Stop Online Piracy, NOW!!!!

If Congress (or anyone else) wants to stop online piracy, there's another way. Ban all content which is not creative commons or equivalently licensed material (e.g. GPL) from the internet.

This will kill online piracy as there will be nothing to pirate, only stuff you can copy. Well, almost, as some of that pesky material will still leak online. Hence any infraction should be treated as other security violations and made the responsibility of the copyright holder for not taking enough security measures to ensure that their content never reached the internet.

Certainly it'll make investigations into infringements easier (books and films usually take great pains to specify who wrote them) and you can imagine those future law enforcement conversations ...

"Now, sir. I see your film is available online and has been downloaded and copied 100,000 times. So if it's not a creative commons licensed film then that's a 100,000 security violations. Gosh, Mr CEO, that's going to be a huge fine and prison sentence. Won't you miss your jet and lavish lifestyle? Bet you wish you'd kept that film in a locked safe now don't you, silly billy. Now, are you sure your film wasn't creative commons license because if it was I wouldn't be able to charge you with anything?"

I'm quite convinced that by introducing the above scheme, the amount of people going to prison or being fined for copyright infringement will drastically reduce. We will have in effect stopped online piracy and the crime will cease to be.

Won't that destroy online films?

Of course not, people will still want easy access to content from a convenient and trusted source (such as NetFlix) and where there's demand, supply will follow. The trusted brand is all important and people will still pay a reasonable subscription for it. The content producers will just have to adapt to a world where they can still make money from abundantly used creative commons licensed content rather than scarcity.

Won't that destroy online journalism?

Of course not, people will still want easy access to content from a trusted and respected source which provides an analysis of what is happening. The trusted brand is again all important and advertisers will still want to promote their messages. Certainly, people will copy it, so you'll need to build a loyal following and look at those copying sites as free marketing.

Won't that destroy the online music industry?

Of course not, people will still want to hear their favourite bands live, attend gigs, buy merchandise from the band site and they'd still pay (either through subscription or advertising) for a trusted and useful service. Certainly others will copy it, so you'll need to do the usual - build a loyal following, focus on creating a strong trust relationship and think of those copying sites as free marketing.

Won't that destroy the past models of media?

Well the media industry always cries wolf over piracy and change but certainly forcing them to keep copyrighted material secure will make it difficult for them to distribute. However, since many don't seem willing to adapt to a new world (hence SOPA/PIPA) and the cost of introducing legislation to protect them will harm more future focused industries (i.e. the internet is a component of these) then maybe legislation may be needed to force change.

Even if the content is freely available, I'd still pay to have easy access to it through a useful and trusted service, I'll still want to attend gigs, attend lectures, buy merchandise (even books) and watch movies that include product endorsements etc.

Yes, it will be a different world but either the traditional Media companies adapt to a world where you make money from abundance or the US will need to sacrifice its future competitive position (by harming its internet industry).

It's not like those traditional companies haven't had almost two decades to prepare for this change. What have those media executives been doing - playing golf with Kodak? What did you honestly think that digitisation and the internet was going to do - increase your profits by reducing your distribution costs?

Banning copyrighted material is an extreme option and I do believe in a more balanced approach. However, if the traditional Media industries are going to try and use legislation to avoid change, then someone needs to start thinking about how to use legislation to force them to adapt. Otherwise the US tech companies will be constantly in a defensive, rear guard action against acts like SOPA / PIPA etc.

The best form of defense is a good offense.

Reprinted from G+ :-)

Mystic Me 5.0

I'm a bit late with my predictions for this year as a couple of components have already started and so I've had to re-write those parts. However better late than never and in any case this is mainly for my testing purposes. The normal rules apply, the predictions are built up of individual components and each and every component must be correct for the prediction to be correct.
Since, I managed to overshoot my target for last year, I've made the predictions even more detailed using well over 100 different components. I'm aiming for a 50% target (not higher and not lower) which is the ideal balance between usefulness and accuracy.
So, without any more egging of the custard, here goes :-
Predictions for 2012

1. Cloud:Open stack will gain further momentum in the popular press with multiple providers coming online to form a fledgling market. However debate will intensify over the wisdom of providing multiple APIs and whether Open Stack should focus more on being an AWS clone due to evidence of the growing success of Eucalyptus. This situation will be further complicated by Amazon launching a managed "Data Centre in a Container" product aimed at at large enterprises as an onramp to use of public AWS services.
   
   The adoption of cloud computing will continue to outstrip earlier analyst predictions and pundits will cite AWS as exceeding $2 billion in revenue.
   
   The confusion over "enterprise clouds" will grow due to marketing efforts promoting Enterprise Class vs Commodity based clouds, however there will be a backlash including some high profile customers declaring them as of dubious value. Platform as a service will have a strong year with CloudFoundry in particular growing significantly in both community involvement and media coverage.
   
   There will also be no let up in the pace of mergers and acquisitions in this industry with a particular focus on Devop and Management systems. Both ARM and Ubuntu will strengthen their positions in the cloud space. In particular, we will see increasing mention of a standard computing stack involving Ubuntu, OpenStack and CloudFoundry.
   
   Countering these developments will be an increased involvement of Gov bodies with the view of introducing legislation to the cloud with licensed cloud operators.
   
   Big Data will continue to rapidly grow in prominence, however the focus will switch more towards utility provision of big data systems and the importance of algorithms. In particular, data competitions will have a strong year and it will become increasingly clear that they are used not only for improving algorithms but as sources for recruitment of talent.
   
   There will be a number of high profile articles questioning when (not if) cloud will dominate financial ERP and more traditional Enterprise spaces with popular wisdom shifting towards the near future i.e. less than 5 yrs. However, what won't be clear in the first half of the year is which companies will dominate this space and instead concerns will be raised over whether existing software vendors can overcome internal inertia. By the end of the year, it will be clear that an outside player will dominate.


2. Environment:Total Arctic Ice volume will decline to the lowest level on record raising concerns that a tipping point has already been reached. The melting season will be considered to have extended again and the UK will suffer one of the most severe winters on record. Despite the unpopularity of nuclear power, there will be a number of high profile environmental articles highlighting it as a necessary evil in terms of combating climate change.


