstrated through my successes, failures and experimentation with Fotango during '01-'07. The real question for me is how widespread have equivalent practices become and who is pushing the envelope with culture, organisation, ecosystems and a complex adaptive approach?

-- Update 25 August 2013

Some two and bit years later, the New York Times has published an article on "Needed at Microsoft: A Catch-Up Artist".  The article talks about how “Microsoft does have a financial problem, and it’s been the fear of losing those massive profits from Windows and Office” i.e. inertia and goes on to propose they need a catch-up artist. 

When I wrote the above post in July 2011, these concepts and how to play them had been well established for many years (I personally had used the inertia of competitors as an advantage in Fotango in 2005 and Canonical in 2008).  Inertia is of course, highly problematic if a change is unpredictable (e.g. a change in value networks such as cable versus hydraulic excavators) and this will often lead to what is called "Disruptive Innovation".  However, corporate inertia is more than solvable if you are aware that a highly predictable and inevitable change is going to hit you. 

What I've subsequently discovered is that most companies don't seem to be aware of highly predictable changes and are often disrupted by things which shouldn't disrupt them. Yes, these changes get lumbered under the term "Disruptive Innovation" but in reality they are a class of highly predictable changes which were defendable against.  Cloud computing is an example of this.

Being disrupted by cloud (something which was predicted back in 1966) and was screaming loud in terms of weak signals in the early to mid 2000s is pretty shocking.  This is an issue beyond inertia (and denial) and it is better described as corporate blindness. 

From my experience, corporate blindness is fairly rife. The impact can be reduced through mapping of a landscape or other mechanisms to improve situational awareness especially when combined with some understanding of economic play.  Whilst I like the NYT article, in today's competitive landscape just being aware of inertia and that your own success inhibits your future survival isn't going to enable you to compete against some of the tough players out there.

Oh, and don't get me started on OpenStack.

-- Update 12th February 2015

Microsoft seems to be really turning the corner, they've increasingly adopted a more open route and seem to be overcoming inertia. This is fabulous to see. They've a top notch CEO in Satya Nadella.

Tim Cook has done a tremendous job with Apple, rebalancing it to a more ecosystem focused future. Truly exceptional CEO in my book and up there with Jeff Bezos.

Oh, and don't get me started on OpenStack. What a wasted opportunity.

Open source as a tactical weapon, VMware's latest move.

All business activities evolve through a common lifecycle and we're currently witnessing a shift of many IT related activities from a product to a utility service world. This is commonly referred to as "the cloud". This transition brings benefits, risks, different methods of operating but also impacts the tactical plays in the great skirmish between companies. There are two models of tactical play which are particularly noteworthy - ILC and Tower & Moat.

In my previous LEF post, I discussed the innovate, leverage and commoditise (ILC) model that seems to be naturally appearing in companies such as Salesforce. To summarize, it is a technique by which a company uses a surrounding ecosystem to not only reduce the cost of innovation but to encourage innovation and rapidly identify success. By acquiring and providing such innovations as common services, a virtuous circle can be created.

A second model is the tower and moat. The principle here is to defend a revenue stream (the tower) by creating a moat devoid of differential value with high barriers to entry around it. By way of example, Salesforce created its own tower around provision of CRM as a utility service in a world where CRM was generally provided through customisable products or rental services. As barriers to entry into this new field were eroded (i.e. Amazon enabling widespread access to utility infrastructure) then new barriers were created through the acquisition of platform technology.

Whilst product based competitors attempt to differentiate themselves with activities such as social CRM, Salesforce acquired such activities with the view of providing common services. The net effect is this eliminates the differential value of social CRM and helps establish a moat. Salesforce has been extensively using its ecosystem (an ILC model) to identify and acquire a wide range of potential differentials and further strengthen its moat.

When competitors finally move to a cloud model then they will find the space inhabited by a large player with a large ecosystem and few opportunities to differentiate - a reasonably fatal combination. Both ILC and the Tower & Moat model are powerful tools which can also be used to counter competitors. They can be used together, or individually or combined with other tactical plays such as open source.

Take the case of Apple vs Android : whilst the iPhone is not one activity but a device describing many activities, Google has effectively created an ecosystem around Android which provides a means of identifying and accelerating innovation in this field whilst reducing costs. By providing the system as open source and creating a hardware ecosystem, then Android has effectively removed much of the differential value that Apple might have sort. Apple would appear to have been pushed into a high risk, stand alone innovation game against a broad ecosystem.

Take the case of cloud infrastructure : we've already seen Rackspace & NASA move to create open source software - the OpenStack project - to provide infrastructure as a service. Their vision is to create a competitive marketplace of computer utilities around OpenStack. Such a world plays to Rackspace's strength of service delivery as a utility provider but also fits with NASA's goals of increasing efficiency of infrastructure. The ecosystem around openstack should encourage rapid innovation and if successful will create the standard that a competitive marketplace depends upon. It will also drive out differential value in this space making it tough for new competitors or those with a proprietary offering. I say 'should' and 'if' because I have real concerns over the differentiation from Amazon idea.

