Chapter 1
The Future Is Here
Films frequently combine imagination, inspiration, and aspiration. Many films depict life as we wish it to be. The cinema can portray new worlds and new possibilities. Over the years, science fiction has portrayed a world with self-driving cars, robots that clean your house, and smartwatches that can be used as communications devices. In the 2002 science fiction movie Minority Report, a person could walk into a store and be recognized. There were multitouch interfaces for screens, retina scanning, personalized advertising, and electronic readers. There were smart homes that could sense when you walked into the room and adjust the lights and music to suit your mood. Crime prevention was also automated with computers.
Fast-forward to the present. Today, you can see the prototypes of self-driving cars on the roads in many cities around the world. At the 2014 Consumer Electronics show, BMW revealed a modified version of the M235i Coupe that can brake, steer, and accelerate without driver intervention. The iRobot Roomba vacuums your floor, and the company offers a higher-end autonomous robot that can be controlled by a person and used to deliver aspects of healthcare in hospitals and remote inspections in manufacturing plants.
Qualcomm, Samsung, and others announced smartwatches that act as minicomputers and extensions of your phone by receiving text messages, placing phone calls, and sending calendar reminders. Meanwhile, tablets and electronic readers are offering a second wave of change in the publishing industry that includes interactive content and social interaction with content, such as through sharing and commenting.
While public safety departments aren't quite predicting who will commit a crime before it happens, they are using video, mobile, and analytics to fight crime and keep people safe. In the world of film, we have seen gadgets that know who you are, sense things about you, and offer services or guidance based on this knowledge. These imagined services would talk to us and be an extension of who we are. Today, we live in that world. What we once considered fiction is now reality.
With sensors in smartphones and throughout a physical location, a retailer can know if you've entered a store. If you've downloaded their mobile app, they'll know who you are and if you're a frequent shopper. Ads can be personalized based on context, such as where you are standing, what you've bought in the past, and the time of day or the weather.
We have clothing and wristbands that can sense how hard our workout has been. We can swallow sensors to help us track our vital statistics. For example, the Proteus “smart pill” system consists of a pinhead-sized sensor embedded in a pill and a battery-powered patch that monitors various health indicators, such as sleep, activity, respiration, and heart rate. MC10 offers what it calls a Biostamp. This is a patch that looks like a Band-Aid but is actually a stretchable sensing device that measures a variety of physiological functions, providing data on the brain, muscles, heart, body temperature, and even hydration levels. Reebok is using it in sports helmets for athletes. Google, picking up on work Microsoft started several years ago, announced the company is working on a contact lens that could track blood glucose. Imagine the life-changing impact these technologies can provide for diabetics, athletes, and the populace at large.
The smart home from Minority Report is here, and the smartphone is its controller. You can open your front door, turn on your lights, and control your thermostat all with the tap of a finger.
Over the holidays, I sat with a friend who was wearing Google Glass. He could speak to his glasses and they would record his kid playing or anything else he could see. He could use them to read his email without touching a keyboard. He was wearing a voice-activated computer, just as we'd seen in the Star Trek TV series. While we haven't cracked space travel yet, Richard Branson, CEO of Virgin, and Elon Musk, CEO of Tesla Motors, are both working on it.
The future is here, and the convergence of four major technology trends—mobile, cloud computing, social, and big data—is making what we loved in the movies a reality (see Figure 1.1). The combination of these technologies has irreversibly changed both societal behaviors and market models.
Figure 1.1 Four Trends Changing the World
Source: Lopez Research.
In this chapter, I discuss how these four technologies continue to transform how we live, work, and play.
We Are Living in a Connected World
Mobile and the so-called Internet of Things (IoT) are creating a new connected and sensory world. It's been over four decades since Motorola employee Martin Cooper, “the father of the cell phone,” placed the first mobile telephone call. It was a call that changed the world. But for many years, mobile devices were expensive and clunky and placed only telephone calls. The first mobile phones weighed two and a half pounds (1.15 kg), were 10 inches long, and could be used for just 20 minutes before the battery died. The first commercial portable cell phone cost $4,000 in 1984.1 It was hardly affordable, and mobile adoption was slow.
Today, mobile phones are a completely different product. Yes, you can still place a call with one, but this is where the similarities begin and end. Mobile devices are sleek. They fit in your pocket and on your wrist. They are powerful computing tools. In 2012, a smartphone had more computing power than the first space shuttle that landed on the moon. Today they are also relatively cheap, with smartphones ranging from $150 to $700.
The International Telecommunications Union reported there would be over 6.8 billion mobile subscriptions by the end of 2013.2 While a person may have two or more mobile subscriptions, this still means over 50 percent of the world's population has a mobile phone. According to the source you check, there were more than 1.9 billion smartphones in use at the end of 2013, and that number could grow to more than 5.6 billion by 2019.
