Below is one of the classic weather symbols, which as well as expressing typical ambiguity about the forecast, also sums up my approach to the cloud.

In Britain, our changeable weather–and the fact that talking about it is the standard way to open any conversation–means we have an intimate relationship with the weather forecast. And, in Britain, this means the Met Office with their classic symbols. An icon of British design (like the ) which features on the BBC home page, on television, and even on each page of UK passports.

In a previous posting “ ,” I said that I didn’t think that cloud was fundamentally transformative for commerce and was more of an IT strategy. Just like the British weather, I have changed my outlook.  In fact, I think the weather symbol expresses well the symbiotic relationship between business networks and the cloud.

Sometimes in technology we want to delineate between  concepts when in fact they might be two ways of saying the same thing. The promise of the networked economy requires both the flexibility of cloud solutions and the interconnections of a business network.

When I first started in this game, all of the end points of the network were on-premise, though in those days we just called it “software.” It was difficult to keep the customers’ software up to date so it would work with the network. Cloud changed all that. Also, when the market changed, it took time for customers to react because they had customized systems and had to install and test any changes.

There is a symbiotic relationship between Business Networks and Cloud

Cloud solutions are Pre-wired for a business network, and significantly reduce the software engineering challenges and allow for faster innovation.  Between cloud solutions and Business Networks we are seeing rapid feedback loops as each adds value to the other.

Why move to the cloud? As well as the familiar solid arguments around speed, flexibility and cost, I’d add the fact that it’s where everyone else is . You go to the cloud because that’s where you find your suppliers, your customers and other trading partners. You put processes into the cloud that are naturally collaborative, so all parties can interact.

What’s the forecast? Definitely getting brighter.

Have you ever used the saying, “two sides of the same coin,” indicating there are two ways of looking at the same thing, maybe two different interpretations of a situation?

If you look at private cloud services, you click on a URL, register yourself, and start enjoying the beauty of an appealing solution experience. Your data persist in the cloud; you can access it from wherever you are and whichever device you might have – the definition of online. This is the freedom of cloud applications in private life – and obviously the shining front of the coin.  Many people now have the same expectation for their work life applications…

However, if you flip this coin over, you might be in for a surprise.

I am fascinated by the role Cloud Computing plays in the business transformation that began to take shape in the last few years. Every day there is a new customer example, statistic, survey, or analyst report reminding us that we are in a new era of business performance. When engaging with customers and partners, we often hear that changes are taking place so rapidly that many line-of-business leaders are paralyzed by the speed at which they need to move—and furthermore, they don’t always know how or where to move. I discussed some of the trends influencing these changes on the SAP community network blog ( 10 trends for the year ahead ).

The convergence of cloud, social, mobile, and big data analytics has forced companies to adapt immediately to industry forces or risk becoming obsolete. And let’s not underestimate what is at stake: organizations large and small are all wrestling with how to win in their market and how to gain the competitive edge that will deliver unmatched value to their customers  and timely profits to their investors. The payoff is huge for those who execute well.

At SAP, we know this better than anyone, as our substantial customer base and vibrant ecosystem deals with this change firsthand. We deliver innovative solutions to our partners that help them keep the engine running while allowing them to change the tires for the next race. This is the single greatest challenge that organizations face: keeping the lights on while simultaneously preparing for the future and focusing on gaining a competitive edge. A key enabler is technology, and the goal is to achieve business velocity by finding the right foundation and mix of solutions.

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Few companies want (or can afford) a “rip and replace” approach – nor should they even consider it in most cases. We constantly hear from long-standing customers that they want to maintain some of the core systems that serve them extremely well, but need the innovation that the cloud affords. To help them strike this balance, they also need a strong relationship with a trusted, dependable partner who supports their changing, growing needs.

So the key business question is: How do you manage change and capitalize on emerging trends in a cooperative way?

A word like “critical mass” is so often used in the figurative sense, it is sometimes hard to remember its original, technical meaning: the smallest amount of fissile material needed for a sustained nuclear reaction. This was first achieved by the great physicist Enrico Fermi, in a “pile” (and that’s the technical term) of Uranium in the unlikely location of a squash court at the University of Chicago.

It turns out that different isotopes require a different mass to go critical. So Fermi needed a pile 8 metres high of unrefined Uranium, but a ball of just 10 cm (the size of a softball) of Plutonium is needed.

Cloud Network pioneers also wonder how long it takes to “go critical”. A common target in the network world is 50pp, 50 percent penetration of the target market. I prefer the term “network effect”, and the idea here is that networks ( just like a pile of uranium-235), when they get to a certain size “go critical”, and the benefits of adding a new node exceed the costs of creating and connecting it.

