Startups, cloud computing, and the freedom to innovate

Cloud computing is grabbing a lot of headlines these days.  As we have seen with SOA in the past, there is a lot of confusion of what cloud computing is, a lot of resistance to change, and a lot of vendors repackaging their products and calling it cloud-enabled.  While many analysts, vendors, journalists, and big companies argue back and forth about semantics, economic models, and viability of cloud computing, startups are innovating and deploying in the cloud at warp speed for a fraction of the cost.  This begs the question, “Can large organizations keep up with the pace of change and innovation that we are seeing from startups?”

Innovate or Die

Unlike large well established companies, startups don’t have the time or money to debate the merits of cloud computing.  In fact, a startup will have a hard time getting funded if they choose to build data centers, unless building data centers is their core competency.  Startups are looking for two things: Speed to market and keeping the burn rate to a minimum.  Cloud computing provides both.  Speed to market is accomplished by eliminating long procurement cycles for hardware and software, outsourcing various management and security functions to the cloud service providers, and the automation of scaling up and down resources as needed.  The low burn rate can be achieved by not assuming all of the costs of physical data centers (cooling, rent, labor, etc.),  only paying for the resources you use, and freeing up resources to work on core business functions.

I happen to be a CTO of a startup.  For us, without cloud computing, we would not even be in business.  We are a retail technology company that aggregates digital coupons from numerous content providers and automatically redeems these coupons in real time at the point of sale when customers shop.  To provide this service, we need to have highly scalable, reliable, and secure infrastructure in multiple locations across the nation and eventually across the globe.  The amount of capital required to build these datacenters ourselves and hire the staff to manage them is at least ten times the amount we are spending to build our 100% cloud based platform.  There are a hand full of large companies who own the paper coupon industry.  You would think that they would easily be the leaders in the digital coupon industry.  These highly successful companies are so bogged down in legacy systems and have so much invested in on-premise data centers that they just cannot move fast enough and build the new digital solutions cheap enough to compete with a handful of startups that are racing to sign up all the retailers for this service.

Oh the irony of it all!  The bigger companies have a ton of talent, well established data centers and best practices, and lots of capital.  Yet the cash strapped startups are able to innovate faster, cheaper, and produce legacy free solutions that are designed specifically to address a new opportunity driven by increased mobile usage and a surge in the redemption rates of both web and mobile coupons due to economic pressures.

My story is just one use case where we see startups grabbing accounts that used to be a honey pot for larger organizations.  Take a look at the innovation coming out of the medical, education, home health services, and social networking areas to name a few and you will see many smaller, newer companies providing superior products and services at lower cost (or free) and quicker to market.  While bigger companies are trying to change their cultures to be more agile, to do “more with less”, and to better align business and IT, good startups just focus on delivery as a means of survival.

Legacy systems and company culture can be boat anchors

Startups get to start with a blank sheet of paper and design solutions to specifically take advantage of cloud computing whether they leverage SaaS, PaaS, or IaaS services or a combination of all three.  For large companies, the shift to the cloud is a much tougher undertaking.  First, someone has to sell the concept of cloud computing to senior management to secure funding to undertake a cloud based initiative.  Second, most companies have years of legacy systems to deal with.  Most, if not all of these systems were never designed to be deployed or to integrate with systems deployed outside of an on-premise data center.  Often the risk/reward for reengineering existing systems to take advantage of the cloud is not economically feasible and has limited value for the end users.  If it is not broke don’t fix it!  Smarter companies will start new products and services in the cloud.  This approach makes more sense but there are still issues like internal resistance to change, skill gaps, outdated processes/best practices, and a host of organizational challenges that can get in the way.  Like we witnessed with SOA, organization change management is a critical element for successfully implementing any disruptive technology.  Resistance to change and communication silos can and will kill these types of initiatives.  Startups don’t have these issues, or at least they shouldn’t.  Startups define their culture from inception.  The culture for most startups is entrepreneurial by nature.  The focus is on speed, low cost, results.

Large companies also have tons of assets that are depreciating on the books and armies of people trained on how to manage stuff on-site.  Many of these companies want the benefits of the cloud without given up control that they are used to having.  This often leads them down an ill advised path to build private clouds within their datacenter.  To make matters worse, some even use the same technology partners that supply their on-premise servers without giving the proper evaluation to the thought leading vendors in this space.  When you see people arguing about the economics of the cloud, this is why.  The cloud is economically feasible when you do not procure and manage the infrastructure on-site.  With private clouds, you give up much of the benefits of cloud computing in return for control.  Hybrid clouds offer the best of both worlds but even hybrids add a layer of complexity and manageability that may drive costs higher than desired.  We see that startups are leveraging the public cloud for almost everything.  There are a few exceptions where due to customer demands, certain data are kept at the customer site or in a hosted or private cloud, but that is the exception not the norm.

The Zapthink Take

Startups will continue to innovate and leverage cloud computing as a competitive advantage while large, well established companies will test the waters with non-mission critical solutions first.  Large companies will not be able to deliver at the speed of startups due to legacy systems and organizational issues, thus conceding to startups for certain business opportunities.  Our advice is that larger companies create a separate cloud team that is not bound by the constraints of the existing organization and let them operate as a startup.  Larger companies should also consider funding external startups that are working on products and services that fit into their portfolio.  Finally, large companies should also have their merger and acquisition department actively looking for promising startups for strategic partnerships, acquisitions, or even buy to kill type strategies.  This strategy allows larger companies to focus on their core business while shifting the risks of failed cloud executions to the startup companies.

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Author Bio:

Mike Kavis is CTO of M-Dot Network, Vice President and Director of Social Technologies for the Center for the Advancement of the Enterprise Architecture Profession (CAEAP ), and a licensed ZapThink architect with over 23 years of IT experience including 12 years in leadership positions. Mike’s areas of expertise are Enterprise Architecture,  IT Strategy & Planning, Organizational Change Management, Cloud Computing, BPM, SOA, and Business Intelligence.  Mike has contributed to version 2 of the Cloud Security Alliance Guide with a group of top notch professionals. Mike received his BS in Computer Science from Rochester Institute of Technology (RIT) and his MBA and MSIT from Colorado Tech. Mike is a free lance technology writer, has published numerous articles for and, and is a frequent speaker at technology conferences.