Imagine: Almost 80 percent of the population could be using a smartphone by 2019. For the first time in history, we can see a path by which computing becomes accessible to the masses. In September 2013, there were 143.2 million Internet users in India, of which roughly 16 percent (23.8 million) were mobile-only data users.3 Globally, many individuals may use a mobile device as their primary Internet access method going forward. Consumers are obviously using these phones for much more than making a phone call. They are embracing new options and participating in new experiences. Today's smartphones act as your navigation system, your gaming console, your personal concierge, and your camera.
In 2014, many individuals are carrying more than one connected device, as mobile options have expanded to include tablets, e-readers, and fitness devices. Smartphone and tablet sales had passed traditional desktop and personal computer sales by the end of 2010. The pace of mobile device adoption also continues to accelerate. It took notebook computers over a decade to reach 50 million units in annual sales. It took only three years for tablets to reach the same unit sales volume.
The combination of powerful devices, near-ubiquitous wireless networks, and widespread consumer adoption has changed how organizations are able to connect and communicate information. However, many companies have yet to take maximum advantage of the possibilities mobility affords. The big transformation is in what we connect, how we connect, and how we engage and transact once connected.
A Computer in Every Pocket
In the 1990s, Bill Gates from Microsoft said, the company was founded with a vision of “a computer on every desk, and in every home.”4 PCs were the third wave of computing, after mainframes and minicomputers. Their rise brought computing to a person's desk and made it individual. In the 2000s, the laptop made computing smaller, lighter, and more portable. But for the most part, users weren't stuffing a laptop into a pocket or a purse. Limited connectivity and unwieldy size meant that computing couldn't be done everywhere. Today, we are living in a world where computing and wireless connectivity surround us. They're everywhere we go, and we carry them with us. Wireless connectivity, increasingly small computing chips, and sensors have moved computing beyond the domain of the PC.
Internet portability was one of the first changes that mobile computing provided. People could take their laptop with them anywhere, but if there wasn't a Wi-Fi signal or an Ethernet connection, they probably weren't linked to the Internet or the office. Today, mobile devices have multiple types of connectivity, which means they can be used almost anywhere. You can call or email someone from a ski slope in Switzerland or in a subway station in Boston. Within 10 years, there'll be a computer in almost every pocket.
Smartphones: The Twenty-First-Century Swiss Army Knife
Computing capabilities have also changed. For the most part, PCs didn't have touch screens, voice recognition, and GPS location. A laptop may have had a camera, but few users were doing much with it. Desktop videoconferencing wasn't widespread, and no one thought a laptop's camera would replace a handheld video camera. Today's smartphones and tablets contain still and video cameras. Over time, PCs grew to be multifunction machines that allowed you to work, shop, and play. But in general, PCs did not replace special-purpose devices such as your camera, your gaming console, and your GPS.
Now people use smartphone and tablet cameras to capture life's fleeting moments, such as a baby's first steps, the final touchdown of a football game, or a favorite song at a rock concert. The move to digital photography destroyed Kodak, Polaroid, and countless others who couldn't adapt quickly enough. Smartphones and tablets are eliminating the need for point-and-shoot cameras. According to Christopher Chute, IDC's research director of worldwide digital imaging, the rate of decline in digital camera sales, which began in early 2013, is accelerating. By October 2013, Canon's camera sales were down 23 percent, Nikon's were down about 18 percent, and Sony and Fujifilm were down about 35 percent each.5 Video calls and video chats are now commonplace. There's a famous set of images that presenters use to highlight the change in behavior within five years. In 2007, a photograph shows people taking pictures at the Vatican with cameras. In 2012, a similar photograph shows a majority of the people capturing photographs and video with smartphones and tablet.
Today's smartphones are filled with sensors. The average smartphone has over 16 sensors that can track motion, orientation, humidity, and much more. For example, magnometers and accelerometers in mobile devices allow a smartphone to act as a compass and to play elaborate driving games that require motion sensing to control a car racing on a track. If your phone can double as your gaming console, is it even necessary to purchase portable gaming devices such as Nintendo DS and Sony PSP?
Perhaps even more useful are the location sensors and mapping applications that help a person find the address of the nearest café or the current position of the next bus. The rise of smartphones as the new personal navigation device has taken a toll on companies such as Garmin and TomTom. Makers of personal navigation devices now must find new revenue sources by selling software and services or face extinction.
A smartphone is not just a phone. It's a camera, a navigation system, a gaming console, a media player, a web browsing device, and even a flashlight. It can be the remote control for your lights, your garage, and your television. It's completely upended the consumer electronics industry—and this is just the beginning.
Smartphones and tablets have clearly changed how people connect with each other and with services. But the connected devices wave is just gaining momentum. Estimates from Cisco claim there will be over 50 billion connected devices by 2020.6 These connected devices are what is frequently called the Internet of Things.