Take the case of large scale infrastructure: into which Facebook has announced the OpenCompute project and in effect open sourced how to create large scale data centres. This should over time help eliminate differential value that such knowledge created and whilst beneficial to the future computer utility world it will also help to undermine those for whom such skills have acted as a barrier to entry into their industry - namely massive scale search engines and data processors.

Take the case of healthcare: which has seen the VA (Veterans' Association) create an open source electronic health record system from VistA. It seems clear that the VA are focused on encouraging innovation through ecosystem effects and creating a marketplace of competitive providers. Visions of a worldwide standard are not beyond the realm of reason.

Take the case of platform as service into which VMware has announced an integrated set of open source platform components known as CloudFoundry. If successful and there's every reason to believe it will be then VMware will succeed in creating a huge moat devoid of differential value in the platform space and a vast ecosystem driving this. Any would be competitors will face an uphill struggle to compete against VMware's effort. Those planning proprietary platform offerings should take note of this move.

But wait ... where's the tower?

The beauty of creating a competitive marketplace of utility service providers is that it opens up a huge range of opportunities from service provider, support, assurance, brokerage, exchange, marketplace and a dozen more. Being at the heart of this, which is where VMware will be, means they are well positioned to take advantage. It's a bold move, perfectly timed and well executed.

Of course, CloudFoundry has already been made to run on Amazon EC2 which means CloudFoundry on OpenStack built on an environment designed around OpenCompute can't be far behind.

The world of IT is changing and many IT activities have become suitable for provision through utility services. With this change comes tactical plays designed to take advantage of this shift. At the OSCON conference in July 2007, I stated that in this future utility world open source was the only way of effectively competing. Time will tell but the increasing drive towards open source and its use by major companies as a tactical weapon seems to be pointing that way.

Smart move by VMware, it'll certainly shake up the industry.

--- Update 5th May 2014

Most is proceeding as expected. Bizarrely SAP / Oracle just seem to be waking upto the threats ... a bit too late. Unfortunately also OpenStack continued its differentiation play and the market never formed. Cloud Foundry however is storming ahead. Apple is starting to look weak vesus Android whilst OpenCompute gathers momentum.

Preparing for war

Following on from my post on ecosystem wars, I thought I'd discuss some techniques and tactics to use. However, before I do, I need to first describe the organisation that I hope you work for. If this doesn't describe you and your organisation then the techniques and tactics probably won't make sense and I can save you the trouble of reading the next post.

Once again, my apologies to regular followers or attendees of my presentations, this post is just scene setting and so it runs the danger of teaching grandma to suck eggs.

I'm going to assume you're battle hardened, you realise that business is all about warfare and you've got a keen eye for competition. You've probably done a stint in the typical organisation, scratched your head over some of the practices and ultimately found yourself in a new sort of company (possibly created by you).

You understand what an organisation is. Rather than making the mistakes of the past and simply grouping people, activities and methodologies into generic structures such as IT, Finance, Marketing - you've taken the time to look. You may well have profiled your organisation (see figure 1) and identified those activities you consume, those activities you sell and those activities which act as barriers to entry into your industry.

Figure 1 - Profile (click on image for higher resolution)

You know the importance of ecosystem and how this can both accelerate innovation and reduce your risks. You might be using a model akin to ILC (innovate, leverage and commoditise) to grow and keep a vibrant ecosystem around your products and services (see figure 2).

Figure 2 - ILC model (click on image for higher resolution)

You know full well that methodologies have to change with lifecycle because characteristics do and how activities are interconnected (see figure 3 & 4). One size never fits all isn't effective hence you don't engage in the typical debates of this vs that, agile vs six sigma, push vs pull - you know you need both.

Figure 3 - How Characteristics Change (click on image for higher resolution)

Figure 4 - How Methodologies Change (click on image for higher resolution)

You also recognise that not everyone is the same, you have different types of people :-

• Your pioneers are feverishly imaginative, often chaotic in nature, constantly exploring and they create the crazy stuff. They work on a cadence of weeks, maybe months and they fail often and miserably but they're never afraid to experiment. They want to push things out there, they're infectious, they can even be hazardous. They're not a "safe" pair of hands but you don't want them to be. Every now and then they create your future source of competitive advantage, though you don't know it until it starts to be adopted by the wider ecosystem. They are your Da Vinci's.


