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.

Bank Recapitalisation ... Pirate Style

After much ado, the European Union seems to have been badgered into emergency action in order to re-capitalise the banking system due to its over exposure to instruments based on sovereign debt and the reliance on the dollar. I'm not a fan of this, this is just another monetarists prayer to the altar of "no sodding evidence whatsoever" and as usual the taxpayer will foot the bill.

Naturally, there will be wormtongues who will claim it was a Keynesian approach when it all goes spectacular wrong ... that is par for the course for economic banter.

So given that we're going to re-capitalise the banks, let us at least try and arrange the situation in the interest of the taxpayer. First, re-capitalisation should be forced and not voluntary and the capital ratio set by Basel should be raised to 30%. Next the banks should be given two options - either raise the money yourself or borrow from us, the nice friendly EU.

Of course, being the lender of last resort, there will be a couple of strings attached to the capital we lend (oh and lend is the operative word). Hence :-

1. The entire capital lent will need to be repaid annually over 5 yrs at EU base interest rates or average EU inflation (whichever is higher) + 10%.
2. The EU takes precedence over all other debtors and the entire banks assets will be used to underwrite the loan
3. A sum of Bank equity equal to capital lent will be paid to EU as our "setting up administration fee"
4. Late payment will incur an APR of 200% plus a penalty of 50% on any remaining capital.
5. No dividends will be paid until the entire loan is repaid
6. Upon final repayment of the loan, another sum of Bank equity equal to the capital + interest + any late payment fees will be paid over to the EU as our "closing administration free"
7. If you don't like the terms then go raise the capital yourself on the open market.

Now, I'm not actually advocating such draconian terms but I'm arguing for the EU and our Gov to stop acting like they're just pawns in this global game and start acting like pirates. The banking system is an essential vehicle for our economic system but like all things, it should be managed in the wider interest of society.

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.

Why proprietary software is mathematically more evil than open source

As we all know, proprietary software costs time (t) and money (m). Hence,

Proprietary Software = m.t

However, we also know that time is money. Hence,

Proprietary Software = m^2

However money is the root of all evil. Hence,

m = (Evil)^1/2

By substitution we can show that,

Proprietary Software=((Evil)^1/2)^2 = Evil

Ok, so proprietary software is evil but is this more evil than open source? Since open source only costs time, it is therefore obvious that:-

Evilness of Proprietary Software = (Evilness of open source)^2

As a function of cost, then :-

Evilness of Proprietary Software per $= (Evilness of open source)^2/0

i.e.

Evilness of Proprietary Software per $= (Evilness of open source).infinity

If we hypothesise that open source isn't evil then :-

Evilness of Proprietary Software per $=0.infinity = 1

In other words, proprietary software is infinitely more evil than open source and even if open source isn't evil then proprietary software still absolutely is.

Next posts include ... Mathematical proof of why patent lawyers suck your soul dry and why clothing concepts in a cloak of mathematics doesn't make them right.

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.

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"

Prisoner of T5 ...

On average, I find myself on a plane at least twenty times in a year. There's a lot I dislike about flying. In no particular order my pet dislikes are: flying coach, British Airways and airport queues at customs (especially NYC & SFO where it is particularly abysmal).

I don't suffer from jet lag (I use the starvation trick when needed) and I generally find airport security pretty quick and responsive. Though I'm a smoker, I've always gone outside the building to smoke, so the movement of airports to non-smoking has been no skin of my nose.

Well, that was until today.

I arrived early at Heathrow Terminal 5 (an airport I rarely use as it's mainly BA), sat down for a quick bite to eat and then decided to go out for a smoke - obviously you can't smoke in the airport.

So I went to security who said I had to be escorted through. Kidding? I have been through every one of the world's busiest airports plus a whole host of smaller airports and I've never once needed to be escorted from departures to outside the airport. I was then told by security that I had to get permission from the British Airways customer support person - damn.

Being incredibly polite I asked the lady from BA whether I could be escorted outside to have a cigarette. "No" was the reply because there was less than three hours until my flight.

So, let us be clear ... I'm currently a "captive" inside T5 departures lounge unable to leave until I get on my flight? I'm held against my will, a prisoner of BA!!! I feel a protest song coming on ...

"Free, Free, Free Simon Wardley ..."

Joking aside, my dislike of British Airways has hit an all time low.

[Addition]

Well, it's BA so what do you think happened. Yes, my flight has been delayed close to departure by just under two hours. Still not allowed out to have a smoke - a cruel and unusual punishment.

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 battle that wasn't ...

Chris Boos wrote an interesting post about a debate that @samj and I were having on twitter regarding APIs in the cloud space. I thought I'd leave my comment here as a general view on the subject.

A couple of things to point out. Twitter is not the best tool in the world to determine the exact context of a discussion because those listening aren't generally privy to the history of the discussion. Hence in this case, it may not be clear that Sam Johnston and I are in absolute agreement on the importance of open source and efforts like OpenStack in this world.

Any difference between us is on the necessity of reverse engineering APIs and co-opting as the main short term tactical play. The long term we're both totally in agreement on - open standards, open formats and open source are critical.

Our difference in views on short term tactical plays hardly constitutes a battle but is merely debate. As for being a "giant", whilst that is very flattering it doesn't coincide with my view of the world. Nevertheless, it was an excellent post by Chris and much appreciated.

Comment --

Just to clarify my view - as it currently stands any company can reverse engineer an API for reasons of interoperability. Hence when trying to make a market of providers in the IaaS space with semantic interoperability between providers, I strongly support adoption where there is clearly a dominant API.

It should be noted that such a market can have multiple open source and proprietary implementations around the API. However, running code through an open source effort is necessary to form a market place without a single (or consortium of) vendor(s) being able to force a tax on that market. In other words, providers need to have an operational means of implementing the service and compete in the market without a necessity to purchase software licenses (a tax on competition). They may choose to buy software to do so but a free market is one unencumbered by such forced taxation.

This is why I do no support MSFT Azure's effort, despite the provision of open standards because there exist no open source implementation.

This is why I did not support Google's AppEngine, despite the provision of an SDK as there existed no fully operational open source means of implementing the service.

This is why I strongly support open source efforts which reverse engineer the dominant API for reasons of interoperability e.g. open stack, eucalyptus etc.

It is also why I strongly support open source efforts which attempt to create the dominant standard in a fledgling market, such as CloudFoundry in the PaaS arena.

Once the marketplace of alternative providers is large enough and it has the dominant ecosystem then the open source effort in effect becomes the defacto standard for implementation and the API in that market. If necessary, due to abuse of position by the original provider, then the API can be differentiated away from the original provider including providing an entirely new API where applicable.

I don't find attempts to differentiate on API in a utility world where one API is clearly dominant meaningful. Of course if an open source effort (such as openstack) creates a large enough ecosystem then it is in effect the dominant and can do as it pleases.

I find re-inventing the wheel by creating an API by committee and attempting to get the market to adopt as a wasted effort when a market has in principle chosen.

I do find the way to standardise is through creating the largest ecosystem and in such cases both reverse engineering the dominant API for reasons of interoperability combined with provision of open source running code is necessary.

Co-opt rather than compete is the order of the day in this world.

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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