Month: February 2014

Enterprise IT meets the Hall of Marbles

ianwaring Cloud, Enterprise IT, Future Trends Leave a comment

hallofmarbles

Every time I hear a vendor utter words such as “private cloud” or “hybrid cloud”, I see visions of brakes being applied. Usually by vendors or IT departments, who sell (or buy) the concept that they can evolve gradually into the future as prices plummet.

I had my first taste of a likely future state a few years back. The London Organising Committee of the Olympic Games needed to provision 500,000 email accounts for a 2 year period, lasting 12 months before and 12 months after the 2012 games. I recall that several prospective suppliers configured branded hardware, software and management using their own hosting plus services, and came out in pricing around £7-10/user/year. Using their existing scale, Google came in at 14p/user/year.

While a prestigious win, I could find no-one that thought Google were selling at a loss. So, what happens when those sort of scale advantages hit Enterprise IT? Do brand vendors not see the tidal wave of low cost, immediately available computing and storage coming their way, a tidal wave due to hit this side of 2017? I think Simon Wardley describes the reality very eloquently in one of his blog posts, relating the story of “The Hall of Marbles”:

It’s the exponential growth part that catches most past suppliers out and that’s due to this expectation of gradual change due to the previous competitive stage (i.e. product vs product). To explain this, I’ll use an analogy from a good friend of mine, Tony Fish.

Consider a big hall that can contain a million marbles. If we start with one marble and double the number of marbles each second, then the entire hall will be filled in 20 seconds. At 19 seconds, the hall will be half full. At 15 seconds only 3% of the hall, a small corner will be full. Despite 15 seconds having passed, only a small corner of the hall is full and we could be forgiven for thinking we have plenty more time to go, certainly vastly more than the fifteen seconds it has taken to fill the small corner. We haven’t. We’ve got five seconds.

Hence for a hardware manufacturer who has sold computer products and experienced gradual change for thirty years, it is understandable how they might consider this change to utility services will also happen slowly. They will have huge inertia to the change because of past success, they may view it as just an economic blip due to a recession and their customers will often try to reinforce the past asking for more “enterprise” like services. Worst of all, they will believe they have time to transition, to help customers gradually change, to spend the years building and planning new services and to migrate the organization over to the new models.

Alas, Amazon alone is estimated at $2bn in cloud revenue for 2012 and predicted for almost $4bn in 2013. If that growth rate continues then by 2016 they will be in excess of $30 billion in revenue. They also have rapidly growing competitors such as Google.

The cold hard reality that many existing suppliers probably don’t comprehend is that the battle will be over in three to four years and for many the time to act has already passed. Like the rapid change in climate temperature in Greenland, our past experience of change does not necessarily represent the future.

In industry, we have a long history of such rapid cycles of change and inertia is key to this. These cycles we call “revolutions” as in industrial, mechanical and the revolution of electricity. During these times, change is rapid not gradual and disruption is widespread.

I’m typing this post into a WordPress network site I provisioned on a Linux instance in Digital Ocean Amsterdam. It is costing me $10/month for my server instance, 30GB storage and 3TB/month network bandwidth, plus another $2/month for regular backups and and ability to store as many snapshots i’m comfortable with. Digital Ocean, like AWS, are gobbling up capacity at a rate of several thousand new server instances every month, and i’m sure Google and Microsoft Azure aren’t standing still either. Just a relentless tide of predominantly Linux servers that are simple to provision and build applications upon.

We are in a time when mobile, the cloud, a deluge of data and collaboration tools – based on open source software – are brewing a perfect storm. Google, Amazon, MongoDB and GitHub will, I’m sure, be there when the dust settles. Who else?

Footnote:

Simon delves deeper into the subject of vendor inertia in his excellent “Bits and Pieces” blog at http://blog.gardeviance.org/2013/01/intertia.html

Has the Apple iPhone 5c really failed?

ianwaring Apple, Pricing Leave a comment

iphone-5c-front-colours

There is some commentary on the Techpinions site where Brian Hall waxes lyrical about the relative failure of the iPhone 5C (http://techpinions.com/trying-to-understand-how-iphone-5C-failed). Apple admitted that they got the projected mix a bit wrong; the most expensive, aspirational 5S model exceeded their most optimistic sales projections, where the 5C sold much less. I think there were two fundamental reasons:

  1. Apple targeted the 5C at a younger audience than the 5S, with bright colours and functionality equivalent to the previous iPhone 5 model. The handset price really only made it affordable for the 50% of people who obtain their handset as part of a 2 year contract.
  2. The full retail price of the 5C handset was £100 short of the £600+ of the aspirational 5S product above it. At first blush, that appeared to be very high, though it may be difficult to understand the complexity Apple faced in other markets and trying not to upset the existing customers of iPhone 5 handsets.

My theory is two fold. The UK is around 50% contract, spreading the cost of the handset over a two year term, and 50% pay as you go, where the consumer has to pay full retail for the handset up front.

Theory One is that by launching in October, they missed one of the “purchase binge” periods where new Secondary School kids were bought their first handsets by their parents. You are then subject to a slow burn, selling volumes gradually as existing 2 year contracts of older kids come up for renewal month by month.

The Second is more complex, and relates more to the folks buying the handset outside of a contract; the preserve of the wealthy, or of those on SIM-only or Pay as you Go tariffs. As an illustration from the excellent book from Dan Ariely entitled “Predictably Irrational“, he cited a rather strange special subscription offer from The Economist to their readers. They offered:

* a subscription to Economist.com for $59
* a subscription to Economist Magazine for $125
* a subscription to the online and print edition for $125

At first blush, a silly offer. In tests, 16% chose the Internet only edition, 0% the print only one, and 84% the very expensive print plus Internet offer. However, if you alter the offer to reflect only:

* a subscription to Economist.com for $59
* a subscription to the online and print edition for $125

then the takeup goes to 68% and 32% respectively. So the presence of a similar, but clearly inferior, decoy in the 3-way offer swings the takeup of the high priced option from 32% to 84%.

Remembering that the very inferior, older iPhone 4S is still sold at a massively lower price, doesn’t that sound exactly the effect of Apple pricing the 5C too close to the 5S in their 4S/5C/5S lineup?

So, for the UK market, Apple were late with the 5C and fundamentally have priced it too close to the 5S, making it a decoy price; it really needed to be in the £300-400 band to make a fundamental difference here. That said, dynamics in other markets, and not wanting to undermine the second hand price for owners of previous iPhone 5 users, may also have been factors tying Apples hands.

I’m sure the next generation they release, likely encased in a Liquid Metal enclosure (cheaper to fabricate than milled aluminium) and with a Sapphire screen, may allow Apple to come down far enough in price to correct this and hit their next spurt of growth without lowering their margins. If indeed is that is something they want to do.