Why “cloud” represents disruptive innovation – and the changes at HP are just the tip of the iceberg

Yesterday, I wrote a post about disruptive innovation, based on a book I’d been reading: The Innovator’s Dilemma, by , by Clayton M Christensen.

In that post, I asked whether cloud computing is sustaining or disruptive – and I said I’d come back and explain my thoughts.

In some ways, it was a trick question: cloud computing is not a technology; it’s a business model for computing. On that basis, cloud cannot be a sustaining technology. Even so, some of the technologies that are encompassed in providing cloud services are sustaining innovations – for example many of the improvements in datacentre and server technologies.

If I consider the fact that cloud is creating a new value network, it’s certainly disruptive (and it’s got almost every established IT player running around trying to find a new angle). What’s different about the cloud is that retrenching and moving up-market will only help so much – the incumbents need to switch tracks successfully (or face oblivion).

Some traditional software companies (e.g. Microsoft) are attempting to move towards the cloud but have struggled to move customers from one-off licensing to a subscription model. Meanwhile, new entrants (e.g. Amazon) have come from nowhere and taken the market for inexpensive infrastructure as a service by storm. As a consequence, the market has defined itself as several strata of infrastructure-, platform- and software- (data- and business process- too) as-a-service. Established IT outsourcers can see the threat that cloud offers, know that they need to be there, and are aggressively restructuring their businesses to achieve the low margins that are required to compete.

We only have to look at what’s happened at HP recently to see evidence of this need for change. Faced with two quarters of disappointing results, their new CEO had little choice but to make sweeping changes. He announced an exit from the device space and an aquisition of a leading UK software company. Crucially, that company will retain its autonomy, and not just in name (sorry, I couldn’t resist the pun) – allowing Autonomy to manage its own customers and grow within its own value network.

Only time will tell if HP’s bet on selling a profitable, market-leading, hardware business in order to turn the company around in the face of cloud computing turns out to be a mistake. I can see why they are getting out of the device market – Lenovo may have announced an increase in profits but we should remember Lenovo is IBM’s divested PC division, thriving in its own market, freed from the shackles of its previous owner and its high margin values. Michael Dell may joke about naming HP’s spin-off “Compaq” but Dell needs to watch out too. PCs are not dying, but the market is not growing either. Apple makes more money from tablets and smartphones than from PCs (Macs). What seems strange to me is that HP didn’t find a buyer for its personal systems group before announcing its intended exit.

If HP spins off their PC business....maybe they will call it Compaq?
Michael Dell

So, back to the point. Cloud computing is disruptive and established players have a right to be scared. Those providing technology for the cloud have less to worry about (notice that HP is retaining its enterprise servers and storage) but those of us in the managed services business could be in for a rough ride…

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