Talking Devices Make Businesses and Consumers Smarter
Wireless connectivity and sensors are changing the types of devices that are connected and the types of information they provide and are helping businesses automate tasks. Whereas the Internet was defined as a computer network providing email and information from computers to the general public, the Internet of Things is a network of devices that expands beyond computers. These physical objects have sensors and connectivity that allow them to communicate with computers, people, and other similar devices. IoT devices could be stationary equipment, such as an HVAC system, with fixed or wireless connections, or mobile with wireless connectivity, such as a car or a Polar heart rate monitor. These physical objects can also be connected sensors on living objects such as farm animals, plants, and even people.
A device that in the past either told you nothing—or very little—about its status will now tell you more and more. Simple example: For years, your car's fuel-gauge needle told you when you needed gas. Today, cars can tell you that the tire pressure is off or even be used to automatically park your car. Sensors have been built into vehicles for years, but automakers are increasingly making this data accessible to vehicle owners, service centers, and potentially other interested parties.
This became obvious in the case of a New York Times article about a Tesla Motors test drive. When Tesla Motors claimed the article didn't reflect the conditions of the test drive, it had the data to prove it. It turns out that sensors in the car can track everything from speed to how long you charged the vehicle. Your car is part of the Internet when it's connected to your smartphone, to the dealer, and to the manufacturer.
The Internet of Things, of course, involves much more than consumers and their devices. It can involve anything with a sensor and wireless or wired connectivity for communication. It can connect and share information from equipment with a company's operational systems, providing new insight and new opportunities to improve operations. Have you ever considered what might happen if wind turbines could talk to each other and to the utility company?
First Wind, a Boston-based operator of 16 wind farms in the United States, has been adding more sensors, controls, and optimization software to its wind turbines. The new sensors measure temperature, wind speeds, location, and blade pitch. In very high winds, for example, First Wind has had to routinely shut down an entire farm by changing the blade pitch to prevent turbine damage from the blades rotating too fast. The new sensors mean that First Wind is able to shut down only the affected portion of the turbines rather than an entire farm. In the winter, the sensors can detect when the blades are icing up and speed up or change pitch to knock off the ice.
The new sensors collect three to five times as much data as the sensors on turbines of just a few years ago, says Paul Gaynor, chief executive of First Wind. This is an example of the fourth trend I discuss later in this chapter, the rise of new information and the tools to process big data.
First Wind uses General Electric software to collect and analyze wind turbine data. The utility uses this new insight to refine the operation of each turbine for the greatest efficiency. According to the company, upgrades on 123 turbines on two wind farms have delivered a 3 percent increase in energy output, or about 120 megawatt hours per turbine in the first year. This translates to $1.2 million in additional revenue a year from those two farms, said Gaynor. “It's not earthshaking, but it is meaningful. These are real commercial investments for us that make economic sense now.”7
In the past, machine diagnostic measurements were fairly crude. You could have, for example, a piece of equipment that runs optimally at a temperature of 75 degrees. Meters would alert the operator when the temperature fell below 50 degrees or rose above 100 degrees. But what happened if the machine began to run at 85 degrees? No warning bells would go off. You'd only know there was a problem when the equipment broke down after running hot for three weeks. Today, the sensors and software within the device will tell you the equipment is running at 85 degrees and as a result will probably fail in three weeks. This is what's known as using IoT data to make more informed decisions. The device—an electric turbine, an aircraft engine, a locomotive, a farm combine, a manufacturing robot—communicates its health at a point in time and gives the organization an opportunity to perform preventive maintenance and extend the equipment's health.
This is just one example of the power of the Internet of Things. It allows us to understand what is going on with the equipment around us, to control it, to maintain it, and to save money as a result.
These devices are not computers per se (although they may share computer-like characteristics), but they provide data to our software information systems that was difficult or even impossible to obtain in the past. The shifts in the availability and cost of sensors and wireless connectivity chips have also made it less expensive to collect this data than it was in the past. The business software, which may be on several linked machines, can turn the data into information a human being can use to make an informed decision. It can provide alerts such as “Inspect the turbine's bushings, which are running hot,” “Check the left rear tire,” or “It costs twice as much to run the electric dryer in the middle of the afternoon.”
Effectively, mobile devices and connected sensors will forever change the number of devices we connect and the data we can gather from these devices. Mobile and the IoT haven't just changed the device landscape. They are also changing the software landscape.
Is There an App for That?
Mobile and cloud computing technologies, which I'll describe in a moment, have created chaos and opportunity in both the consumer and enterprise software market. When Apple introduced the iPhone in 2007, no one expected the radical impact it would have on the software industry. Many applications, websites, and services that we use today were designed for PCs, not mobile devices such as smartphones and tablets. However, this is changing rapidly.