3. Economy:Despite assurances by the BOE (Bank of England) that inflation will reduce by the second half of the year, RPI will have increased on a year by year basis. The technical recession in the UK will turn into a full blown recession with increasing discussion in the BOE for another round of quantitative easing. Interest rates will be kept at their current historic low. The driving forces behind many of the UK actions will be from Europe.
   
   In detail, the sequence of events include :
   In the first half of the year there will be continued uncertainty over the European debt crisis and exposure of banks to financial instruments based upon this. There will be increasing calls for the ECB to act as the lender of last resort and underwrite individual countries debts across Europe but the ECB will initially refuse.
   
   With increasing social pressure within European countries, the core group of Europe will take drastic action. First, selected countries will default on the Gov debt but remain within the Euro causing increasing market reaction to Euro debt, weakening of the Euro and strengthening of UK gilts and GBP. As GBP strengthens, the FTSE will weaken (as foreign capital seeks to take profit) and to counter this the BOE will embark on a significant round of quantitative easing, possibly in excess of £500 bn depending upon how insane they are.
   
   At this point, the ECB will step in and consolidate the remaining Gov debt across the core Euro group into EuroBonds and act as the lender of last resort for future debt. Investors and rating agencies being caught flat footed will cry foul, however the strengthening of the core Euro group will cause both the Euro to rise and the debt crisis to recede in Europe. However, investors in those selected countries which have defaulted (i.e. banks etc) will be left with a realisation that they have been gamed. Legal actions will result but losses in those investors will be enormous.
   
   In the core European countries, those banks most impacted will be nationalised and it will become increasingly clear during the year that this had been planned as the most significant damage will be felt in the city of London. By the end of the year, the core Euro groups will start to re-define the single market agreement to be limited to a Eurozone. Faced with mounting debts, weakening of the financial market and the strengthening of the Euro market, the FTSE will start to fall significantly by the end of the year. The BOE will then again raise the spectre of even more QE.


4. Society :
   There will be continued protests in Europe over austerity measures in the first part of the year, however by the end of the year these will lessen. In the UK however the reverse will happen.
   
   Protests and strike action in the first part of the year will be mild, however by the end of the year with a massive increase in gov debt (due to QE3), rising inflation (due to QE3), weakening internal economy (due to QE3), isolation from Europe (due to Euro core and ECB action), further bail-out of the banking system (due to Euro core and ECB action) and increasing government austerity ... the mood will darken considerably.
   
   Someone, somewhere will write a popular but ridiculous press article on whether this is the "End of Britain?" By the end of the year, one member of the MPC will write an article explaining their concerns that they have got it wrong.


5. Politics :The year will show increasing tension between the coalition partners with a number of high profile spats. Despite this and with press pundits predicting a collapse of the coalition, the darkening public mood will convince both parties that an early election will lead to a rout. In their own interests, not in the interest of the country, no early election will be called.
   
   Despite the calls for more legislation of the internet and protection of vested interest, there will be a growing realisation that the UK must embrace a future which is not the past. Such calls will find a champion and increasingly the Government will talk about the end of large scale IT projects, embracing a more open future and a need for industry to adapt. Increasingly measures will be discussed to encourage high technology start-ups, to support open source, to end current Government purchasing practices and to limit IP effect on the wider industry.
   
   By the end of the year, despite the poor economic situation, the first glimmers of a bright future will appear as a number of high technology companies will openly discuss moving to the UK.


6. Technology:VMWare will clearly act as two operational divisions - one focused on infrastructure, the other on platform whilst VCE will be touted as a potential IPO for 2013.
   
   The dominance of Android on phones, tablets and TVs (as demonstrated by market share of units shipped) will increasingly raise speculation over Apple's future with several popular press articles asking whether this is a re-run of the Mac vs IBM PC.
   
   Amazon will also have an exceptional year in sales of their tablets with Amazon and Samsung being seen as as the two dominant players (by volume of units) in the tablet space.
   
   Google TV & Google Wallet will exceed expectations with G+ continuing to grow rapidly exceeding 350 million users by the end of the year. Despite hostility to the integration of G+ with Google Search, and the potential dangers of data gravity effects, Google will not discontinue the effort. As a consequence Facebook will buckle and start to adopt a more open approach to data.
   
   Early in the year pundits will discuss the potential for Twitter as 'the' worldwide real time messaging system and there will be, at least one, high profile attempt to acquire it. Twitter will both refuse acquisition attempts and refuse to integrate into G+. By the end of the year the pundits will change tune and articles will question whether Twitter is a "dead man walking".
   
   Mobile banking will also have a phenomenal year with pundits speculating whether this is the beginning of the end for many traditional retail banks.


7. Media :Despite early success, 2012 will be marked by an increasing "war" between past industries and the future. The battle of IP will cover many fronts simultaneously including legislation through Congress, further introduction of DRM on devices and attempts to reinforce Global IP laws.
   
   The battle in the US will turn particularly bleak as media companies aggressively fight a campaign through traditional media channels including assaults on the characters of many public opponents. The pro IP lobby will also find an unlikely ally in China. Due to expansionist policy, Chinese backed companies will increasingly become active in US IP law and provide funding to increasing IP / Copyright legislation. Opponents will highlight how China's policy in the US differs from its own home policy which will not strengthen such laws.
   
   Despite vocal public opposition the US Congress will continue to enact PIPA or an equivalent. By the end of the year, a number of leading Internet companies will have openly raised concerns that they may need to move out of the US. Media companies which have adapted to the new environment, such as NetFlix, will continue to grow rapidly but increasingly will find themselves dragged into the political battle with content providers.
   
   At the very end of the year, a high profile article (probably HBR) will be written concluding that the US has just handed the future of the internet to other nations.


8. Manufacturing :Both 3D printing and printed electronics will have a robust year in terms of growth and public awareness. There will be a marked rise in start-ups and funding in this space, with numerous public articles describing the technology as the future of manufacturing.
   
   The first hints of hybrid printers (both electronic and physical form) will surface along with technology articles questioning whether new forms of computing language will develop covering both physical and digital function.
   