• Your town planners build the core of your company and the components which your pioneers develop upon. They build the solid, useful and beautiful and they're obsessed with getting things better, faster, more efficient and more reliable. They're meticulous, methodological and geniuses who hide worlds of complexity behind standard interfaces. They're ultra reliable, your "safe" hands and they work on a cadence of months, even years. They provide the operational efficiency which you can use to bury your competitors. They are your rock, they are your Vitruvius'


• In between, you've got your settlers. They watch the landscape, your competitors and spot the patterns which are going to either disrupt an existing revenue stream or reduce some barrier to entry. They constantly take innovations away from the pioneers and force them to move onto the next thing. They'll drive that innovation into the wider ecosystem, spin it out or fail it fast where necessary. They adapt to the changing environment and adopt what's growing. They've always got their eye on pushing a growing trend towards the town planners. They listen to the ecosystem and whilst they don't create the future or build the cities, they play the games of tactical warfare which are so essential to survival. They are ruthless to your competitors, nurturing to your own ecosystem and you're just glad they work with you. They are your Machiavelli's.

You probably identify yourself with one group and you could probably have read down the list of your employees naming which group they belong to. You didn't have to, they told you.

You've long given up on trying to create departments with a mix of Da Vinci's, Machiavelli's and Vitruvius' and listening to the constant arguments within those departments about how to best run IT or whatever they're assigned to do. You understand they won't agree, they never will.

You understand that outsourcing a department may get rid of the arguments but you'll end up removing sources of competitive advantage. It's better to let the town planners outsource those activities that can be removed.

You've given up making speeches about the need for innovation or efficiency, you know you need both. You've also realised that you need to nurture both pioneers and town planners to do this and you have to let them use the tools they need to get the job done. You understand those tools are different. One size fits all seems a long distant and best forgotten memory.

Hence you've probably decided to structure yourself around change and have groups like pioneers, settlers and town planners - though you'll call them something else. You've probably discovered the alignment issues between your old groups was an artificial construct of how you organised yourself. You've probably also realised the importance of the settlers in managing change and wondered why you didn't do this before.

You've almost certainly realised you want the best Da Vinci's, Machiavelli's and Vitruvius' to compete and hence focus almost religiously on high levels of talent and acquiring the best, no matter where they are in the world. You remove any and all unnecessary vestiges of the old world - expenses, timesheets, standard company laptops and so forth and instead have instilled a culture of respect.

You're going into a war. You want your people fighting and you want them to have the tools they need. if you can't trust your people to fight on your side then you don't want them. Your management reflects this, your organisation reflects this, your people reflect this. It feels vastly different from the old ways you remember.

If this is you, then the next post on tactics will make sense and we can go on to explore some of the actions being taking by the big players in our ecosystems.

Ecosystem wars

Back in 2005, I started to talk publicly about lifecycle concepts and the importance of ecosystems. In the next two posts, I'd like to draw a line in the sand and cover those basics of ecosystem one last final time.

I'll take the liberty of assuming notions such as lifecycle, organisational profile, componentisation and consumerization are universally understood and start with an explication of what a business is.

What is a Business?

A business is a living thing, comprising a network of people, a mass of different activities, and reserves of capital including financial, physical, human and social. It consumes, it produces, it grows and it dies. Like all organisms, any business exists within a number of ecosystems in which it competes and co-operates with others; it’s shaped by and shapes its environment, and hence needs to adapt constantly merely to survive.

People come and go, activities change, and hence all firms are in a constant state of flux. In any industrial ecosystem, new activities (innovations) are a consequence of competition and those that are useful will diffuse throughout the ecosystem becoming more of a commodity. This constant change creates a paradox, identified by Salaman and Storey:

”Survival requires efficient exploration of current competencies and ‘coherence, coordination and stability’; whereas innovation requires discovery and development of new competencies and this requires the loosening and replacement of these erstwhile virtues.”

These two extremes of survival (today and tomorrow) have diametrically opposite concerns, and the techniques, tactics and methods needed to manage each are entirely different. Those who manage organizations are therefore caught on the twin horns of a dilemma: how is it possible to be standardized and efficient as well as innovative and new, without prejudicing your survival - either today or tomorrow?

The effects of this on business can be seen in the constant restructuring to cope with new paradigms, and in the yo-yoing of popular management theories between opposites in a scramble to maintain order. A more effective balance can be found through embracing both goals simultaneously.

How do we balance both goals?

This requires a rethinking of how we organize, and a realization that what really matters is not innovation or efficiency per se, but how we continuously manage the path between the two. To explain why this is the case, let us examine a typical profile of an organisation (see figure 1) and consider how we build systems for the future.

Figure 1 - Using profile to build systems (click on image for higher resolution)

First, let us take those cost of doing business activities which act as underlying components of other business activities such as payroll, computer infrastructure, authentication etc. All of these activities are linear, well defined, ubiquitous and suitable for provision as standard re-usable components through utility services. Such an approach will increase our agility, rate of innovation (componentisation effects) and reduce the cost of gambling for any innovative activities built upon these utility services.

However, it is important to understand that all innovations (i.e. those activities which are uncertain and rare) are a gamble and whilst we can reduce costs we can never eliminate it. The future value of something is inversely proportional to the certainty we have over it, we cannot avoid this information barrier any more than we can reliably predict the future. However, there is a means to maximise our advantage.

