Are enterprise companies the new ice exporters

Why big companies may have already lost the race to the cloud.

December 5, 2013

Why big companies may have already lost the race to the cloud

By Bruce von Maltitz, 1Stream

It’s hard to believe that ice was once a precious commodity. But in the early 1800s, a man called Frederic Tudor (affectionately known as the “Ice King”) made his fortune shipping thousands of tons of ice across the globe.

Until Tudor entered the scene, ice was little more than an inconvenience in winter. Thanks to his persistence, it soon became a standard offering in bars and restaurants – and even hospitals, where it was used to treat fever. It was an expensive operation – laborers sawed blocks of ice apart by hand and floated them down a stream where a conveyor belt would carry them to ice houses, where the blocks were stacked 80 feet high. In the end, only one tenth of the ice would actually remain sellable – but it did not prevent Tudor from shipping more than 52,000 tons of ice across the United States, as well as far-off colonies such as Calcutta. Ice boomtowns sprouted up, providing employment for hundreds of ice farmers. It became one of the most powerful industries in the world.

And then came the electric freezer and refrigerator. By 1940, 5 million people were making ice in their homes. The ice monopolies responded by implementing process improvements, lowering their prices and introducing home deliveries to ice boxes, but their decline was rapid and inevitable. The ice shipping industry disappeared as quickly as it appeared, with no hope of making a comeback.

There are many similar examples across history – huge monopolies and entire industries have boomed and disappeared. The lesson is simple: no company is too large, too sophisticated and too powerful to fall. You have to keep your eye on the horizon or you may find yourself swiftly replaced. Today, this is most evident in ICT industry – not only with consumer hardware, where the latest gadget is replaced within a matter of months, but in the corporate IT space where large vendors and enterprises are usurped by newcomers with new innovations, particularly in the cloud.

Whenever one talks about the big players in the cloud space, the names that pop up are ones that didn’t exist 10 years ago – Dropbox, Skype, Salesforce.com. These companies emerged out of nowhere, with an entirely new way and improved way of doing business. They became household names. And the larger vendors in the market are unable to usurp them.

If history has taught us anything, it’s that once a new innovation has knocked the old from its pedestal, no amount of tweaking, readjusting and modifying can revive it. The reason the likes of Skype and Dropbox are successful is because they were born in the cloud. They created technology for the cloud, in the cloud. The products that the larger vendors and technology companies produced were never designed to operate that way. They are trying to adjust their solutions, of course, but it there is simply too much baggage and too large an amount of legacy investment to compete with these newcomers in a significant way.

Having worked in hosted solutions from both sides of the coin – within a large corporate organisation and as an independent company – I can safely say that the enterprise model of doing business did not afford us the same agility and flexibility we enjoyed after founding 1Stream, a company built in the cloud for the cloud. Enterprises that are typically used to selling products that are simply sold, installed and plugged in with minimal assistance are struggling to meet customers’ need for adaptability and hands-on service that is part and parcel of the hosted model. As Mark Benioff of Salesforce always says, “It’s called software as a service, not software sold in a box”.

This begs the question: have the large companies lost the cloud? The ones who are stuck in service delivery boxes certainly have. They aren’t selling a true solution to a clients’ problem, they are selling products. It’s a myopic view, comparable to selling large blocks of ice rather than meeting the need for having cold food and drinks on hand, even if meeting that need means changing the way you’ve always run your business.

The cloud companies that have entered and dominated the market didn’t do so because they had large resources or a household name to back them, but because they responded to the need for flexible, affordable, scalable solutions in their respective markets.

Enterprise companies have to rethink the way they approach the cloud – or they will find themselves firmly left behind in the Ice Age.