   None of the major printing companies will make significant moves into this space during 2012.
   
   A number of articles will also raise concerns on the issue of security and whether this technology will lead to widespread piracy. These articles will conclude with the importance of DRM and a fledgling lobbyist organisation will form to promote these concerns in the US.


9. Things to Watch :The key watch words of 2012 are Ecosystem, Openness and "Do it yourself" IT.
   
   Increasingly there will be a clear separation between traditional organisations and a new form of next generation companies. Key characteristics of this next generation which will be highlighted throughout the year include :
   
   use of cultural strategy
   cell like organisational structures
   use of platforms to develop ecosystems with competition based upon ecosystems
   use of commodity components in IT
   emerging architectural practices (design for failure, chaos engines and distributed systems)
   extensive use of analytics and algorithmic regulation
   intensive focus on strategic gaming in competition
   use of open source as a tactical weapon against competitors
   a focus on disruption of existing industries as opposed to profit or expansion into geographical emerging markets.


10. MISOG's :Despite the best efforts of the Olympic Committee there will be endless grumblings about the Olympics in London covering the cost, the legacy, the exclusiveness of the event, ticketing, transportation issues, failure of IT systems, unpreparedness, rising costs of rent and excessive security. There will be some protests over the event with increasing concerns that the project costs have overrun and the UK could ill afford the event. Much of this will be couched in terms of the increasing economic gloom in the UK which will overshadow the event. Despite this, the UK will have a good event.

An open letter to Congress on SOPA / PIPA - from Aliens4SOPA

To understand the impact of SOPA / PIPA we need to get rid of some very basic misunderstandings.

First, explosions of industrial creativity DON'T follow the invention of a technology but its commoditisation i.e. it wasn't the invention of electricity but Edison's introduction of utility services for electricity that created an economic boom that led to recorded music, modern movies, consumer electronics and even Silicon Valley.

Electricity is an essential component of these industries and it had to be provided as a standard component before they could flourish.

Now the internet commoditises the means of mass communication i.e. mass communication existed beforehand but the internet turned it into a standard component. Hence we've seen an explosion of industrial creativity based upon this component i.e. Google, Facebook, Twitter etc.

Each time an activity - whether electricity or mass communication or trade - is commoditised, we see explosions of creativity, the formation of future industry and the disruption of past industry. As Edison commoditised electricity provision, new industries formed and past industries such as Gas lighting companies were disrupted.

Those past industries had a choice. They could either consolidate, acquire and adapt which is what they did or they could have tried to get Congress to pass legislation to stifle the electricity market. Had those Gas Lighting Companies succeeded in doing that, then Edison and those future industries such as Hollywood, Silicon Valley, General Electric would never have formed in the US. Instead they would have formed somewhere else and the US would be a fraction of the economic power that it is today.

SOPA is simply an attempt by past industries who face disruption AND refuse to adapt, to persuade Congress to legislate in favour of past models. Its effect will be the same as Gas Lighting companies persuading Congress to legislate against electricity. It's an economic blunder.

You live in global economic market and you compete against other nations. If because of concerns over piracy the US makes such an economic blunder, then as competing nations we will act like pirates by plundering your future. If we don't, China will.

We will happily take Silicon Valley off your hands. Send it to London, we would love it.

We will happily have those jobs, those future industries. If you don't want it, we do.

They key point to understand is the internet is an essential component for future industry just like electricity. Mess with that at your peril.

Of course, Media industries complain about a changing world, they've been crying wolf for decades : "8 track tapes and piracy will destroy recorded music", "video and piracy will destroy the film industry", "internet and piracy will destroy …" blah blah blah blah blah.

Adapt or die is all I'm going to say and if you don't want those future industries please send them to us where we would care for them. So as Alien from a competing nation, I'm all for Congress destroying the US economic future. Go for it.

As they say, fortune favours the brave or more aptly :-

"OUR FORTUNE IS FAVOURED BY CONGRESS CHARGING BLINDLY INTO AN ECONOMIC ABYSS"

We love you Congress.

PS if you could also persuade the Murdoch empire to shift permanently to the US that would be cool too. We've been giving them hints in the UK but I'm not sure they've got the message.

Review of Mystic Me 4.0

Before giving predictions for 2012, I'd better start by reviewing last years.

Of the 51 separate component predictions made (grouped into ten categories, see below) then :-

• 1 is yet undecided
• 4 are clearly incorrect
• 46 are demonstrable

This gives a 92% rate of accuracy for individual components. I'll publish the data when I get a spare moment and have completed the next round of predictions.

However, spotting individual components and trends is the easy bit (i.e. big data will become a hot topic etc). Combining it all together into a coherent story is the real trick.

When scoring a category, every single component prediction in that category must be accurate, timely, spot on etc for the story to be considered accurate. In other words, if a tiny part of the entire prediction for that category is wrong then the whole thing is wrong – no excuses.

I don't believe in the idea of "well I was 70% correct in my statement", it's simple binary - yes or no.

The results are as follows :-

#	Category	Notes	Score (0-1)
1	Cloud	All ten components are demonstrably correct	1
2	Environment	Of three components, two are demonstrable, one has yet to complete but can be considered likely to fail.	0
3	Economy	Of nine components, eight are demonstrable but one is clearly wrong (i.e. the FTSE did not drop below 3,000).	0
4	Society	All four components were demonstrably correct	1
5	Technology Business	Of seven components, two are not demonstrable (i.e. VMWare will increasingly act as two operational divisions and CPTN holdings will turn out to be a patent troll)	0
6	Media Technology	Of seven components, one was clearly wrong (i.e. government regulation to introduce censorship based services designed to "protect the most vulnerable")	0
7	Manufacturing Business	The one component prediction specified is demonstrable	1
8	Words to watch for	All five component predictions are demonstrable	1
9	Social Mobility	Both component predictions are demonstrable	1
10	MISOG's	All three component predictions are demonstrable	1

Overall this gives 60% accuracy but since the goal was to increase specificity to achieve a target of 50% accuracy then I can conclude that I overshot the prediction target and 2012's predictions will have to become even more demanding and more specific.