By October 2013, Apple announced that over a million applications had been designed for Apple's iOS within the past five years.8 Several months later, Google's Android operating system had reached over 1 million apps.9 In fact, mobile applications are a real industry, one in which developers can make good money. In 2013 alone, consumers spent $10 billion in Apple's app store.10 Many of these applications were designed as simple consumer applications, but even that is changing. The opportunity for mobile applications within the business environment is a huge and largely untapped market for the software industry.
By 2013, employees were bringing their personal devices into the workplace. Over the past several years, the IT divisions of companies around the world have responded to this demand by creating a bring-your-own-device (BYOD) program. In a world where almost everyone is connected, employees expect real-time, on-demand access to business applications, regardless of who owns the device being used.
Over two-thirds of the companies Lopez Research surveyed at the end of 2013 were allowing employees to use their personal devices—largely smartphones and tablets—to access corporate data and applications. While a majority of the companies were offering only email and calendar access, it's clear this is the beginning of a larger trend. As in the consumer landscape, this trend is forcing companies to reimagine how the business should deliver applications and services.
Cloud Computing Enables New Entrants and Business Models
While mobile devices impacted the masses, the arrival of cloud computing and virtualization created shifts in business IT, the applications market, and prevailing market models. Step back in time for a moment. Not too long ago, companies built data centers and IT bought servers and storage for these data centers. The systems that ran this hardware were inefficient. Most of the processing within these data centers was normally utilized at roughly 30 to 40 percent of capacity.
Then, VMware and others built what was called the virtualization market. This technology helped companies get better performance out of underutilized hardware like servers and storage. In some cases, it increased the hardware's utilization to up to 80 or 90 percent, a huge improvement. With virtualization, the IT department could purchase less hardware or even forgo building data centers to support increases in computing demands.
Service providers such as Amazon and Rackspace kicked off a second wave of virtualization and a new generation of cloud-based computing services. Rather than spending millions on data center technology, enterprises and start-ups could buy computing power on demand and scale it as needed. Cloud computing services allowed an organization to buy capacity by the minute, by the hour, and by the day. Businesses could purchase just what they needed, exactly when they needed it.
The availability of cloud services meant companies didn't have to buy computing resources to meet peak demand. Cloud computing allowed established companies to use resources more wisely and respond to market changes. A company that owns its data centers may need more capacity at certain times of the year; with cloud computing, it can easily scale its IT services to meet fluctuations in demand. For example, a retailer knows it will have a high transaction volume at Christmas and needs more computing power during this time. Should the company build a data center large enough to support demand during the two months a year it needs the resource? Or should it build for the 10-month average and use the cloud provider for the peak-time demand? This gave companies an option that didn't exist before. In some cases, government regulations or security concerns stalled adoption back when cloud computing was an evolving set of technologies and services. Today many of these concerns have been alleviated as cloud providers have improved the technology, business processes, and product options for securing and managing data.
Today, there are different types of clouds and usage models for them that address different business requirements. Of course, the more you want a model to look like your existing infrastructure, the more it has the economics of your existing infrastructure as well. One organization may not care, for example, where its expense data resides as long as the company selling the service has built in strong security to protect it.
In his book, Cloudonomics: The Business Value of Cloud Computing, Joe Weinman addresses a variety of cloud scenarios, together with the economics behind them.11 For example, a company might keep its core applications in its own data but use the cloud to distribute content closer to the end users, thus making the user experience richer and more interactive. Another company might use the cloud for business continuity and disaster recovery. In the same way that you might stay in a hotel if your house burned down, a company can recover applications in the cloud if its data center is damaged.
There are also more complex scenarios. For example, Sony normally servers all visitors to its online music store out of its own data center. However, during demand peaks, such as upon the death of a celebrity, information seekers are served out of the cloud, whereas actual purchases are still completed within Sony's data center. Weinman says that cloud computing is clearly having a huge impact on both consumers and enterprises. While few large companies have gone “all in” and committed to migrate all of their data to the cloud, as Netflix has, cloud computing will be a significant component of virtually all industries due to benefits such as reduced cost and risk, increased revenues, and business agility. Weinman also notes that cloud computing can provide enhanced computing performance and user experiences.
Cloud Computing Lowers Market Barriers
In the past, most start-ups needed millions of dollars to get started. They had to purchase and install expensive computing infrastructure just to start the business. Today, they can use cloud computing to launch with minimal capital investment while having a platform that can scale to accommodate millions of users on day one. These on-demand and highly scalable services also allow existing businesses of all sizes to have a more flexible and agile computing infrastructure that shifts to meet changes in demand. Cloud computing dramatically reduced the capital investment barrier.
With lower capital requirements, the number of start-ups has grown exponentially as cloud computing has made massive amounts of computing power available to anyone with a credit card. It's also changed the strategies for venture funding. Instead of placing big bets on one or two start-ups, a venture capitalist can fund dozens of companies for the same amount it would've taken to fund one hardware-oriented company in the early days of the Internet.
