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Digital Native Business Models: “Born on the Cloud”

In a VentureBeat article the author envisions ‘the future of enterprise tech‘, describing how pioneering organizations like Netflix are entirely embracing a Cloud paradigm for their business, moving away from the traditional approach of owning and operating your own data centre populated by EMC, Oracle and VMware.

Cloud Native Competitive Advantage

Instead they are moving to ‘web scale IT’ via on demand rental of containers, commodity hardware and NoSQL databases, but critically it’s not just about swapping out the infrastructure components. In short, we’ve entered the ‘Cloud Era’, in terms of major waves of enterprise IT innovation.

This approach to IT has also come to be known as a ‘Cloud Native’ architecture, the new term that Google, VMware, and many others are using to describe a software and delivery model that centres around Linux containers like Docker, employed to deliver ‘Microservices’, a suite of components rather than one large software monolith.

In his InformationWeek article Charles Babcock summarizes the concept of the ‘Cloud Native’ enterprise, a shift also described by the New Stack.

Cloud Native, Digital Native

While the majority of this guide focuses on the technologies and DevOps practices that define Cloud Native, an especially key principle to highlight first is how the Cloud Native concept now extends to business models.

For example as Diginomica writes Mondo has launched the first ‘Cloud Native Bank’ – A digital bank born and enabled entirely on Cloud computing. This is part of a trend that recognizes how hyper-competitive ‘digital native’ businesses can be, with Starling also launching as a digital only banking service.

When you consider that one of the biggest impediments to launching a digital strategy is the existing legacy organization and IT, then a business model born entirely free of this baggage will naturally be able to compete in a form that can’t be matched by incumbents who do.

It’s not to say existing firms can’t exploit the trend, also with significant disruptive impact.

This Google case study describes how Ocado, a grocery delivery business, are utilizing the Google cloud platform to leverage this elasticity and disrupt the home delivery business, and Qantas airlines recently migrated all of their business systems to public IaaS, and as part of this migration process also moved to a new software model of microservices, as well as transforming their development practices too. Ie. they went fully Cloud Native.

The airline is now halfway through its shift of Qantas to the AWS public cloud, having already moved 10 out of the website’s 20 new microservices. It expects to complete the migration by the end of the year.

Updates that once took the airline months to deploy to the website now take just 30 minutes.

Qantas expects to save more than $30 million over five years thanks to the move, and has already experienced a 90 percent reduction in infrastructure costs.

Our case study reviews for the Cloud Native trend include other businesses like Nike, so it is certainly the case that the opportunities presented by the technology are open to all – The key point to emphasize is this broader strategic perspective. Ie it’s not a technology-only revolution, the critical success factor is understanding what these new technologies make possible, and how.

From Mainframe to Microservices – Harnessing the Cloud Era

Of course the primary context for this evolution is the competitive advantage it makes possible, the ability to ‘disrupt’ industries through much faster and more effective innovation cycles.

A great primer for Microservices, one of the core Cloud Native principles, is the Wall Street Journal article Innovate or Die – The Rise of Microservices, where they contexualize its emergence as part of the fourth wave of IT, the Era of the Cloud.

The article very eloquently maps out a timeline of the ongoing evolution of enterprise software architecture, from ‘Mainframe to Microservices’, the modular software design approach that Cloud enables, and would place these leaders at the far right, versus the enterprise incumbents who are typically spread across the whole timeline, right back to the mainframes that still run giant business exchanges like credit card payments.

The opening line sums up the inflection point we are experiencing:

“Software has emerged as the critical differentiator in every industry, from financial services to fashion, as “technology first” startups disrupt global markets.”

In other words the central theme is that software engineering is emphasized as a method of strategic advantage, by ‘technology first’ businesses, it’s no longer just a necessary operational cost. Indeed research has shown that those firms that invest more in new innovation-centric software techniques like DevOps and Continuous Deployment, are generating more revenues than their ‘laggard’ peers.

Born Global

Startups are a rich source of illustrative case studies. One aspect of this is to encourage entrepreneurs to think as big as possible, to go global from day one. Indeed this article describes this effect of ‘Born Global’. That entrepreneurs should start with the end in mind and begin immediately as a company conceived to be global, not simply grow into it over time.

  • In this blog they analyze how Google Apps has been used to develop a mobile sales voucher system in Africa. This explains how all the PaaS component parts have been used to build a point of sale system, using services such as ’Fetch URL’ to exchange messages with mobile networks and send text alerts.
  • Streak CRM is a powerful example because as well as also using this same approach they are also working through Google as their route to market, embedding a CRM tool into the very popular GMail tool. They make the critical point that the PaaS approach is how you “use the best tool for the job” and how your own product can be as big as the modules you are basing it on – For example they are leveraging the Prediction API to embed this intelligence into the CRM service, making smart recommendations for how users can file their emails.
  • In Scaling SongPop and Building Scalable Games they describe how the platform scale and raw utility like storage can be harnessed for large scale ventures in social and gaming applications.

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