The first sign that the cloud was going to take over the world came in 2008 when research firm Gartner introduced cloud computing on its closely-followed hype cycle, which ranks fledgling technologies based on how the market perceives them and how far they are away from mainstream adoption.
At the time, Gartner predicted that the cloud was 2 to 5 years away from going mainstream, and few people outside the world of enterprise computing really understood the concept of accessing software and services remotely via the Internet rather than from locally-installed servers. Google Docs, arguably one of the first truly mainstream applications of cloud computing, was still a year away from coming out of its beta testing stage.
Last week, I saw a t-shirt that said: “There is no cloud, just other people’s computers.” Then I opened my phone to read the headline: “Cloud Services Lift SAP Sales.” While the t-shirt proves that there is still a considerable amount of confusion out there in the mainstream about what, exactly, the cloud is, the SAP financial results prove that there’s a business revolution unfolding for companies that have begun to harness the power of the cloud.
As of this year, virtually every major enterprise technology company has reported significant profit increases at the hands of cloud-based technologies. Oracle’s profit rose 15% during its fiscal fourth quarter, thanks largely to revenue from its cloud-based software-as-a service and platform-as-a-service businesses. Amazon, which has been busy making headlines for its Whole Foods acquisition, actually earned the majority of its overall profit through the first quarter of 2017 from its Amazon Web Services (AWS) business, which rents cloud-based computing services and online access to software hosted in Amazon data centers. Even Microsoft, the company that was once synonymous with locally-installed software, is seeing the largest growth in the cloud. Its Azure cloud hosting business grew by 93% in the first quarter of 2017.
Taking a closer look at Oracle’s corporate earnings as an example of just how significant this shift to the cloud has become, the company’s fiscal year-end earnings report shows total cloud revenues for the quarter of $1.4 billion, which is up 66% from last year. Revenue from its locally-installed, on-premises software were $7.5 billion, unchanged from last year.
That’s a really big deal. A company that catapulted its founder, Larry Ellison, to number seven on the Forbes Billionaires List by selling locally-installed hardware and software to large corporations, is now seeing all of its growth come from what is effectively a subscription model.
That changes the entire process of how software and services are bought and sold, moving the revenue cycle at a company like Oracle from a series of big dollar sales each time it gets a new customer, along with ongoing maintenance contracts, to a recurring stream of entirely subscription-based revenue.
So far, the company is proving adept at managing that transition, but it is a major change. It introduces an entirely different calculus on how companies buy and sell products and services and, thanks to the power of the cloud, opens up wildly new potential.
Add the fact that the FCC just granted Apple approval to start testing 5G cellular technology, which would open up super-fast bandwidth capabilities for wireless and mobile devices and the growth potential for cloud-connected technologies becomes even clearer. Imagine a world in which virtually every piece of hardware – from a mobile phone to a car to a kitchen appliance – is connected to the Internet at all times with little to no bandwidth restrictions. That’s what’s coming, and it’s affecting every business.
Run a simple search for the keyword “cloud” on the major newswire services – PR Newswire and Business Wire – and you’ll find over 20,000 press releases announcing various cloud-based business initiatives over just the last six months.
What’s happening beneath the surface of all of these press releases and all of these incremental steps toward constant connectivity is that business models are changing in profound ways. It’s not just the enterprise technology companies who are being affected by this transformation either.
Pick any company in any industry and you will find a cloud story. The mad dash between Tesla, GM, Ford, and Uber to be the first to develop truly autonomous vehicles: it’s really a race to develop the most robust cloud-based dataset for connected cars to communicate with as they traverse the globe sending back upwards of 25 gigabytes of data every hour. Illustrating just how important this data has become, Morgan Stanley analyst Adam Jonas published a report last month which said that Tesla’s over-the-air software update capabilities have become so powerful that they could make other automakers “highly vulnerable to obsolescence.”
Soon, virtually every single business will be wrestling with cloud strategy, both in terms of their own utilization of the cloud to become more efficient and in terms of their deployment of cloud-based products and services that will be delivered via subscription and on-demand models as opposed to one-time sales.
Consider the growth of the subscription and on-demand business models pioneered by the likes of Amazon, Netflix, HP, and countless others. All of these companies are using sophisticated cloud-based analytics to predict when customers will need something new and delivering it, sometimes before you even ask for it, via cloud-based order management systems.
Amazon’s Dash Buttons, which are essentially web-connected “easy buttons” for re-ordering household goods, and its voice-enabled Echo are already changing the way consumers purchase goods thanks entirely to the cloud. HP addressed one of the modern age’s biggest annoyances – the perpetually empty home printer ink cartridge – with an ingenious cloud solution: its new Instant Ink service allows Wi-Fi-enabled printers to monitor ink levels and tell HP when you are running low so they can send refills automatically.
As a result of these types of innovations, companies that are getting the cloud formula right are creating forever customers who prize the conveniences and intuitive nature of a relationship that is automated and occurs almost entirely in the cloud.
The knock-on effects of continued cloud expansion will fundamentally change the way every business – large and small – operates, affecting everything from supply chain to pricing and sales models to how revenues are accounted for and taxed. It’s a fundamental business shift. Along the way, the technology will rewrite the rules of consumer expectations and redefine business models. If you’re not already thinking about the implications of the cloud on your business, you’re at risk of being left behind.