Technology and societal changes have also enabled consumers and wealthier “angel” investors to find and fund start-ups. Social networks, which I'll discuss in more detail shortly, have changed societal behaviors. People are using these networks to connect with people they know as well as share interests and find new products and services. Websites such as Kickstarter and Crowdfunder provide a destination for people to learn about and donate money to fund new projects. In 2013, 3 million people from 214 countries pledged $480 million to Kickstarter projects.12 This works out to over $1.3 million in funding per day. Without these sites, many of these companies wouldn't have been funded since they didn't fit the traditional funding model for banks and venture capitalists. Hence, cloud computing and social networking have enabled an influx of start-ups and have created a very Darwinian environment.
New Pricing, Marketing, and Distribution Models Emerge
I have discussed how cloud computing changed the pricing and deployment models for hardware, but it also created tremendous shifts in the software landscape. Today a wide range of cloud applications and services are available. Many of these solutions are referred to as software as a service (SaaS). SaaS is a software delivery model in which an application and its associated data are hosted in the cloud. Other types of services could be cloud-based storage, which is what Box.com, Dropbox, and others offer. Social networks such as Facebook, Pinterest, and Twitter also use cloud computing to host and deliver their services. As you can see, cloud computing has opened up a new world of innovation.
The distribution of services and software happens in the cloud, which means anyone with Internet access can find and use a company's products and services. A vendor doesn't need physical stores or even channel partners. With low infrastructure and distribution costs, these start-ups could try new distribution and pricing models to win market acceptance. Some companies offer free applications and services but charge for premium features.
For example, a person can sign up for 2G of storage for free on Dropbox.com but would be charged for more storage. Zoho.com offers free customer relationship management (CRM) for up to three users, but if you want email integration, you'll need to purchase a premium service. Other businesses charge monthly or annual fees for a service. It's a radical change in the software industry that has eliminated many market-entry barriers. It also means a company can potentially deliver services globally, assuming there are minimal language and regulatory constraints.
Payment-processing companies like Square are disrupting the credit card processing market by making it easier and cheaper to collect payments. Now anyone with smartphone or tablet can collect payment using Square, a one-inch-square credit card reader that plugs into iPhones, iPads, and most Android devices. Businesses download the free Square Register application to link the reader to their bank accounts. Once a customer has used a credit card with Square, the merchant can enter the customer's phone number or email address and send a receipt for the purchase. The device is free, and retailers can pay either per swipe (2.75 percent for Visa, MasterCard, American Express, and Discover, the cards it reads) or $275 per month.
“A standard POS and credit card system would have set me back about $5,000–$10,000,” says Adam Schneider, owner of Little Muenster, an artisanal grilled cheese shop in New York City. “But, like a lot of people, I already had an iPad.” Schneider downloaded Square Register, bought a receipt printer, and was in business for a few hundred dollars. He says a major selling point was Square's portability and the swipe fee.13
In the beginning, most of the financial institutions thought Square wouldn't work. But it did work, and it worked in a big way. In 2012, Square received an investment from Starbucks and a majority of the Starbucks locations began using it as a method of accepting and clearing credit card payments. Square built a business by simply making an existing service easier to use, with better service. Businesses can understand the fees and the fees were frequently cheaper. It replaced expensive POS terminals and telecom lines with smartphones and tablets.
Competition from the established financial market players and other start-ups quickly ensued. Square continues to focus on finding inefficiencies in other parts of the financial market and providing better right-time experience solutions related to care and commerce. For example, most small merchants have difficulty creating websites that can accept payments. Square offers Square Market to solve this problem. It also offers a person-to-person payments market, competing with services like PayPal. Payment processing was a market that was ripe for disruption. In each case described, the real innovation delivered is simplicity and value, not necessarily the lowest prices.
SaaS Shakes Up the Business Applications Market
SaaS is an increasingly common delivery model for many consumer applications. Consumers have embraced a wide range of cloud-delivered solutions, from music services such as Pandora to storage services such as Box.com. But SaaS and cloud-resident services aren't only a consumer phenomenon. Salesforce.com, whose revenue exceeded $2 billion in 2013, is the poster child for building rich cloud-resident enterprise applications. Large companies such as Burberry, Toyota, and GE trust Salesforce.com (a cloud SaaS company) to deliver reliable and best-in-class CRM services.
While companies like Salesforce.com were early pioneers of SaaS, the market took off once a bunch of entrepreneurs had readily available access to cheap computing. A business can find a SaaS offering for almost any functions within its organization, from human resources management to help desk support to financial solutions.
Still, we shouldn't think of cloud services as solutions that are offered only by start-ups. Established companies, such as Intuit and Oracle, also provide cloud-resident services. For example, Intuit's successful accounting application, QuickBooks, is available both as a SaaS service and as a standalone software package.