By making these utility services accessible through APIs, we not only benefit ourselves but we can open up these components to a wider ecosystem. If we can encourage innovation in that wider ecosystem then we do not incur the cost of gambling & failure for those new activities. Unfortunately, we do not enjoy the rewards of their success either

.

Fortunately, the ecosystem provides an early warning mechanism of success i.e. adoption. Hence by creating a large enough ecosystem, we can not only encourage a rapid rate of innovation but also leverage that ecosystem to identify success and then either copy (a weak ecosystem approach) or acquire (a strong ecosystem approach) that activity. This is how we maximise our advantage.

To capitalise on this, we simply drive our newly acquired activity towards utility service provision and create the next wave of innovation through further componentisation effects. In this manner we create a virtuous circle of encouraging innovation in the ecosystem, leveraging the ecosystem to identify the next pattern and commoditising the pattern to utility services in order to encourage the next wave.

In effect, by being at the heart of this ecosystem we manage to create the simultaneous appearance of being highly innovative (as others in the ecosystem do this for us), highly customer focused (by leveraging the ecosystem to identify rapid diffusion) and highly efficient (as we focus on commodity provision). Tom Peter's old adage of choose one is a busted flush in this brave new world.

I've summarised these concepts in figure 2

Figure 2 - ILC model (click on image for higher resolution)

What is critically important to note, is that in essence both innovation of new activities and efficiency of commodity provision can be outsourced. The innovation of activities can be outsourced to a surrounding ecosystem building upon our services, whilst those commodity activities we consume can be outsourced to a marketplace of utility providers. There are benefits to retaining some element of control in those areas but the critical area to focus on is the transitional phase and how you leverage the ecosystem. Our ability to exploit the link between innovation and commodity depends upon the size, composition, engagement, speed of information and overall level of activity within that ecosystem.

Whilst each company comes with its own personal ecosystem (its staff, its partners) growing an extended ecosystem and using that to manage change is a powerful tool and a competitive weapon. It's not businesses but ecosystems that collide in the commercial world and woe betide that organisation which has the weaker. We've seen this story repeated many times before at many different levels through all the usual examples of BetaMax vs VHS or TCP/IP vs IPX/SPX.

It's imperative to understand that a well formed and large ecosystem leads to lower costs of innovation, creates higher rates of innovation, improves the rates of successful adoption, encourages greater efficiencies and can be mined to detect future successes. However, there are cost to this especially in the form of data collection which is why utility based ecosystems (where information is derived from consumption of APIs) have an advantage over product based ecosystems (where information is derived from market research). 

If it is just you and your employees then you'll find it difficult to survive a direct onslaught from any of the modern day monsters with well developed and extended API driven ecosystems (such as Google, Amazon etc). Not impossible, just damn difficult.

For more details, my OSCON '10 talk provides a useful overview of these concepts. However this is enough of a base to begin with.

In the next few posts, I'll cover some of the consequences of this and the strategies which are commonly deployed. Again, I realise this is nothing new and apologies to all readers who've had to endure me harping on about this over the last five years but I'm just scene setting for much later posts.

Consumerization

The evolution of any business activity is complicated by the existence of multiple ecosystems such as the enterprise and consumers. Activities can exist in, transfer between and commoditise within any of these ecosystem.

For example, whilst CRM has mainly commoditised in the enterprise space, email has crossed over to the consumer space in which it has been more aggressively commoditised. Today, these heavily commoditised mail services (such as Google Mail) create adoption pressure for the enterprise. These concepts are summarised in the figure below.

Figure 1 - Consumerization & Lifecycle Across Ecosystems (click on image for higher resolution)

When discussing an activity, a key issue to consider is in which ecosystem the evolution of that activity is governed i.e. is it being driven by competition in the enterprise or the consumer space. Back in 2001, Douglas Neal and John Taylor described the process by which governance transfers from the enterprise to the consumer ecosystem as Consumerization.

The consumerization of technology and its subsequent commoditisation in that consumer ecosystem can have a profound effect on the operation of any enterprise using that technology. It should be noted:

• Not everything transfers. Some activities find meaningful use within only one ecosystem and hence tend to develop only in that environment. For example, CRM.


• Barriers to entry can erode quickly. The impact on the media industry of the commoditisation of the means of mass communication occurred primarily in the consumer space over a single decade. Originally, the principal means of mass communication was provided through printing presses and supply & distribution chains. These acted as a major barrier to entry into those industries. The internet and digitization of content brought new means of mass communication into the consumer ecosystem and subsequently were aggressively commoditised resulting in widespread use of blogs, wiki and social media tools such as twitter. A consequence of this is that the barriers to entry into the media industry have been completely eroded. Anyone can become a digital newspaper.