Hence the result is close but no cigar

For reference, the list of component predictions were:-

#	Category	Component Prediction for 2011
1	Cloud	Conventional wisdom within the popular press shifts towards seeing open source architectures dominating the cloud computing space
2	Cloud	Cost efficiency arguments around cloud computing will increasingly be replaced with customer innovation stories
3	Cloud	the adoption rates of cloud computing will outstrip many early analyst predictions
4	Cloud	Pundits will cite AWS as exceeding $1 billion in revenue
5	Cloud	Enterprise IT will increasingly focus on new value creation, architecture and vendor management techniques
6	Cloud	Increasing mention of terms like supply chain management and new business models based upon outcome
7	Cloud	Platform as a service (PaaS) will overtake Infrastructure as a service (IaaS) as the main buzz of cloud computing
8	Cloud	There will also be no let up in the pace of mergers and acquisitions in this industry
9	Cloud	Governments will also increasingly become engaged in discussing regulation of the cloud
10	Cloud	Some official will be talking up the idea of licensed cloud operators
11	Environment	Total Arctic Ice volume will decline to the lowest level on record
12	Environment	The melting season is considered to have extended by several weeks
13	Environment	The UK will suffer another cold winter.
14	Economy	Inflation, as measured by RPI, will continue to rise.
15	Economy	Because of instabilities in the recovery the MPC will hold interest rates low
16	Economy	BoE will implement a last gasp round of quantitative easing
17	Economy	London will experience a property bubble for high value residential property
18	Economy	The overall housing market, according to the Halifax House Price Index, will suffer a fall in prices
19	Economy	UK will fall back into recession
20	Economy	Instabilities will be driven by overexposure of banks to instruments based on sovereign debt
21	Economy	There will be increasing market attacks on sovereign debt and a drop in consumer confidence
22	Economy	The FTSE 100 will drop below 3,000 during the year.
23	Society	We will see increasing civil disobedience in many countries.
24	Society	UK will experience increasing protests and strike action
25	Society	Despite the necessity to reduce debt, the coalition (in particular the Liberal Party) will continue to wain in popularity polls
26	Society	Despite pundits predicting collapse of the coalition, it will muddle through.
27	Technology Business	VMWare will increasingly act as two operational divisions - one focused on infrastructure, the other on platform. Some public pundits will start to question whether one of the units will be sold.
28	Technology Business	CPTN holdings will turn out to be a patent troll, its target is not Android or FOSS specifically but Cloud in general.
29	Technology Business	We should see examples of companies trading on variability in cloud infrastructure prices through the provision of true brokerage services
30	Technology Business	The volume of tablet sales will sky rocket with new competitors flooding into the market
31	Technology Business	Existing industry will see a decline of traditional laptops
32	Technology Business	The concept of social searching will become increasingly important with a continuation of the plethora of start-ups providing new ways of ranking, mining and determining social reputation
33	Technology Business	Pundits discounting the future of Google will get a rude awakening
34	Media Technology	In the UK, there will be further high profiled efforts to carve up the Internet.
35	Media Technology	The use of government regulation to introduce censorship based services designed to "protect the most vulnerable"
36	Media Technology	Paywalls will continue to be the rage
37	Media Technology	Largest effect will come through the proliferation of devices with on-chip DRM
38	Media Technology	Media pundits will raise the question whether these devices and the introduction of two tier environments means the Internet can be effectively controlled for the average consumer
39	Media Technology	Online video will continue to grow exponentially
40	Media Technology	YouTube becoming increasingly seen as the future distribution channel of media
41	Manufacturing Business	Printed electronics will have a robust year in the popular press, with pundits talking up the potential for this technology especially when combined with 3D printing
42	Words to watch for:	Consumerization
43	Words to watch for:	Shadow IT
44	Words to watch for:	Ecosystem
45	Words to watch for:	Cloud computing will still cause confusion
46	Words to watch for:	There will be a continuation of marketing efforts to distinguish between enterprise and public cloud
47	Social Mobility	Increases in tax and a crackdown on tax avoidance
48	Social Mobility	No mass exodus of wealth from the UK.
49	MISOG's	There will be a considerable amount of grumbling over the Royal Wedding and how much coverage it's getting.
50	MISOG's	Unfortunately no private company will step upto the plate and offer to pay the bill
51	MISOG's	Someone, somewhere will write an article about how the cost of giving everyone an extra days holiday could stall the UK recovery

Bye, Bye American dream ...

In the last fifty years wealth inequality has risen dramatically in the US, with real earnings (adjusting for inflation) increasing by 5% at the lower end of the scale and by 700% at the upper end of the wealth bracket. Not that inequality itself is a negative thing, it can spur ambition.

Unfortunately there is a strong correlation and causation between wealth inequality and intergenerational social mobility. Hence around the 1950s-60s, social mobility was around 12% in the US i.e. 1 in 8 of people in that era moved up (and down) a social class. If you were born into the working class around the 1950s-60s then you almost certainly know several people who have made it big, who have achieved the American dream, maybe you're one. Today, social mobility languishes around 3% i.e. 1 in 33.

Chances are that people born today in social working classes will see few of their contemporaries (if any) breakthrough to higher social classes.

In the US today, your future social class is not predominantly defined by your ability but by who your parents are and the opportunities they can provide you. As this spreads, the lack of role models for a change in class should become self reinforcing.

In short, if you're born today to a wealthy family, hey presto ... you're a success ... but if you're born today to a family of police officers (a noble profession in my view) chances of you becoming a CEO of a major corporation are pretty slim, certainly much less likely than it was for those born in the 50s or 60s.

I mention this because a friend made a comment that they thought that the concept of monarchy and class was over. Certainly in the UK we've suffered with poor social mobility and its impact on competition but even our social mobility is now better than the US. If anything, hereditary monarchy is alive, growing and becoming stronger in the US through hereditary financial monarchy. All Hail, the new Kings and Queens.

As for the American Dream, to be brutally honest the last vestiges of this are standing outside Wall Street in a much derided occupy movement. Certainly there will be examples of people who buck the trend (i.e. 1 in 33 or less) and there is always the X-Factor or adoption by a wealthy family.

