Is Cloud Computing Truly, Truly Disruptive?
By Joe McKendrick
“Disruption” is one of those words that has been overused, being applied to every little product or service that comes to market, or every new company that emerges.
Cloud computing and digital technologies, for example, are branded by many as “disruptive.” New services and business models sweeping through markets, such as Uber and Airbnb, are called disruptive. Any startup employing technology to take on established or entrenched businesses is considered by many to be a disruptor. Read too many press releases, and your head will be spinning with all the disruption taking place with every new product tweak. But is it all true to the spirit of disruption, as outlined by Clayton Christensen in his groundbreaking 1997 book, The Innovator’s Dilemma?
Christensen’s point is that disruptors are those companies that move into markets by taking on the low-margin end, serving unserved or underserved markets ignored by incumbents. Disruptors don’t start out intending to compete with the market leaders. Rather, they start out with the intention of creating new markets that didn’t exist before. They create markets, and then push their way up the chain, increasingly pushing incumbents into smaller, high-margin niches. Are businesses we consider “disruptors” doing this? In a recent article he co-wrote in the Harvard Business Review, Christensen and his co-authors take aim at what he considers gross misuse of the term he made famous, disruptive innovation.
Does the misuse of terminology matter? Since disruptive innovation is such a sought-after prize, businesses may be led down the wrong paths. Christensen and his co-authors (Michael E. Raynor and Rory McDonald) caution that “if we call every business success a ‘disruption,’ then companies that rise to the top in very different ways will be seen as sources of insight into a common strategy for succeeding.” Disappointment, or even disastrous results, are likely to ensue.
Under Christensen’s classic definition, an example of a disruptor would be the late, great Digital Equipment Corporation (DEC), which produced high-end and midrange computer systems. DEC chased high-end, high-margin customers, which is exactly the logical thing to do, and what shareholders expected. However, PCs began to serve customers who could never afford computers before that time. The PC makers essentially created a new market where none existed, and which DEC would never have found profitable enough to reach.
So, Microsoft, in its early days, could be considered a disruptor, since it created a market that never existed before — making powerful software — from operating systems to number-crunching spreadsheets — available to consumers, in their homes or offices. With the help of PC hardware manufacturers, it handed computers and software to people who never touched such systems before in their lives. Later on in its evolution, it pushed mainframes out of enterprise data centers.
A similar dynamic was seen in the open-source software space, in which applications and systems enabled underserved markets, particularly small companies — acquire enterprise-grade software such as web services or big data analytics at a fraction of the cost of commercial-grade competitors. Open-source started on developers’ or hobbyists’ desktop machines, and over the years, moved up the food chain to push out many large-scale commercial systems out of data centers.
Do today’s cloud-service providers rise to the level of “disruptors”? Are they making markets that never existed before, providing compute power and online services to underserved and unserved markets? In many cases, no. In many enterprises, cloud is either replacing functions that already existed, or paving the way for new applications.
But where it does occur, disruptive innovation as a result of cloud computing is happening on two levels. First, the tech industry itself is being disrupted as cloud-based software providers come to the fore. An example of this is access to supercomputers. Cycle Computing, for instance, provides on-demand supercomputing for genomics, machine learning, simulation, and scientific computations as a service. Prior to cloud, small companies, small departments or researchers with small budgets may have not had such access to supercomputing power. Now, a range of big clients, including government agencies, universities, and Fortune 500s also subscribe to Cycle Computing’s services. For other examples of disruptions to the tech industry by cloud, check out this still-timely article from two years ago from fellow Forbes contributor Greg Satell.
The second type of cloud-based disruption is at the business level, and less well-defined. Innovators are able to launch entire new ventures, within the cloud, with little need for physical infrastructure or large staff, to take on larger, established incumbents. (Again, we’re not just talking about independent startups, but ventures within larger companies as well.)
Uber, the car-hailing service, is often seen as a major disruptor to the taxi business. It lives in the cloud, and uses mobile technology to support its business model. However, Christensen and his co-authors say Uber does not rise to the title of disruptive innovator. Rather than create a market of consumers that was underserved or never existed before, it merely supplanted an existing demand base. Uber built “a position in the mainstream market first,” then subsequently appealed to underserved consumers, they point out. Disruptive innovators, in fact, even tend to first produce products or services that are “inferior” to existing products, and offer them at lower prices. Uber is not considered to be lower quality than existing cab or car services.
An example of a cloud-borne entrant meeting disruptive criteria is the online education market. The provisioning of courses in a range of subjects — at low or no cost — is providing learning opportunities to millions of people who could not afford the expensive tuition rates of today’s established universities and colleges. These online entities don’t seek to replace existing organizations, but rather to create entirely new markets.
“The question now is whether there is a novel technology or business model that allows new entrants to move upmarket without emulating the incumbents’ high costs—that is, to follow a disruptive path,” Christensen and his co-authors observe. “The answer seems to be yes, and the enabling innovation is online learning, which is becoming broadly available. Real tuition for online courses is falling, and accessibility and quality are improving. Innovators are making inroads into the mainstream market at a stunning pace.”
Through online programs — often delivered from existing universities themselves – higher education and skills training is being made available to those who can’t afford tuition fees, or reside in parts of the world with limited access to educational facilities. These low-priced, or often free, online classes are the polar opposite of the current business model of the higher education industry, which is already seen as overpriced and bloated — running more than $50,000 a year. That’s just one important way cloud and related online technologies is disruptive.
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