Digital is Different

Why #cloud computing models are necessary to maintain growth and breaks traditional market definitions

Right before Christmas Activision released a game called “Skylanders: Spyro’s Adventures.” It’s a fairly straightforward adventure game with a twist: it isn’t entirely digital. Collectible figures known as Skylanders can be inserted and removed into the game (via RFID, I assume) to enable players to use different characters as necessary (in my house, usually because the 4 year old has run one into the ground and it needs to rest).

There are somewhere upwards of 30 of these figures, and after the rush of Christmas it became apparent the game was hugely popular because it is now nearly impossible to find these figures. And if you do, you’re going to pay a premium. Cynder retails for about $7.99 but you won’t acquire him for that – I haven’t seen a price on him lower than $34 yet, with some places putting his price upwards of $60.

This lack of capacity, to put it in digital terms, only serves to drive demand. The market will bear such pricing and lack of supply because in many cases, collectors are more in love with the hunt than they are the quarry – and in owning something very few others own.

But digital? Digital is different. In markets in which the product is digital – software and applications – a lack of capacity has just the opposite effect. It does not attract customers or loyalty, but instead destroys it. The advantage digital enjoys over traditional corporeal markets is that keeping up with demand is increasingly a matter of simply leveraging the right technology. This makes it possible for even the smallest of organizations to serve markets of a significant magnitude larger than their corporeal counterparts. This is the power of cloud computing – the masking of the size of the organization behind the product. But that mask can be as disadvantageous as it is empowering.

CLOUD TRANFORMATIONS

Much has been written about cloud’s transformational impact on IT organizations. But not nearly as much has been written about the transformational impact of digital delivery on market definitions that drive the necessity for cloud computing models both inside and outside the organization.

Traditionally we break down technology markets based on the size of the organization. SMB. SME. Enterprise. Carrier. This is old-fashioned, and grows out of the very real traditional model in which the size of an organization grew along with the size of its customer (and potential customer) base. The more users of its products, the bigger the organization must be to keep up with demand.

But digital? Digital is different.

While IT serving digital markets still grew along with its market size, it grew at a slower rate. The nature of digital delivery is such that its demands on IT organizations is not nearly as high as that of corporeal products as the ratio of customers to IT can remain much higher owing to the ability of infrastructure to deliver a product to multiple customers at one time. It’s much like the assembly line’s impact on manufacturing, only more pronounced. The problem is that the rate with which the “market” is growing is still outstripping demand on IT organizations.

Enter cloud computing.

The transformational shift associated with cloud will allegedly allow IT to meet even more rapid growth in demand without requiring a proportional growth in staff. By making the entire IT organization more efficient, more organized, more automated, the growth of the organization does not necessarily need to match that of demand. An organization, thanks to cloud computing models, can now meet demand and maintain the availability essential to its livelihood without significantly increasing its size. The digital demands on an organization thus are more critical to determining its computing needs than is the number of people it employs.

And that demand is growing. Whether measured by the number of consumers, visitors, integrations, or devices, the “market” of an organization in the “digital delivery” business is growing dramatically. And demand must be met, because in the world of applications and software and Internets – lack of availability does not drive demand upwards, it drives it down. Cloud resolves this problem – in theory if not yet in practice – but does not address a more sticky and unrecognized problem: that of markets defined entirely by organization size as opposed to its audience and the demand it creates for technology more easily consumed by organizations of all sizes.

SIZE still MATTERS

Too often in the publishing and vendor community, the debate regarding what is a SMB (Small-Medium Business) comes up. Every time it does, the definitions discussed focus on the employee size of the organization. Period. And yet a small or medium business (as opposed to an enterprise) may, in terms of audience and customer-base, be a monster.

This is important to recognize because of the change in dynamics that needs to occur. “Enterprise-class” has very little meaning if it’s focused on the number of employees in the organization and not on the size of its audience, because IT is sized for its audience as much as it is sized for its employees. See, at some point IT became two-faced – it needed to consider how to serve both its internal and external markets. It couldn’t “size” the data center for just one or the other, because both need to be served. That means more infrastructure across the board – virtual and physical - to the point that what might be an SMB based on its number of employees is the digital equivalent of an enterprise powerhouse.

Size does matter in market capabilities, but thanks to the explosive growth of the Internet and digital delivery coupled with cloud computing models, it’s not just the size of the organization but also the size of its audience that determines its needs. That means ignoring what are traditionally “small” organizations could be a disastrous mistake, as these organizations may have much more digital demand than is evident by the number of people it employs. It means reaching out to those traditionally overlooked markets and addressing their needs, which in many cases are the same as traditionally larger (by employee count) organizations but are very different in their requirements with respect to management and integration. Skills sets and human capacity needs must be met by less complex APIs and integration, by more push-button IT and less command line configuration. The need to do more with less needs to be met by more efficient, capable infrastructure that does more with less.

This reality cannot be stated enough, particularly for those on the sell-side of the house because of the tendency to ignore markets based on organization size (and thus budget). It is no longer enough to look at organization, one must look to the size of an organization’s audience and consider the impact of mobility and virtualization on the overall demand on that organization.

The size of an organization’s market is now just as important to consider when making decisions as its traditional market size definition. In fact, it may be more so.