Let’s look at some Network Effects over the years. They all exhibit the same chicken-and-egg effect in that it makes no sense to buy a telephone (lay rails, string cables) if there are not enough people to connect to.

Network

Started

Critical Mass

Time Required

Built by

Railroads 1820’s 1880’s 70 years Tycoons, Barons
Electricity 1860’s 1930’s 70 years Local Govts, co-ops
Telephones 1870’s 1940’s 70 years Ma Bell
Oil Pipelines 1880’s 1920’s 40 years Standard Oil
Credit cards 1950’s 1980’s 30 years Visa
Internet 1960’s 1990’s 30 years Fed Govt
Cloud 2005 ? ? Various
Source: Infrastructure History Series (Amy Friedlander) http://www.cnri.reston.va.us/series.html

One fact that seems inescapable is that things are speeding up, just as we’ll, as  investors are unlikely to want to wait decades for the network effect to take off. Also, the time taken to get to “criticality” depends on the cost of setting up the node and connecting to the network. Stations on a railroad are expensive, so are the tracks between them.

There’s certainly more to a Cloud Network than just scale, such as the classic cloud benefits of service levels and guaranteed delivery but scale matters. And of course there are many examples of networks that fail to go critical at all: Apple’s Ping, the Philips Video Disc, the CueCat, the 3DO games console.

How can you tell if a network has reached criticality? The mathematical definition states baldly that at criticality, the value obtained from the network is greater than or equal to the price paid for access. Not very helpful, but there’s one important thing that is needed: a sustainable business model .

A sustainable business model is in effect when the profits to the network administrator scale in proportion to the value that its subscribers receive. If you have to endlessly pay for more hardware (e.g. phone lines, wireless spectrum, racks at Amazon Data Services) as you get more members, then you don’t have a sustainable business.

There are plenty of Business Networks out there, and when one of them goes critical, it’s going to create a really big noise.

Connecting clouds and building joint business networks via cloud platforms can simplify the integration process, especially with the use of IaaS and PaaS. Yet it is critical for business and IT executives to avoid thinking of cloud tools and technologies as simple plug-and-play options, tempting though that idea may be when many services can be switched on with nothing more than a credit card. The reality is that a robust infrastructure and integration strategy is required to achieve maximum value from cloud networks, expanding their capabilities.

And these capabilities are wide-ranging, including mobile services, social media, and Big Data analytics all of which must also be integrated. Another pressing need is for consistent data across an entire IT environment, including internal servers, virtualized systems, and cloud systems and platforms. A growing stream of unstructured data audio, photos, video, e-mails, text messages, text files, metadata, and so on must coexist with structured data that is slotted into conventional databases. Finally, the focus must always remain on security.

From our newest study, Connecting the Cloud. Download (free, but registration required).

There has been much commentary about Kevin Spacey’s new series, “House of Cards”. On the blogosphere, the talk has been mainly about the innovative distribution method via Netflix. The rise of Netflix, especially its recommendations of films by your peers, is certainly a great example of the Cloud Economy. At Blockbuster, you could see the shoppers drifting among the aisles not knowing what film they wanted to watch. Solving this problem with the power of the cloud was key to the success of Netflix. The transformative Network effect, promised in the name of the company itself, turned out to be not streaming over the net (a recent innovation, after Blockbuster had already been mortally wounded) but recommendations from your network.

As noted, a well-worked theme.

I want to focus on one of the signature artistic aspects of the “House of Cards” series. I was a fan of the original 1990 BBC series, which was wildly popular, as it happened to be screened at exactly the same time as Thatcher’s deposition by her Conservative Party colleagues. One of the memorable aspects—which has been faithfully kept by Spacey’s remake—is when the protagonist turns to the camera to address the audience directly. One memorable line delivered this way  is,  “You might very well think that; I couldn’t possibly comment.” The line is still used by current politicians, as a suitably ambiguous answer to a penetrating question.

In acting, this is called “breaking the fourth wall”; a phrase from theatre, where the actors perceive the audience as behind a wall, and it is forbidden to interact with them directly. It might be acceptable in pantomime or burlesque, but about the only time an actor addresses an audience in live theatre is to tell them to “turn off that bloody phone”.

In the Cloud Economy, we break the taboo and breach the “fourth wall”. Our internal processes of production and finance used to be played out in an enclosed walled garden. The stakeholders of suppliers, customers, banks, and other partners used to be passive observers but now—through the breaking of the Fourth Wall—they can engage directly via the cloud.