The evolution of SaaS is a revolution for software buyers. Cloud computing and SaaS are a big deal to corporations that frequently spend millions to buy hardware and software and pay huge annual fees for maintenance contracts to support these purchases. A business can now rent access to applications, such as enterprise resource planning, human resources management, and accounting, on a monthly or annual basis. For example, a company may spend $5 million up front to purchase enterprise resource planning (ERP) software and 18 percent of that $5 million, or $900,000, every year in a maintenance contract. SaaS provides the opportunity for a company to buy software for a monthly fee, with updates included.
In some ways, SaaS even offers customers a better product experience because the company is always using the latest version. A company can always have the latest features without the customer using any of its internal resources to update and manage the application. You pay by the month, and while you are sleeping, somebody updates your software. You come in the next morning and you have all these new features you didn't have before. You didn't have to install them. You didn't have to do a six-month rollout of the new software package. You're always up to date. The only additional resources on your part might be to train your users on the new software.
The downside is that you can't change the application. If the corporation wants the software provider to change or customize the application, it's largely impossible for it to do so. If a company has already customized a packaged software application, it can't easily switch to the cloud version of this application. One of the reasons SaaS software is economical is because there is essentially one version of the software for everyone. There may be various tiers of the software application from basic to premium. It may offer minor customization, but that's it. If you want a specific feature, you need to request it and hope the SaaS provider will build it.
SaaS Helps Apps Go Mobile
I've talked about the profound changes mobile is delivering in the industry and how consumers are purchasing apps that were built specifically for mobile devices. In the business domain, a majority of enterprise applications and services must be redesigned as mobile-friendly applications or businesses will have to purchase mobile versions of these applications from their existing software suppliers.
Software as a service provides a third way for an organization to provide employees with mobile-friendly apps that work on all devices. SaaS gives businesses a quick way to mobile-enable applications because employees and consumers can access the software from any location and on any mobile device that can use a web browser.
Management doesn't have to understand if the operating system is Android, Apple, or Windows. It simply works. The company still has to deal with the fact that it may not be able to customize the system the way it wants, but then, it's not using resources to maintain or update the software. It can take those resources and use them for another project, which might be building a new product or providing a new service—basically redeploying resources to do something that differentiates the business from its competitors, as opposed to spending the time building software services.
Whether it needs equipment or software, a company can now rent a product or service by the hour, month, or bit. This fundamentally changes the economics for the vendors providing these services, and it changes the capital requirements for the companies consuming these services. There is also less risk involved for a customer to try a service. In the consumer world, this may translate into less stickiness, but in the enterprise world, you still have to invest in getting your data into or out of an SaaS solution. From an enterprise perspective, it's easy to try a service before you commit, the cost of the solution is easy to calculate, and it's easy to add new employees to the service.
Established companies competing with SaaS start-ups will experience a change in the amount of revenue they receive, the timing of revenue, and the margins associated with delivering a product. These companies may need to drop prices on existing products, design a new product line to compete with these cloud-based offerings, or both. Regardless of the approach, the new business models will affect both revenue and margins. Instead of using multimillion-dollar hardware or software deals with annual maintenance contracts, these companies will receive a smaller per-user, per-month fee with no additional revenue for maintenance. I'm not suggesting that the entire hardware and software market will vanish overnight. Far from it. Many companies—at least 35 percent of the firms Lopez Research interviewed at the end of 2013—have little or no interest in cloud service. But for the 65 percent that potentially open to purchasing cloud services, a business must be prepared to handle this disruption and opportunity.
Mobile and cloud computing have fundamentally disrupted hardware, software, and the consumer electronics industry. These technologies and pricing model changes have the potential to disrupt every industry and the structure of companies.
In addition to technology changes, there is another force at work that represents both a technological and a behavioral shift. This is social networks and the emergence of social businesses.
Mobile and Social Change Engagement
At the same time that mobile was on the rise, social networking sites, such as Facebook and Myspace, were using cloud computing to come online. In 2004 (which does not seem that long ago), Facebook was only getting started. YouTube did not exist, nor did Twitter. LinkedIn had just been launched. By 2008, social sites were experiencing a hockey stick–shaped adoption curve.
Today, Facebook has over 1 billion users. Twitter users send more than 500 million tweets per day. Over 100 hours of video are uploaded to YouTube every minute. Social networking changed how people communicate with each other and would go on to change how businesses communicate with customers and employees. It enabled a new culture of sharing and peer recommendations. It's fundamentally accelerated word-of-mouth marketing and created new channels for marketers to reach their target audience.
These social networks gave companies the opportunity to understand their customers in ways that weren't available in the past. Social provides access to a person's interests, acquaintances, and the emotional relevance of those connections. Social networks provide the raw data to feed sentiment analysis tools that help companies understand how their customers feel about a company's products and its competitor's offerings. After years of debating social networking merits and detriments, business leaders around the globe are using social to change the way their companies market and service customers.