• Ecosystems are not isolated. People are part of multiple ecosystems, hence activities in the enterprise (which may be provided through products) tend to start with custom-built solutions and hobbyist equivalents in the consumer space.


• The rate of commoditisation is not uniform between ecosystems.

Numerous activities have undergone this change. The pressure for adoption created through consumerisation has created positive responses such as BYOT (bring your own technology) and negative responses such as shadow IT i.e. when an organisation fails to deliver what its internal consumer need (Joe Baguley gave an excellent presentation on this topic).

All organizations should, as a matter of course, examine both their own and the consumer space for the growth of highly commoditised activities and consider the impacts of these and whether barriers to entry into their own industry will reduce.

For point of reference, computer utilities (i.e.Cloud computing) is expected to reduce the barriers of entry into many industries. In such cases an approach of adoption of the service and creation of higher-order systems can be used to re-establish those barriers.

Equally the impact of consumerization on the means of manufacture is going to hit a wide range of industries. This video is a foretaste of what is going to happen.

The confusion of choice

I've been asked many times whether there are any mechanisms to slow down, prevent or reverse commoditisation? Well, there are a long list of techniques which can be employed and to explain them let's just revisit the lifecycle approach.

Figure 1 provides a visible representation of the evolution of an activity from innovation to commodity. It should be noted that what drives the evolution of an activity through its lifecycle is both user competition (the drive for something which is useful i.e. has utility) and supply competition (the drive to provide a better way of meeting users need over competitors).

Figure 1 - Lifecycle
(click on image for larger size)

Furthermore as an activity transitions from one phase to another such as custom built to products or products to utility services, a number of factors are required for the transition to occur. The factors include:-

• Concept : e.g. the idea of providing something in that format such as computing infrastructure through a utility.
• Attitude: a willingness for consumers to accept the activity in the new format.
• Technology : the technology to actually achieve this.
• Suitability : the activity to be widespread and well defined enough to be suitable for provision in that format e.g. a utility format requires a well defined and ubiquitous activity capable of supporting the volume operations needed.

So how do we counter this?

Don't Sell it to Everyone: One of the simplest ways of ensuring that something doesn't become a commodity is to not sell it to everyone i.e. prevent it becoming ubiquitous and well defined. Unfortunately competition applies here, so you have to find a way of preventing others from selling - i.e. patents give a time limited opportunity to do this.

Create Confusion: If you can't prevent everyone selling, then create a confusion of choice. The purpose of this is to reduce certainty over the activity in order to persuade consumers that it is more of an innovation. The most profitable scenario is to have every consumer buying it and believing it is highly innovative to them alone - the "designed for you" meme.

Examples of confusion of choice can be found from light-bulbs to mobile phone contracts. Walk into your average electrical department store, go to the light bulb counter and ask yourself - "Do I really need a choice between 200 lightbulbs and bewildering array of styles, plug formats, power outputs, swirly bits of glass, shapes etc? Didn't we use to have less choice and wasn't it easier to make a decision then?"

This abundance of choice is not designed for your convenience but to prevent you from making comparison. It's the same with the plethora of designed for you mobile phone contracts or insurance instruments or ... the list is long. Why else do you think we now have a vibrant price comparison industry countering this.

Association: one of my favourite examples of manipulation is to try and install a hidden meaning to an activity i.e. to create an association between this particular brand and either a lifestyle choice or some other implied benefit. If you're lucky, turning an ordinary activity into a status symbol can reap huge dividends. This sort of manipulation can be most easily recognised by switching on the TV and watching adverts - most of which rarely discuss the activity itself but imply a consequences of choosing this particular brand. Using this brand of soap will transform you into a glamorous person, whisked away to shower in a tropical forest surrounded by other glamorous people? The use of this deodorant will make you instantly appealing to huge numbers of the opposite sex? The purpose of these acts is not to cause confusion but to fundamentally add a hidden utility to a particular brand of the activity and to disassociate it from the rest.

Complexity: Another tactic is to reduce certainty through the introduction of visible engineering i.e. make the device look more complex than it is. It's actually a combination of confusion of choice, association and complexity which turned the humble vacuum cleaner into a space age construction. It doesn't matter that the activity is ubiquitous, well defined and commodity like nor that the latest range of cleaners may be no better at cleaning. Today, vacuums have new properties such as "doesn't lose suction", they use visible engineering and a bewildering array of choice and associations to lifestyle. All of this is designed to persuade consumers that there's more to a vacuum cleaner than cleaning the floor. Kerching!

Bundling: Another favourite of mine is to bundle many activities together. For example, the iPhone is not a phone but a wide range of activities bundled into a single device - calculator, phone, camera, calendar, alarm clock, browser, email, time recorder, map etc. Bundling provides ample opportunities for confusion and dissociation, i.e. you can't easily compare one smart phone to another and certainly not the pricing tariff of a standard phone to a smart phone. However, through Android, Google has aggressively commoditised most of these bundled activities with the use of open source and open ecosystems and hence cornered Apple into a very high risk, constant innovation game. So as well as tactics to counter commoditisation, you can also use counter tactics to force it and your competitors into tricky positions.