My only advice is that if you're born into a low social class in the US, blame your parents and learn to curtsey or doth your cap. If your're born into the high social classes, thank your parents, lord it up but watch those peasants - especially when they get hold of pitchforks.

Bye, Bye American Dream ... nice idea, shame it didn't last.

[As an addition : for those who want to learn more on this subject, a good starting point is probably the Applied Economics 2009 paper from Harvard University scholar Dr Dan Andrews on "More inequality, less social mobility"]

Is it time to reset?

Our economy faces unusual challenges due to the exceptionally high debt burden. In terms of Government debt this is represented through Gilts (Government backed securities of debt). The recommended solutions to our problems usually involved manipulation of the money supply in the hopes that somehow this will correct the underlying problems.

For example, in the UK the Government sells debt with Gilts then, through a wheeze known as Quantitative Easing, it prints money to buy back the Gilts it has sold. The net effect is that GBP is devalued (leading to commodity price inflation), the delta between buy and sell price is absorbed as profits by the counter party (normally a bank) and the entire distribution of wealth becomes further concentrated to the advantage of the counter party.

It would in effect be more cost effective (and honest) if Government's didn't sell and buy back Gilts but simply printed money to counter their shortfall. You'd still however be left with the issue of devaluation.

Now in an export led economy devaluation can help boost exports at the same time as increasing inflation. However, we're not an export led economy, so devaluation without direct investment leads to higher material costs, less profitability in internal markets and correspondingly cost reduction, weakening of the internal market, higher inflation and stagnation i.e. what the media call stagflation.

All of these problems are exacerbated by debt, inequality of wealth distribution etc. In the Eurozone we're seeing this shake out with Greece which faces either a decade or more of misery or default on the Government debt (i.e. gilts)

Now, a Greece default would be a disaster because it would be difficult to raise further debt and investors would be wary of trading with Greece. But wait, it's part of Europe ... the EU could always raise debt for it. I suspect this is why people are so keen for Greece to leave the Euro if it defaults. A country that defaults but then continues is not a message the market wants to hear.

Why?

Well despite media opinion, Government shouldn't operate for the benefit of investors but society as a whole and Gilts come with risk (albiet relatively small). Now if a country default and continued to operate, then the problem for the market becomes what if this idea extends? So let us extend this Greek idea a bit more. What if every country in Europe and ideally add in the US as well, simultaneously defaults on Government Debt i.e. Gilts and resets the debt to zero?

Well for investors it would cause one hell of a haircut and some banks would probably fail. However, those can be nationalised where necessary and measures taken to limit the damage. You'd certainly need some form of protective measures for those at the bottom end of society - hence tax raises would be necessary - and Government would need to co-operate to smooth out some of the fall-out.

There'd be lots of nashing of teeth, the markets would suffer turmoil whilst they reset but investment (in the case of shares, gilts etc) is always shorter term gambling and despite the losses the size of the EU & US means investment will still continue, possibly even flourish. It's worth remembering that market indices (FTSE etc) are also not a good indicator of the underlying economy despite the media's fixation on them.

I can't see there are actually any real downsides to a Europe and US default (bar the temporary turmoil etc) except for investors but such gambling inherently occurs risk and these are fairly unique circumstances. The Governments could always shore up the economy by direct Keynesian style investment as well.

Naturally, some would argue that this might collapse the USD / EURO / GBP against other currencies such as the Yuan. But the above approach wouldn't significantly increase money supply (other than investors dumping) and the Yuan isn't a free floating currency. Certainly against other countries they'd be possible devaluation but then given the size of the trading blocks the effect should be minimal over time. What about sanctions? Against Europe & the US - don't make me laugh.

Of course, some will argue it would spook investors so much that there'd be a collapse of investment. However, if the money was invested in Government debt it wasn't invested in longer term infrastructural goals which is what we actually need. Any investors sent to the wall would be quickly replaced by others - that's capitalism for you - and as for pension funds, well it's true that we'd need decent protective measures put in place to protect the poorest but beyond that not a great deal more.

I'm writing this because the UK Government is planning to give more taxpayers' money to the IMF who may contribute to the Eurozone bail-out (something which our Gov. said they wouldn't do) or in other words piling on more debt to help solve problems caused by having too much debt.

This is a cycle we need to break. Can I suggest we reset the market economy by resetting Government debt. A simultaneous default by Europe and US on all Government debt should do the trick.

Does this post mean I believe this is the right course of action? Well, unfortunately whilst the idea is interesting, the practice is virtually impossible. In order to exact such a change, the various Governments would need to agree and execute almost instantly to avoid investors dumping Government bonds on the unsuspecting public (or wrapping them up in some other complex instrument). I have doubts that our leaders are capable of such consolidated action. All it would take is one party to phone a friend and warn them to get out of Government bonds and the entire scheme would unravel quickly.

So, overall ... I agree with the concept but the practice is probably too difficult and it's much more likely that we'll settle for many years (or decades in the case of Greece) of austerity

Ecosystem & Porter

A common characteristic of Next generation organisations (as opposed to traditional) is their focus on ecosystems and the provision of platforms to support their growth. The purpose of such ecosystems is not simply some form of marketing exercise but instead a mechanism for managing the innovation paradox (i.e. the need to be efficient to compete today but also to be creative in order to compete tomorrow).

Consider the provision through an online API of a software system whether it’s SalesForce, Amazon’s AWS or PayPal’s x.commerce platform. These services are core utilities that the organisation is providing with the express aim of others consuming i.e. an ecosystem of consumers developing around the service.

The consumption of the service may represent general use or even novel and more creative uses e.g. the early provision of big data Hadoop systems on AWS. Since the genesis of any activity is uncertain (being chaotic) and likely to fail, then the use of utility services helps reduce the cost of failure and thereby encourages the creative pursuits of others. The larger the ecosystem, the more likely that creative models of consumption and the genesis of new activity will be occurring.

Naturally, if those activities are useful (i.e. Hadoop on AWS) they will spread through the normal process of diffusion. By monitoring the ecosystem’s use of your services this spread can be detected.
These factors enable a model known as ILC (innovate-leverage-commoditise) to be used (see figure below). Through provision of utility services and the development of an ecosystem, you enable others to create new activities at a lower cost of failure and hence encourage innovation to occur in the ecosystem and around your services. Through monitoring, you can leverage the ecosystem to identify novel activities that are spreading. An organisation then can either copy or acquire such activities and commoditise these to create further services that enable growth of the ecosystem and hence further innovation through componentisation effects.

