Ynema Mangum: The Human Cloud

The era of the huge conglomerate is over.
Illustration credit: Andy Gilmore

Yes, 'New' is in there twice.

Wired Magazine online called out cloud computing in its headline story today:  The New New Economy: More Startups, Fewer Giants, Infinite Opportunity.  Chris Anderson aptly wrote about the disaggregation of large corporations that is happening now and the growing diseconomies of scale:

"As venture capitalist Paul Graham put it,"It turns out the rule 'large and disciplined organizations win' needs to have a qualification appended: 'at games that change slowly.' No one knew till change reached a sufficient speed.  The result is that the next new economy, the one rising from the ashes of this latest meltdown, will favor the small."

Moving to the topic of technology that powers this change, Chris says:

"To all the usual reasons why small companies have an advantage, from nimbleness to risk-taking, add these new ones: The rise of cloud computing means that young firms no longer have to buy their own IT equipment, which helps them avoid having to raise money or take on debt. Likewise, the webification of the supply chain in many industries, from electronics to apparel, means that even the tiniest companies can now order globally, just like the giants. In the same way a musician with just a laptop and some gumption can accomplish most of what a record label does, an ambitious engineer can invent and produce a gadget with little more than that same laptop."

#goodread

I disagree a bit with Pine and Gillmore about the Experience Economy.  They describe it as following the agrarian, industrial, then service economy.

To me, all of the economies they outline are about service.

Services are supposed to be the exact opposite of physical goods, but the line between a material good and a service is often cloudy.  To me, it's all about the ultimate experience my dollar (or time) buys.  It's no longer important whether I get something physical in return.

For instance, if I could buy a subscription to a service that would transport me instantly from place to place, I would no longer have any use or inclination to have my own car.  There are plenty of examples like that in my life, and I'm sure yours too, where things we thought were important because they were physical have become not as important because digital or service alternatives exist.  It's why I read (well, for years now) online news channels like cnn.com and wired.com instead of picking up a newspaper or magazine.

So, I've tweaked a bit the spreadsheet I shared in a previous entry about the Cloud Economy.  I changed the Virtual Economy (the last column) to the Experience Economy.  That's a bit more descriptive and on the mark.  The service economy is not included because, again, I believe they are all about service.

A brief summary:

The agrarian economy marked the rise of civilization, where raising crops and domesticating animals enabled food surpluses, which resulted in stratified and higher density populations.  Mercantile and feudal economies followed.

The industrial economy was an evolution of this, where technology advances were made rapidly, allowing goods and services to be delivered on a much wider scale.  This was when marketing and PR used practices akin to "yelling at strangers" (Seth Godin).  The audience volume had to be large because only a very small percentage of those reached would buy what you had to sell.  Heads of industry chose and drove technology improvements and upgrades.

The digital economy marked the beginning stages and the adoption of what we now know as the Web.  In this economy, Web 1.0 marked the rise of permission-based communication and search engines.  Although there were almost innumerable bits and bytes traveling around, we simply didn't know or understand the value of it all.  It was a very chaotic time and business larges chose and drove technology improvements and upgrades, trickling those down to the lower layers of consumers.  Content was king.

The knowledge economy (Web 2.0) is driven by people who now have tools for collaboration and connection to each other.  Folksonomies and trusted content rule and businesses now find themselves required to have 2 way or multiple level conversations with their constituents. Conversation and your social network is king, with consumers largely driving technology innovation and adoption.

The cloud economy (Web 3.0) is about the democratization of raw computing resources, allowing anyone to be a developer and deliver a service with virtually no IT infrastructure.  Problems that were in the realm of IT will be resolved by knowledge workers.  Cloud computing will be the infrastructure for the vast and complex "social brain" which will dictate the direction and relevance of the conversation.  This provides the building blocks for the next economy.

The experience economy (Web 4.0) is enabled by the cloud infrastructure and technology improvements (such as TB/s bandwidth speed) that will enable truly real-time interaction between a person's physical and virtual social networks.  Devices will become smaller and the large portion of computing will be done in "the cloud".  The "experience" will be immersive and real-time.

It's critical for the leaders who take us into these new territories to understand these different economies and have a passionate vision for their place in the future phases.  Great leaders I've had the opportunity to work with in the past always know where they've been, where they're going, and can sprinkle inspiration and motivation on those around them like it's fairy dust.

Enjoy. -Y

A very insightful post from George Reese, author and founder of Valtira and enStratus, on the Economics of Cloud Computing on O'Reilly.  He gives a side-by-side comparison of the cost of Internal IT versus Managed Services versus The Cloud. 