I've always been a big fan of Apple, however this is the second time in my opinion that they've been seriously outmaneuvered and the root causes of this appear to be the same - a poor understanding of change and how to play the game. They're great at innovation but that's only part of the battle. Time will of course tell, but I don't see Apple's future as rosy.

I won't go on as there's a whole mass of techniques and counter techniques in this space. However to the question can you slow or reverse commoditisation - well you can certainly persuade consumers of this.

All in a word.

In my previous post, I provided a more fully fledged version of the lifecycle curve that I use to discuss how activities change. I've spoken about this for many years but I thought I spend a little time focusing on a few nuances.

Today, I'll talk about the *aaS misconception - a pet hate of mine. The figure below shows the evolution of infrastructure through different stages. [The stages are outlined in the previous post]

Figure 1 - Lifecycle (click on image for higher resolution)

I'll note that service bureau's started back in the 1960s and we have a rich history of hosting companies which date well before the current "cloud" phenomenon. This causes a great deal of confusion over who and who isn't providing cloud.

The problem is the use of the *aaS terms such as Infrastructure as a Service. Infrastructure clouds aren't just about Infrastructure as a Service, they're about Infrastructure as a Utility Service.

Much of the confusion has been caused by the great renaming of utility computing to cloud, which is why I'm fairly consistent on the need to return to Parkhill's view of the world (Challenge of the Computer Utility, 1966).

Cloud exists because infrastructure has become ubiquitous and well defined enough to support the volume operations needed for provision of a commodity through utility services. The commodity part of the equation is vital to understanding what is happening and it provides the distinction between a VDC (virtual data centre) and cloud environments.

If you're building an infrastructure cloud (whether public or private) then I'll assume you've got multi-tenancy, APIs for creating instances, utility billing and you are probably using some form of virtualisation. Now, if this is the case then you're part of the way there, so go check out your data centre.

IF :-

• your data centre is full of racks or containers each with volumes of highly commoditised servers
• you've stripped out almost all physical redundancy because frankly it's too expensive and only exists because of legacy architectural principles due to the high MTTR for replacement of equipment
• you're working on the principle of volume operations and provision of standardised "good enough" components with defined sizes of virtual servers
• the environment is heavily automated
• you're working hard to drive even greater standardisation and cost efficiencies
• you don't know where applications are running in your data centre and you don't care.
• you don't care if a single server dies

... then you're treating infrastructure like a commodity and you're running a cloud.

The economies of scale you can make with your cloud will vary according to size, this is something you've come to accept. But when dealing with scale you should be looking at :-

• operating not on the basis of servers but of racks or containers i.e. when enough of a rack is dead you pull it out and replace it with a new one
• your TCO (incl hardware/software/people/power/building ...) for providing a standard virtual server is probably somewhere between $200 - $400 per annum and you're trying to make it less.

Obviously, you might make compromises for reasons of short term educational barriers (i.e. to encourage adoption). Examples include: you might want the ability to know where an application is running or to move an application from one server to another or you might even have a highly resilient section to cope with many legacy systems that have developed with old architectural principles such as Scale-up and N+1. Whilst these are valuable short term measures and there will be many niche markets carved out based upon such capabilities, they incur costs and ultimately aren't needed.

Cost and variability are what you want to drive out of the system ... that's the whole point about a utility. Anyway, rant over until next week.

Arguably, the best cloud conference in the world?

For those of you who missed the OSCON Cloud Summit, I've put together a list of the videos and speakers. Obviously this doesn't recreate the event, which was an absolute blast, but at least it'll give you a flavour of what was missed.

Welcome to Cloud Summit [Video 14:28]
Very light introduction into cloud computing with an introduction to the speakers and the conference itself. This section is only really relevant for laying out the conference, so can easily be skipped.
With John Willis (@botchagalupe) of opscode and myself (@swardley) of Leading Edge Forum.

Scene Setting
In these opening sessions we looked at some of the practical issues that cloud creates.

Is the Enterprise Ready for the Cloud? [Video 16:39]
This session examines the challenges that face enterprises in adopting cloud computing. Is it just a technology problem or are there management considerations? Are enterprises adopted cloud, is the cloud ready for them and are they ready for it?
With Mark Masterson (@mastermark) of CSC.

Security, Identity – Back to the Drawing Board? [Video 25:12]
Is much of the cloud security debate simply FUD or are there some real consequences of this change?
With Subra Kumaraswamy(@subrak) of Ebay.

Cloudy Operations [Video 22:10]
In the cloud world new paradigms and memes are appearing :- the rise of the “DevOps”, “Infrastructure == Code” and “Design for Failure”. Given that cloud is fundamentally about volume operations of a commoditized activity, operations become a key battleground for competitive efficiency. Automation and orchestration appear key areas for the future development of the cloud. We review current thinking and who is leading this change.
With John Willis (@botchagalupe) of opscode.