For example, the introduction of AWS enabled others to build Hadoop on AWS. With the spread of Hadoop on AWS, Amazon introduced an equivalent utility service - Elastic Map Reduce (EMR) - which in turn has enabled novel activities to appear that consume EMR. And so the cycle repeats ...

Figure 1 - ILC model (click on image for higher resolution)

NB, I italicise the term innovation because I'm referring to the creation of novel activities i.e. genesis of an activity rather than the broad use of the word innovation which is applied to almost everything from feature differentiation to service provision of a pre-existing activity. See "The Abuse of Innovation"

It’s through models such as ILC that an organisation can simultaneously appear to be :-

• highly creative - by pushing such uncertain activities to a wider ecosystem
• customer focused - by leveraging the ecosystem to identify that which is becoming adopted
• highly efficient - by focusing on commoditisation

In Porter’s terms these Next generation organisations have a primary focus on a cost leadership (a best price) for provision of the utility service.

BUT they also have a strong differentiation strategy which is heavily influenced through creative pursuits of others within the ecosystem that develops around their utility service (i.e. genesis of novel activities being driven outside the organisation). This is why Next generation organisations often cite “enabling others to build upon our services” as criticial.

BUT they also have a strong customer focus strategy heavy influenced by adoption within the ecosystem (i.e. they leverage the ecosystem to identify activities that are spreading) and subsequent provision of these activities as further utility services.

In such cases, all three of Porter's strategies are being pursued simultaneously with the major nuance between these players is whether they use copying (a weak ecosystem play) or acquisition (a strong, reinforcing ecosystem play).

I mention this because "focus on customer, innovation or efficiency" is one of those truisms like "culture eats strategy for breakfast". It's a great sound bite but on closer examination, it doesn't seem to stand up to rigorous scrutiny today. The game has changed.

I'm currently collecting a selection of truisms and each one of them seems to leak like a sieve when exposed to rigorous study. The following are ones which in my view are all in need of serious re-evaluation :-

• You can't manage what you can’t measure
• You need to give customers what they want
• The best way to predict the future is to create it
• Avoid the commoditisation trap
• Business has only two functions - marketing and innovation
• Culture eats strategy for breakfast
• Focus on customer, innovation or efficiency

More QE madness ...

In the last five years, GBP has dropped in value by between 23-47% against the USD, EUR and CNY when Gold is used as the standard. GBP has taken a pasting. Our UK inflation during that time has been around 18% (based on CPI) but that's a basket of goods approach, as we've all seen basic commodity inflation has been much higher. You can pretty much put the entire inflation down to GBP devaluation.

One might argue that devaluing GBP is good for exports, however the UK has a huge balance of trade deficit managing to clock up a record breaking £9.2 bn in Dec'10. Whilst exporters have raised some recent cheer, what has to be remembered is that the UK imports almost all its copper, ferrous metals, lead, zinc, rubber, and raw cotton and about one-third of its food, along with a whole range of finished goods. With the GBP down the toilet, the cost of these goods has risen dramatically and certain items just aren't luxuries.

So, who has made good with the collapse of the GBP and where did it come from? Well, the reason why GBP has been hit hard is basically because of monetarist policies such as quantitative easing and keeping interest rates low. Quantitative easing (QE) is the best wheeze of the two and consists basically of buying back debt we're constantly selling, at an obvious premium, and hence simply amounts to printing money and handing it over to banks. The monetarist delusion is that those banks will lend it out, increasing money supply, and hence magically all our problems will be solved. In reality it takes no consideration of capitalisation requirements, debt exposure, weakness of infrastructure, business cycle etc. The net effect is always bad for GBP.

Through financial engineering we've created a situation of increasing inflation (due to GBP devaluation through money supply manipulation) combined with a weakness in the economy as a whole since we're not bothering to directly investing in it and trying to combat the economic cycle. This combination gives us stagflation = stagnation of industry + inflation.

So who benefits? Well, a depressed GBP makes the stock market and housing more attractive to foreign investors. Hence the FTSE, though fluctuating, remains artificially high and London housing is undergoing a mini-boom. Hence some people in the city think we're doing well, when in reality they might be doing ok but the rest of country is sinking fast.

Of course, viable solutions to this problem which include increasing interest rates, direct investment in industry (rather than QE) etc will cause lots of short term pain for those with debts and exposure combined with haircuts for banks and investors. Rather than face this, we continue on a path of devaluing our future in the belief that somehow this can correct problems caused by borrowing too much from the future. It's like a drunk reasoning that the way to deal with their drinking debts and find the path to happiness is through selling a kidney and only buying methylated spirits.

So, does our current policy help us? Not a jot. The increasing focus on money supply will probably mean more QE. At the same time, the overall economy will continue to weaken, unemployment rise, tax receipts reduce creating a need for more cost cutting, cost of basic goods will continue to increase, export led business (without direct investment) will continue to flounder but at least the FTSE will look somewhat rosy until reality catches up with it and graphically demonstrates the error of its ways.

Eventually, if we keep on this route we will finally reach a tipping point and enter the world of hyper inflation combined with extensive contraction of industry. I can't think of a nifty combination of these terms, so I'll resort to, Hyper inflation + Contraction = "Zimbabwe" Economics. Of course, I use the phrase loosely here because to actually achieve the stunning results of Zimbabwe requires a very rare kind of recklessness (or more appropriately "wrecklessness") which is unlikely to be repeated.

I'm writing this so as we enter these more troubled times, can we please, please, please remember to round up all the monetarists and either lock them up in the Tower of London or ask them to provide the data which demonstrates why what they're doing makes sense.

Larry offers Hotel California ...

According to CW, Larry recently raged over Salesforce describing it as a roach motel and pleading the case for interoperability. He's just given a gift horse to some fairly smart operators and this time Larry's forgotten to fill it with any of his own soldiers.