Don't miss his final analysis:

Cloud savings over internal IT jump to 29% without getting into the discussion of buy for capacity versus buy what you use!

Between managed services and the cloud, the cloud provides 18% savings.

While 18% and 29% savings are nothing to sneeze at, they are just the start of the financial benefits of the cloud. It goes on.

• No matter what your needs, your up-front cost is always $0


• As the discrepancy between peak usage and standard usage grows, the
  cost difference between the cloud and other options becomes
  overwhelming.


• The cloud option essentially includes a built-in SAN in the form of
  the Amazon Elastic Block Storage. The internal IT and managed services
  options would go up significantly if we added the cost of a SAN into
  the infrastructure.


• Cheap redundancy! While the above environment is not quite a "high
  availability" environment, it is very highly redundant with systems
  spread across multiple data centers. The managed services and internal
  IT options, on the other hand, have single physical points of failure
  as the application servers and database servers are likely located in
  the same rack.
  

Let's say, however, that you need 10 servers to handle peak usage
for 1 hour each year and just 2 to operate the rest of the year.
Ignoring the impact of the cost of capital:

• Internal IT adds another $40,000 in total costs over 3 years.


• Managed services adds another $144,000 in total costs over 3 years.


• The Amazon Cloud adds about $24 in total costs over 3 years.

No, that was not a typo. That's forty THOUSAND dollars against one
hundred forty-four THOUSAND dollars against 24 dollars. And as I
mentioned earlier, this setup is based on an actual Valtira client that
was considering a dedicated managed services option before Valtira
began deploying customers in the Amazon cloud. It is not some contrived
example.

---

Go, George.  Finally something with numbers.  Thanks for sharing!

Want to know which Venture Capital firms are putting money into the cloud?  Cloud application service provider startups abound, and money for them will only be flowing until 2010.  At least, that's what James Staten of Forrester says.  After that, James doesn't think that any VC firm would give you a second glance if the word "cloud" is in your business proposal or in your name.

Why?  Because we're in the "trough of disillusionment", according to the cloud Hype Cycle.  The cloud bubble will be bursting around 2010.  Losers in this space will disappear as we reach the "slope of enlightenment", and then those who are doing interesting things will continue on and experience real productivity and profitability.

Enough about that.  You need to know where to get money for your startup.  Here's my list of VCs, angel investors, and companies in this space who have provided funding recently.

• Allen & Co. (Ning)


• Amazon (Elastra, Engine Yard)


• Bay Partners (Elastra)


• Benchmark Capital (FriendFeed, Mint, Yelp, RightScale, Engine Yard)


• Bezos Expeditions (Skytap)


• Bob Pittman (Zynga)


• DAG Ventures (Yelp)


• First Round Capital (Mint, MyYearbook)


• Greylock and Omidyar (Digg)


• Hummer Windblad Venture Partners (Elastra)


• Ignition Partners (Skytap)


• Kleiner Perkins (Zynga)


• Legg Mason (Ning)


• Madrona Venture Group (Skytap)


• Mission Ventures (Nirvanix)


• New Enterprise Associates (Engine Yard)


• Northwest Venture Partners (MyYearbook)


• Sequoia (Appirio)


• Shasta Ventures (Mint)


• Ticketmaster (iLike)


• US Venture Partners (MyYearbook)


• Valhalla (Nirvanix)


• Washington Research Foundation Capital (Skytap)


• Windward Ventures (Nirvanix)

For those of you who want to jumpstart your startup, check out Sun's Startup Essentials.

Everyone in the U.S. seems to be talking about our economy.  It's in poor shape.  We're spending billions on wars and bailouts.  Job loss is on the rise (with 1.2M jobs lost so far in 2008), home sales are losing ground, and we're in a leadership transition that leaves some people feeling in limbo.

So, what does the economy have to do with cloud computing?  I think the better question is "What can cloud computing do for the economy?"

There is a new business trend emerging -- one that begins with a partially or completely outsourced cloud IT infrastructure.  Some businesses are cropping up that could not exist without cloud computing.  Why?  Because  if they needed  to put in place a viable IT infrastructure, they couldn't afford to open the doors, especially if they do not have enough cash to fund their idea or they fail to get a venture capitalist interested in chipping in.  Cloud computing allows these very businesses to open shop without a big outlay of cash, take less risk, be more agile, experiment until they find success, and grow much faster and more independently than their predecessors.

I believe this new generation of business will take hold and take off -- and that this will take us into the "cloud economy".  Here's a spreadsheet that explains a bit of the thought process.

Discuss amongst yourselves.  Part 2 will be delivered shortly.