The Cloud Myths, Schemes and Dirty Little Secrets [Video 17:38]
The cloud is surrounded by many claims but how many of these stand up to scrutiny. How many are based on fact or are simply wishful thinking? Is cloud computing green, will it save you money, will it lead to faster rates of innovation? We explore this subject and look at the dirty little secrets that no-one wants to tell you.
With Patrick Kerpan (@pjktech) of CohesiveFT.

Curing Addiction is Easier [Video 18:41]
Since Douglas Parkhill first introduced us to the idea of competitive markets of compute utilities back in the 1960s, the question has always been when would this occur? However, is a competitive marketplace in the interests of everyone and do providers want easy switching? We examine the issue of standards and portability in the cloud.
With Stephen O’Grady (@sogrady) of Redmonk.

Future Setting
In this section we heard from leading visionaries on the trends they see occurring in the cloud and the connection and relationships to other changes in our industry.

The Future of the Cloud [Video 29:00]
Cloud seems to be happening now but where is it going and where are we heading?
With J.P. Rangaswami (@jobsworth) of BT.

Cloud, E2.0 – Joining the Dots [Video 30:04]
Is cloud just an isolated phenomenon, or is it connected to many of the other changes in our industries.
With Dion Hinchcliffe (@dhinchcliffe) of Dachis.

The Questions
The next section was a Trial by Jury where we examined some of the key questions around cloud and open source.

What We Need are Standards in the Cloud [Video 45:17]
We put this question to the test, with prosecution Benjamin Black (@b6n) of FastIP, defence Sam Johnston (@samj) of Google and trial by a Jury of John Willis, Mark Masterson, Patrick Kerpan & Stephen O’Grady

Are Open APIs Enough to Prevent Lock-in? [Video 43:21]
We put this question to the test, with prosecution James Duncan (@jamesaduncan) of Joyent, defence George Reese (@georgereese) of Enstratus and trial by a Jury of John Willis, Mark Masterson, Patrick Kerpan & Stephen O’Grady

The Debates
Following the introductory sessions, the conference focused on two major debates. The first of these covered the “cloud computing and open source question”. To introduce the subject and the panelists, there were a number of short talks before the panel debates the impact of open source to cloud and vice versa.

The Journey So Far [Video 10:59]
An overview of how “cloud” has changed in the last five years.
With James Urquhart (@jamesurquhart) of CISCO.

Cloud and Open Source – A Natural Fit or Mortal Enemies? [Video 8:44]
Does open source matter in the cloud? Are they complimentary or antagonistic?
With Marten Mickos (@martenmickos) of Eucalyptus.

Cloudy Futures? The Role of Open Source in Creating Competitive Markets [Video 8:43]
How will open source help create competitive markets? Do “bits” have value in the future and will there be a place for proprietary technology?
With Rick Clark (@dendrobates) of OpenStack.

The Future of Open Source [Video 9:34]
What will cloud mean to open source development and to linux distributions. Will anyone care about the distro anymore?
With Neil Levine (@neilwlevine) of Canonical.

The Debate – Open Source and the Cloud
 [Video 36:24]
Our panel of experts examined the relationship between open source and cloud computing.
With Rick Clark, Neil Levine, Marten Mickos & James Urquhart

The Future Panel followed the same format with first an introduction to the experts who will debate where cloud is going to take us.

The Government and Cloud [Video 10:27]
The role of cloud computing in government IT – an introduction to the large G-Cloud and App Store project under way in the UK; what the UK public sector hopes to gain from a cloud approach, an overview of the proposed technical architecture, and how to deliver the benefits of cloud while still meeting government’s stringent security requirements.
With Kate Craig-Wood (@memset_kate) of Memset.

Infoware + 10 Years [Video 10:38]
Ten years after Tim created the term infoware, how have things turned out and what is the cloud’s role in this?
With Tim O'Reilly (@timoreilly) of O'Reilly Media.

The Debate – A Cloudy Future or Can We See Trends? [Video 50:12]
The panel of experts examine what’s next for cloud computing, what trends can they forsee.
With Kate Craig-Wood, Dion Hinchcliffe, Tim O’Reilly & JP Rangaswami

So, why "arguably the best cloud conference in the world?"

As a general conference on cloud, then the standard and quality of the speakers was outstanding. The speakers made the conference, they gave their time freely and were selected from a wide group of opinion leaders in this space. There was no vendor pitches, no paid for conference speaking slots and hence the discussion was frank and open. The audience themselves responded marvelously with a range of demanding questions.

It is almost impossible to pick a best talk from the conference because they were all great talks. There are real gems of insight to be found in each and every one and each could easily be the keynote for most conferences. In my opinion, if there is a TED of cloud, then this was it.