First, some background which everyone knows already, so I'll keep it short :-

• Activities evolve and our industry has been shifting from a product to a utility service world. This has been clear for the last 6+ years, Salesforce knows this and they've been positioning themselves in that future space.


• Past success always acts as an inhibitor to future survival, it creates an inertia barrier to change. This is why Amazon and not some hosting company encumbered by an existing business model made the break into IaaS. This has been crystal clear for 4+ years. Salesforce knows this, it's why Oracle has been slow to react to the change.


• In this future world, competitive markets will become key to solving those outsourcing risks such as pricing competition, second sourcing options and loss of strategic control. Such markets will require multiple providers, access to code and data (i.e. standard data formats and APIs) and semantic interoperability. The latter point is only solvable with complex systems through running code and unless the market intends to be a captured markets (i.e. dependent upon one vendor) then that code will have to be open source. This has been clear for the last 5+ years. Everyone knows this just a lot of people refuse to believe it usually because of inertia barriers which have become institutionalised.


• Critical in this new world is the development of ecosystems as these enable a company to solve the innovation paradox and simultaneously appear more innovative and highly efficient. This has been blindingly obvious for 3+ years. More details on common models such as ILC can be found here. Salesforce knows this, they've been playing an acquisition game around their own ecosystem and sending market signals because of this.

• With a large enough ecosystem, you can create network effects through aggregated data e.g. market reports. This can be used as a soft form of lock-in i.e. even if you open source an entire system, your service still maintains an advantage simply because of the number of people using it. In other words, you can be entirely open but in effect create lock-in (i.e. gravity) for your service because of the benefits that being within that ecosystem brings. This has been painfully obvious for the last 3+ years.

• Salesforce has also been playing a tower and moat ploy, building a tower of core revenue surrounded by a moat of high barriers to entry and devoid of differential value. Attacking Salesforce is a tough call for anyone, hence I suspect Larry's aim to make interoperability his calling card.

Salesforce has the ecosystem to play an aggregated data game i.e. free market reports for an industry based upon aggregated data or free comparison KPIs to your sales team effectiveness etc. Given the smart plays Salesforce has been making, you can bet your bottom dollar they've got lots of this in the pipeline.

Salesforce could also use open source as a tactical weapon in this space. They could open source the entire system and say "come and compete", "run it yourself" with full knowledge that those who build it for themselves and take the private road will eventually switch to public, whilst those setting up as public providers will lack the ecosystem and hence any aggregated data benefits. Salesforce is also smart enough to know that this game could be played against them, so they'll have to go down that route at some point. Hence you can pretty much bet your bottom dollar they've been working on this.

Larry has walked into a huge trap. He's just called out interoperability as the key differentiator for his service but as we all know the real issue is portability which requires semantic interoperability and running code. All Salesforce has to do is start launching more aggregated data services and open source the entire system under a banners of "Freedom in the cloud", "Run it yourself for Free" and Larry is left standing with the high cost proprietary service with no real portability (except between one licensed version of Oracle and another).

It's difficult to see how Oracle's strategists could have been more tweedledum or tweedledee as currently they are primed to become the industry's example of Hotel California (you can go anywhere you like as long as you're paying fees to Oracle?).

Now, open sourcing won't be easy for SFDC because they have an existing service, security professionals will be concerned over exposing security weaknesses, lawyers will have their usual collywobbles over IP and financial controllers will gasp at writing down a technology asset.

However Benioff like Maritz (you don't think CloudFoundry doesn't have a grand strategic purpose do you?) is generally a shrewd player. It all boils down to a question of timing and willingness to play the end game but we could be expecting checkmate to Salesforce in the near future.

Bad move Larry ... really bad. Oracle will be lucky to make it out of 2020 with this standard of play.

Why I believe AAPL will crumble ...

Earlier this year, at the height of Apple fever, I made a bet that Apple will be in Chapter 11 by the end of 2017. I thought I'd explain my reasoning because it's not what most people would suspect.

First, the problem with Apple in my view was Jobs. Whilst Steve Jobs was outstanding at creative leadership, that is only part of the battle for creating a sustainable company. An exclusive focus on creative leadership always leads to failure as the genesis of new activities (i.e. innovation) might be high worth but it's unstable and uncertain.

The problem for Apple started in my view from a major strategic blunder - it didn't open source iOS, it didn't feel it needed to, it was building the entire stack. By not doing so it enabled Android to thrive. Apple gave oxygen to the formation of a competitive ecosystem of hardware providers to develop around Google's new weapon (and Google had every reason to do this because of the threat that IOS exposed to Google's value chain of data).

As that ecosystem develops, Apple will find itself in a stand alone innovation game against it. The pressure will build for ever more outstanding and exciting breakthroughs in technology which Apple has delivered with the iPad. Unfortunately, this pressure will continue and such breakthroughs by their very nature (chaotic) are uncertain and every company in this position before has failed.

Take Commodore and the Commodore64 which was vastly more influential than the iPad. The C64 transformed a world where computers were rooms owned by huge corporations into personal computers. In terms of consumerization, the C64 was dramatic.

Commodore and Apple both tried to lead this new world through constant innovation but were hammered by the more commodity based ecosystem approach of "IBM PC compatible". Commodore died and Apple barely survived but unfortunately it seems to have failed to learn that lesson.

So once again, we find ourselves in a world where Apple is pushed into the high risk stand alone innovation game against a growing, more commodity focused, ecosystem. That ecosystem will enable rapid innovation of higher order systems, it will outstrip Apple once again and I suspect that Cook (the new Apple CEO) knows this.

The only viable defence against such an ecosystem play is to build a bigger ecosystem (which is tough as a stand-alone) or to buy up the supply chain and use patents to slow your competitors. The latter Apple has done but such moves only slow the change, they don't stop it.

It can give you breathing space though to find that next breakthrough or to work out how to build a bigger ecosystem. However, the problem is often expectation i.e. your customer expect that breakthrough continuously.

I've not listened to Apple's latest press release but if its lacks any breakthroughs and dazzling tech (which I strongly suspect) then markets and fans will slowly turn against Cook and cry "bring Jobs back". Markets always do this, they always want more of the past.