Social and cloud computing fuel what Jeremiah Owang calls the collaborative economy. He defines this as an unstoppable trend “where brands will rent, lend, offer subscriptions to products and services to customers or, even further, allow their customers to lend, trade, or gift branded products or services to each other. Its specific features include relationships, online profiles, reputations, expressed needs and offerings, and ecommerce.”14 For example, EatWith is an app that allows people to connect and dine in homes around the world (“Meet interesting people, eat great food, and enjoy unforgettable experiences,” says the site). What restaurateur saw that coming? I'll discuss other collaborative economy companies, such as Airbnb and Uber, that are leveraging mobile, social, and cloud computing to disrupt established businesses.
Consumer social networks also set off a new way of thinking about how employees can share data and collaborate in the business world. Collaboration was once thought of as email and document-storage solutions. Today, software companies are adding short messaging features that resemble Twitter into applications such as CRM solutions and collaboration tools. Companies such as Jive and Yammer built enterprise social networking software that offers the same ease of communications of consumer social networks with the security features companies demand. In fact, we now have a new term to describe enterprise software and processes that contain these functions. It's called social business.
Once mobile networks improved and people started buying smartphones, social networks got another boost in adoption, usage, and functionality. New social networks that could take advantage of mobile devices' new functions, such as cameras and location finding, hit the scene. Foursquare created a social network based on checking into a location such as a store, a restaurant, or an attraction. Instagram was founded to capture and share pictures while on the go. Pinterest is an online site for collecting and organizing items such as photographs and links to websites, but it is also available on the go with mobile.
Mobile access is now a major contributor to social networking traffic. In the Seeking Alpha transcript of Facebook's Q3 earnings call, CEO Mark Zuckerberg said, “Now 49 percent of our revenue comes from mobile and 48 percent of the people who use Facebook in any given day are only accessing it from mobile. That's almost half of the people only using Facebook from their phones, and it's a pretty incredible sign of how Facebook is evolved over the last year.”15
It's clear that mobile, social, and cloud computing are transforming business in ways more profound than most people could have imagined even a decade ago. But I have yet to discuss big data and its role. Like cloud computing, it is a technology underpinning for understanding and utilizing the wide range of data that's now available.
Social, Mobile, and IoT Create Big Data
Mobile, IoT, and social media created even more data than we'd ever amassed. We thought we had large volumes of data before, but now we have a massive torrent. The data is a mixture of unstructured data, such as video, images, and short messages, and more structured data, such as spreadsheets, temperature readings, and text documents. It's data from every sensor on every piece of equipment that's connected. The sheer amount of information makes it difficult for businesses to process with existing tools.
These vast sources of data have a new term, which the industry has dubbed “big data.” The combination of this new big data and the fact that much of it is contextual provides an opportunity for an organization to identify interesting trends. With the proper analytics and database foundation, a company can start to be predictive and prescriptive about what it does.
Organizations had analytical tools before, but they couldn't access all the data being generated. Big data storage and its analytical tools were not invented until the mid-2000s, and mainly Internet companies were using them until 2007. The problem has worsened for many organizations as we've added new sources of contextual data, such as location and social media updates. Without new tools to turn the data into useful information, an organization will have difficulty gaining new insight and designing new experiences based on the available data. Our established databases and analytics software aren't adequate for storing and analyzing vast amounts of data that varies in type. Fortunately, just as a tremendous amount of new data was being collected, big data platforms and analytic tools were being developed. I discuss what big data platforms are and how businesses can use them in Chapter 9. In the meantime, you should think of big data platforms as part of a tool kit that will help turn raw data created by mobile devices, social networks, and IoT sensors into new, actionable insights.
Delivering New Experiences
Technology transitions normally deliver cost savings and improved efficiencies. While mobile and cloud both offer the potential for efficiencies, when combined, these technologies offer much more. They present possibilities that simply did not exist in the past. For example, consider how companies such as Uber and Lyft are using cloud computing, social, and mobile technology to disrupt the taxi industry.16
It can be difficult to obtain a taxi in San Francisco. Cabs don't cruise the streets in far-flung areas of the city. Some trips don't seem worth the fare, so cab companies and drivers avoid them. This has sometimes meant the dispatcher promises a cab that never arrives. Enter Uber and Lyft.
Uber developed software that allows anyone with a smartphone to request a ride via mobile app, text message, or the web. The customer who has registered with Uber can choose a passenger car, limousine, or sport utility vehicle. Originally, Uber provided a way for limousine drivers to make additional money in between their existing appointments. Over a short period of time, Uber added the car option, which is people who are driving their personal vehicles and are not part of a limo company, and not necessarily even people who drive for a living. This is important because riders are now choosing average citizens over professionals because of cost and better service. Technology has made it possible for riders to find reliable drivers who are not licensed cabbies. It's a social and technological change that provides the right experience at the right place and right time. This is the essence of how technology will change our businesses and what we have to prepare for.