Our internal processes become visible to our partners and we invite them to participate in the cloud with us. They can share production schedules with us and we can exchange financial documents with them.

In certain forms of theatre, the fundamental distinction between actors and audience starts to disappear. I saw the theatre troop called Showstoppers last year: a brand new musical is created from scratch at each of their performances using audience suggestions to create a show on the spot. The audience is no longer passive, but guiding and shaping the show.

As the Cloud Economy matures, the distinction between internal and external processes will similarly blur. Buyers and suppliers will become homesteaders on the cloud, joint ventures will become more common, and maybe the difference between employees and contractors will become increasingly more blurred.

It is no longer taboo to involve people who used to be merely the audience in our drama.

Vice President, Technology Marketing, SAP

Many still see the cloud as just another place to consume software. People sitting in front of screens entering and looking at data, which just happens to no longer be stored in their own basement but in somebody else’s basement. Admittedly, this promises nice savings due to economies of scale on the provider side and reduced IT efforts on the consumer side. At the same time increased use of cloud-based software presents unique challenges and new opportunities.

Let’s look at one major challenge first—integration. Even if you’re only using a handful of cloud applications, you need to make sure that data is in sync between them. You can’t afford outdated contact data in your marketing app. Salespeople need up-to-date pricing and availability in the sales app. Your online catalog needs to contain your latest products with all commercial details.

Ascertaining integration between even a few apps requires a more systematic approach than the import, export and programming interfaces most applications provide out of the box. Integration platforms are now available in the cloud as well, allowing setup and execution of complex integration patterns among cloud and on-premises applications, for a simple subscription fee.

A major opportunity arises from the inherently networked nature of the cloud. It basically adds hosted and shared processing capability to the internet’s universal connectivity—a perfect combination for sophisticated business networks. The consumer already benefits through the use of major social media networks. Now it’s time for businesses to embrace the network effect as well.

Built on solid, elastic, extensible cloud platforms, well integrated with major on-premise and cloud business applications, these new business networks can easily bypass the issues earlier online marketplaces had. They can provide better and cheaper integration, easier onboarding, increased business model flexibility and much lower operating costs than the early B2B marketplaces.

Read the latest Oxford Economics study, , to learn how organizations harness the cloud integration challenge and grasp the opportunity of online business networks.

In the book “ ” the author, Tom Standage states that

“The telegraph unleashed the greatest revolution in communications since the development of the printing press. Its saga offers many parallels to that of the cloud in our own time.”

As we try to understand the potential of Cloud, it is worth looking at this technology, and how it enabled the Modern World.

We all know that Samuel Morse invented the Telegraph and with it the need for his eponymous code. But Morse could have never foreseen the other business applications that would be built on his network, all of which are with us today.

  • Newspaper Wire Services
  • Wire Transfers
  • Stock Tickers
  • Futures Trading
  • Sears Roebuck and the Catalog
  • Railroads

The Network Effect of the telegraph was spectacular, for example look at the way the telegraph allowed Sears to offer products targeted at the newly connected rural areas, where people had few retail options and appreciated the convenience of being able to shop from their homes.

The company’s extensive catalogue would eventually become a fixture in American homes and changed the way people shopped. It also helped foster the growth of the mail-order industry worldwide.

My final example, Railroads, could never have been possible without the humble dots and dashes that allowed signalmen to control the points and switches. And the Railroads led to such fundamental changes in commerce, social patterns, leisure and warfare that it is impossible to imagine the twentieth century without them.

The Telegraph was a B2B revolution : consumers didn’t have one in their house, for example, and most people couldn’t speak the Code. The consumer revolution came with the telephone. However, even though they did not interact directly with Morse’s invention, the businesses that they used were transformed by it.

Cloud is essentially the reverse story. Consumers have jumped in first with online shopping, banking, travel and media. Up until now businesses have been in the strange situation of having electronic commerce at their fingertips at home, but existing mainly in the Paper Age in the office.

My Mum is able to access integrated payments, logistics and supplier ratings for her purchase of gardening gloves on Amazon; but a plant manager at a $1Bn industrial facility is hunting down the provider of a crucial gasket with the phone, and approving service entry sheets on paper.

But now it is time for B2B. Just as the telephone followed the telegraph allowing consumers to use the network that had been first used by business, now the Cloud Economy is following the Consumer Internet using the same wires. And since 80% of trade is essentially B2B, this will be a step change in the evolution of Cloud.

And just as Morse could never know all of the changes wrought by his telegraph, we don’t know all the other business that can be spawned by this Cloud revolution. But it will be equally transformative.