Into this current fray, Amazon will certainly push with its normal approach of commoditising an industry and building an ecosystem around itself. If Google and the greater ecosystem around Android have been waiting for this moment, then they'll shortly strike at Apple - a flood of patent attacks.

Apple will start to turn inwards and the market pressure on Cook will intensify. They'll go from looking for that next breakthrough to needing it. Culture will start to change, it may start to buckle.

Apple's core business will be undermined by the commodity players whose technology will rapidly catch up and overtake, assuming Google can get them to work in a common interest. Soon Android devices will be everywhere. If Apple's patent and supply chain protection measures fail, if a concerted patent attack against Apple is successful then this will happen sooner.

At this point, with margins under pressure, markets under attack, the gloss peeling off the Apple logo and the culture starting to decline then the markets will go after Cook - "it was his fault" they'll say. Of course it wasn't Cook's fault, Jobs made the blunder with an excessive focus on creative leadership creating a high margin but unsustainable business.

Cook might pull out a miracle and maybe they've got some tech they've been keeping back in preparation to dazzle. Maybe he'll help Apple create that sustainable company which balances both innovation and commodity by dealing with the constant flow between them.

I doubt it, markets never think that hard nor give that much time. Cook is more likely to end up as the next Leo Apotheker ... and as for Apple well it didn't learn the lesson first time around, I don't suspect Google and Amazon will let it have a third go.

That's my view, that's my reasoning and that's why I made my prediction. Of course, the prediction assumed Jobs would still be the CEO and maybe Cook can change things by correcting those errors. Should be interesting to find out.

-- Update 13th February 2014

One of the key parts of the above scenario depended upon an aggressive share buyback in order to sustain market value / perception. I was expecting this to be around $100 billion. It turns out that buyback is much less than I anticipated (around $54 billion in the last two years) though Icahn was pushing for closer to $90 billion. This cutting back on the buyback is a fabulous move and gives AAPL a lot more breathing room. Cook is doing an excellent job.

-- Update 17th January 2015

Cook still continues to perform an outstanding job. There's the usual grumbles about the "lack of innovation" along with certain investors demanding a "larger cash buy back" but Cook has played a strong game, focusing more on the growth of the ecosystem, using supply chains effectively ... it's all good. Really impressive and adds many years to that company.

-- Update 30th April 2016

Cook has been truly remarkable. Apple is in a stable and strong position. Obviously some investors are unhappy about not getting big share buybacks or the lack of stellar growth but since they are just interested in a quick buck who cares. Well done Cook. Exceptional.

Culture eats strategy ... where's the data?

I find irksome the management mantra that is commonly spouted of "Culture eats strategy for breakfast" because no-one ever seems to be able to justify the statement with data. I thought I'll pen a few thoughts on this.

An organisation consists of a mass of people, activities and practices combined with reserves of physical, financial, human and social capital. It's the interaction of the former three which impacts the latter either positively or negatively.

Culture results from the interaction of people with social (e.g beliefs, values, reputation) and human (e.g. skills, knowledge, myths) capital. In much the same way, the business itself can be described through the interaction of people, activities and practices with various forms of capital.

Strategy, is simply a plan of action, an intention and an aim e.g. it's the act of trying to achieve a particular goal or result. Either something has a strategy or we leave it to chance, randomness and accident.

We often talk about product strategy, marketing strategy, business strategy and organisational strategy but equally (if not in many cases more) important is cultural strategy. If you don't aim or plan to develop a particular culture, you'll end up with something by accident and that is not necessarily a good thing.

In recent years, the creation, building, "gaming" and planning of culture has become an increasingly more visible topic. Few have highlighted this trend as much as Zappos and Tony Hseih's work on delivering happiness. Be under no doubts, you can plan to build a specific culture.

Once a culture has formed it can certainly impact what business, product and marketing strategies you can effectively deploy in much the same way that past product strategies often impact future product strategies through inertia such as concerns over cannibalisation etc. In some cases, a future product strategy may require you to plan a new culture by spinning-off a group from the main corporate body.

As a rule of thumb your future strategies are impacted by today's strategies.

Whilst I can see some modicum of merit in bland arguments such as culture trumps products in certain industries, the culture eats strategy argument appears entirely misguided because you can plan to create or change a culture. Your strategy might require you to create a new group, to focus on happiness or to game the system - it doesn't have to be random or accidental.

To cut a long story short, the "Culture eats strategy" statement hypothesises that :-

unplanned, random and accidental [lacking strategy] culture eats for breakfast having a plan, intention or aim [for culture].

... I'm sorry I don't buy that, especially unless backed up by considerable amounts of data to counter examples such as Netflix and Zappos which show the opposite.

The counter hypothesis is that having a strategy for culture, organisation, business, product, marketing etc is better than not having one i.e. strategy eats all for breakfast, lunch and tea. In other words having a plan of action, aim or intention to achieve a goal is better than relying on randomness, accident and fate to do the same.

Now, the counter hypothesis would appear to be an obvious truth which is dangerous in itself. So, I'll start the process of collecting data and let's find out whether the "Culture eats Strategy" brigade have a leg to stand on. I doubt they do but then I might be pleasantly surprised.

Next phase of research ...

Many years ago, I produced the ubiquity vs certainty curve to describe the process of how business activities evolve. It took 4,084 data points to create the curve and more details about this topic can be found here.

Currently, I'm researching into how organisations evolve. After conducting a number of general and then specific interviews (creating a thousand data points), I've been able to create models of evolution which hopefully I'll be using in future presentations.

However, I need to collect more data to test the models and either verify or falsify them and hence I've put a general survey online : [Link to Survey]

The presentations that I give at various conferences are based upon this process of hypothesis and testing, so if you have ever found my work useful (such as my various talks at OSCON on cloud computing, see below) then I would be very grateful if you could take 10-20 mins to complete it.

Depending upon the results and validity of the models, I'm aiming to give a number of talks next year on how organisations evolve combined with techniques to exploit this. Naturally, I'll be blogging about the findings as well and the survey does allow you to provide an email in case you'd like a copy of the overall results.

[Link to Survey]

Thanks

Simon Wardley

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.