What makes this service better is that it offers both cost savings and additional value. Riders can track the vehicle they've ordered and receive a text message or telephone call when the driver arrives outside their door. At the end of the ride, the driver and passenger rate each other. Uber, not the driver, charges the person's credit card, which is on file. After the trip, the system sends the passenger an email receipt detailing the trip. This isn't your normal taxi experience. There is no guilt or anxiety associated with using a credit card or knowing what percentage tip should be left. Uber automatically calculates the tip and pays the bill. This also isn't an experience that is isolated to one region of the world; it's a global phenomenon. At this writing, Uber is available in 20 U.S. cities, plus London, Paris, Shanghai, Toronto, and Sydney. The company says, “For drivers, Uber is a revenue stream, allowing professional drivers to make more money by turning downtime into profits.”17 It also allows the average consumer to make money on the side.
Lyft is an extension of this idea, similar except more informal and potentially less expensive. None of the drivers are professional cabbies, and Lyft's cars are not officially cabs or limos. Rather, when a customer taps her smartphone app to request a ride, the app shows the driver's name, rating by past passengers, and photos of the driver and his car. Unlike Uber drivers, Lyft drivers accept donations instead of set fares. The app shows a suggested donation, which the passenger can increase to cover a tip. This donation model helps Lyft avoid issues with licenses for local transportation agencies.
Lyft requires a Facebook profile for both passengers and drivers to sign up for the service. “We make this a requirement because of the inherently social and inter-connected nature fundamental to the Lyft experience,” says John Zimmer, the chief executive of Zimride, which runs Lyft. “We have found that requiring each user's personal Facebook to sign up has been the most effective tool to ensure accountability, recognition, and safety when it comes to passenger and driver interaction.” Lyft kicks negligent drivers and lousy passengers off the system.
All this technology—from tracking individual cars on a phone to paying with a screen tap—allows a customer experience that was simply not available in the past. And these are just a few examples of how these technologies can be combined to deliver richer experiences at the point of need.
While many consumers focus on sexy devices, businesses need to focus on the mind-set shift that has led people to assume they'll be connected and serviced wherever they go. This obvious change in expectations means that a company must change its business processes to support business anywhere over many types of devices. If not, these companies will be run out of business by other enterprises and entrepreneurs that do recognize the implications and the opportunities.
Summary
Roughly every decade, there have been technology evolutions that fundamentally change computing. In the 1980s, it was the minicomputer; in the 1990s, it was the PC; in the 2000s, it was the Internet. In the 2010s, it has been mobile, social, and cloud computing. While technology will continue to evolve to alter the underlying infrastructure of business, companies face more than technology change. Over the past several decades, technological change has created business efficiencies. Today, technology has a broader impact by enabling behavioral changes that are empowered by technology such as social networks. Much like in the early days of the Internet, businesses face simultaneous changes in technology, society, and economic models.
The confluence of technology and resulting new consumer behavior has disrupted existing business models. Previous barriers to entry, such as access to capital, distribution channels, and supply chain dominance, have been significantly eroded. Start-ups across a wide range of industries have challenged established business practices and created new market dynamics. Industry boundaries have also dissolved, which means competitors can surface from anywhere.
The transitions we've experienced to date are simply a foreshadowing of the change to come. Businesses are competing in marketplaces where nearly anyone can become your competitor overnight. Companies that built large, expensive infrastructure businesses, such as AT&T and Verizon, never anticipated that Amazon would become a competitor in cloud computing. Regulated industries, such as taxi companies and hotels, didn't expect to be competing with consumers who would offer shared-ride services and accommodations in their homes. Google never anticipated it would compete with Facebook for a brand's advertising funds. Established software vendors never thought companies would buy mission-critical services from cloud start-ups.
The smartphone, tablet, and connected device landscape is disrupting one industry after another. In our personal lives, it will open up a world of opportunity for monitoring and managing everything from your health to your home. In the corporate domain, it will provide businesses with new data that can be turned into insight that creates economic value.
At one time, a large business may have been able to erect defensible barriers to entry that could take years—or even decades—to erode. Today, your business is standing on quicksand. No business is immune to unexpected competitors. Your competitive environment is a shifting landscape where the map is constantly changing. Unless you meet or exceed the offerings of your new competition, you'll lose business. You may have loyal customers, but your business won't grow. If your business isn't growing, it most likely won't survive.
Of course, this isn't the first time we've seen shifts in technology and in business models. Change has always happened. As Tony Robbins pointed out, “Change is inevitable. Progress is optional.”18 Change just happens faster now. Progress will be determined by how your business reacts to the current change while anticipating future shifts. Whether you are a business executive or technology leader, you must understand and adapt to these changes in order to build a viable twenty-first-century business.
In the next chapter, I discuss several of the issues that are holding businesses back and provide suggestions for removing these roadblocks. In the third chapter, I discuss the concept of right-time experiences and how it will enable your company to differentiate itself in a dynamic business environment.