Overall, the blend of speakers and audience made it the best cloud conference that I've ever attended (and I've been to 50+). This also made my job as a moderator simple.

I'm very grateful to have been part of this and so my thanks goes to the speakers, the audience, the A/V crew who made life so easy and also Edd Dumbill (@edd), Allison Randal (@allisonrandal), Gina Blaber (@ginablaber) and Shirley Bailes (@shirleybailes) for making it happen.

Finally, huge thanks to Edd and Allison for letting me give a version of my Situation Normal, Everything Must Change talk covering cloud, innovation, commoditisation and my work at LEF.

OSCON 2010

I thoroughly enjoyed the OSCON cloud summit and the talk that I gave at OSCON - the audiences were fantastic and the organisation was superb (huge thanks to Edd, Allison and the O'Reilly crew for making this happen).

I'm really proud to have played my small part in this event as the MC for day, along with John Willis.

I haven't yet talked a great deal on my research, but the keynote at OSCON gives a taste of it - so I thought I'd link to it here. Those who know me, also know that this had been a hobby horse of mine over the last decade. It's finally good to spend some focused time on it though of course these ideas are far from new.

A couple of final notes :-

• Utility services are just a domain within the commodity phase of an activity's evolution. There are constraints which will prevent a commodity being provided through services. I sometimes plot on the graph a wider "services" stage, however for the sake of simplicity I've left this out.
• The stages of lifecycle are approximate only i.e. this is where products appear, this is where utility services generally appear etc.
• Multiple activities can be bundled into a single product. For example the iPhone is a combination of different activities from personal communication to digital recorder to web surfing to time keeper to ... the list is quite long. These activities are all evolving and being implemented by others, which forces Apple to focus on two areas :- the bundling of new innovative activities into the iPhone and application innovation through the App Store. The former is expensive and risky. The later requires development of a strong ecosystem, ideally with users being allowed to create and distribute their own applications. The manner in which Apple manages this is less than ideal and they now face severe disruption from Android. As there is also little exploitation of the wider manufacturers' ecosystem, Apple has cornered itself into creating highly costly & risky innovations with weak leveraging. IMHO, they are in trouble and this should become painfully clear in the next five years unless they change.
• The ILC model is generally applicable. I picked examples from cloud providers but equally I could have discussed Canonical with Ubuntu. Canonical ruthlessly commoditises activities to provide a stable core and I'd strongly argue that Rackspace & Canonical point to the future direction of IT.
• Open source is the natural end state for any activity described by software which is ubiquitous and well defined. This doesn't mean that open source can't be used earlier, of course it can and there are numerous tactical advantages of doing so, along with benefits such as increased collaboration. However, what I am saying is that by the time an activity has reached the commodity phase then only open source makes sense. Those who have been questioning whether "cloud is the death of open source" have a poor understanding as to what is actually happening.
• Open core is in general a tactical anomaly. On the one hand, if successful, it will cause widespread distribution (driving an activity towards more of a commodity) and yet it attempts to generate revenue through proprietary elements which is against the natural state that open core is forcing activities towards. A number of companies have used this approach successfully and have even been bought for huge sums by large companies. However, it still remains a tactical anomaly which attempts to achieve both the benefits of open and closed by being both.
• The S-Curves I use are not time based. If you follow the evolution of an activity through specific phases of its lifecycle and plot adoption against time, you will derive a set of non-uniform S-Curves for Roger's diffusion of innovation. It's important to realise that the accelerators I mentioned (open source, participation, network effects) along with others I didn't mention (communication mechanisms, co-evolution etc) alter the speed at which an activity evolves. Whilst, this doesn't impact the S-Curves I use, it does compact Roger's curves of more recent innovations when compared to earlier diffusions.
• The speed at which an activity moves across the profile graph (i.e. through its lifecycle) depends upon the activity.
• None of these ideas are new. The nearest to new is company profile which I've been refining in the last year from earlier work (between '04-'07) and this refinement is simply a formalisation of already existing concepts. If you watched the video and thought, "that's new", then my only advice is be concerned.
• On the question of science, the models presented (S-Curve, Profile) are part of a general hypothesis on the evolution of business activities. Whilst data exists, there is neither the volume of evidence nor independent observation to validate beyond this. Furthermore, whilst the models show some usefulness and can be falsified, they are not predictive (and hence this cannot be considered scientific but remains firmly within the field of philosophy). The reason for this is that in order to generate the graphs and avoid asymptotic behaviour, a definition of commodity is required. The consequence of such is that an activity can only be plotted in terms of relative historical position i.e. after it has become a commodity. This means, all positions of activities which have not become a commodity are uncertain (as per one of the axis of the graph) and therefore approximations. The models do not create a crystal ball and the future is one information barrier we can't get past. Even though the new pattens of organisation are testable it should always be remembered that fitness does not guarantee survival.

That's enough for now, I'll expand the topic sometime later.