Analyst’s Cloudy View on Cloud Computing (Updated … a lot)

Burton Group Analyst Guy Creese decided to add some of his views originally left out of the New York Times article “Google Gets Ready to Rumble with Microsoft.” (hat tip: Mary Jo Foley). He’s making reasonable arguments in the first half of the post -for example I agree that corporations will use Web Office products as leverage to squeeze Microsoft in licence negotiations. But then comes a twist that leaves me speechless:

“It took electricity 60 years to move to the cloud model; why should software be any different?”

Steve asked me about Eric Schmidt’s assertion that the cloud (and hence Google) can handle 90% of today’s computing tasks. My answer was, “Maybe in the next 30, but not in the next five.” This response is colored by what happened with electricity in the late 1800’s. Edison invented the first long-lasting incandescent lamp in 1880, but it wasn’t until 50 years later (1930), that 80% of businesses and 70% of homes were electrified in the U.S. And it was really only in the 1940’s and 1950’s that the numbers climbed into the 90% range.

If you look at the electricity adoption curve, it mimics what is happening now. People made their own electricity for the first 30 years. It was only in 1910, when Samuel Insull began creating electricity holding companies, that businesses and people decided it was easier and cheaper for someone to take over the task. If you figure usable PCs were invented in 1975, we’re about 30 years into a 50- to 60-year adoption cycle. People move a lot slower than technologists want them to; that’s why I think Microsoft’s “software and services” viewpoint is the less exciting but more sensible one.

The electricity metaphor is indeed a good one – for more details, read Nick Carr’s The Big Switch. There really are a lot of similarities in the process – except the timing. I can’t even begin to comprehend how a business analyst can equate the rate of technological advancements today to that of the late 1800’s, early 1900’s – and apparently that’s what Guy Creese does. And as for the 30-year prediction… oh, please… where were computers 30 years ago? I don’t want to use cheap tricks like the famous misquote attributed to IBM’s Thomas Watson: ” I think there is a world market for maybe five computers“, but who could have predicted where we are now 30 years ago? Anyone who claims he can see computing trends for the next 30 years is smoking something, IMHO.

Update (12/18): Hmm… just because a study by NPD finds Web Office adoption rate low, Joe Wilcox at Microsoft Watch is ready to bury it. He conveniently ignores the fact that we are in the very early stages of the transition to cloud computing. Nick Carr has it right, stating:

Wilcox misreads the study. He writes that “94 percent of U.S. consumers have never heard of Web-based productivity suite alternatives.” Actually, the survey, as indicated by a chart in Wilcox’s post, puts that figure at 73%. That means that more than a quarter of PC users are aware of the online alternatives, which actually strikes me as fairly high given that it’s so early in the market’s development.

ReadWriteWeb adds: Path to Market is Only Just Beginning. Mathew Ingram agrees. Or here’s Between the Lines:

This survey simply indicates that a tipping point toward the cloud hasn’t been reached yet. So-called Web phenomenon like Google search, Facebook or MySpace didn’t mystically reach warp speed in adoption. Moving robust applications to the cloud is a bit more complex than instant messaging or a social graph. At some point software-as-a-service applications, with offline support, will take the bulk of the pie, but it will require a few more turns of the crank.

And I suppose Damon Darlin, technology Editor of The New York Times is part of the 0.5%:

I’ve lived for a month without Word. And it has set me free.

Update to the Update… I guesssmile_wink (Who would have thought that what started yesterday as a quick rant becomes part of the hot topic du jour a few hours later…)

Don Dodge joins the list of those who conveniently ignore where we are on the innovation curve and declares Google has its head in the clouds. Ironically, Don himself declared yesterday: Google vs. Microsoft = Microsoft vs IBM 30 years ago, and he is right (although I suspect he means a different end-game this time). He quotes the “Innovators Dilemma”, by way of Henry Blodget (apologies for the long quote, but it’s a perfect fit to our discussion here):

Disruptive technologies do not destroy existing market leaders overnight. They do not get adopted by the entire market at the same time. They do not initially seem to be “better” products (in fact, in the early going, they are often distinctly “worse.”) They are not initially a viable option for mainstream users. They do not win head-to-head feature tests. Initially, they do not even seem to be a threat.

Disruptive technologies begin by providing a cheaper, more convenient, simpler solution that meets the needs of the low-end of the market. Low-end users don’t need all the features in the Incumbent’s product, so they rapidly adopt the simpler solution. Meanwhile, the Incumbent canvasses its mainstream customers, reassures itself that they want the feature-rich products, and dismisses the Disruptor as a niche player in an undesirable market segment.

But then the Disruptor improves its products, adding more features while keeping the convenience and low cost. Now the product appeals to more mainstream users, who adopt it not because it’s “better” but because it’s simpler and cheaper. Seeing this, the Incumbent continues adding ever more features and functionality to its core product to try to maintain its value proposition for higher end customers. And so on. Eventually, the Incumbent’s product overshoots the needs of the mass market, the Disruptor grabs the mainstream customers, and, lo and behold, the technology has been “disrupted.”

Don’s conclusion is that Microsoft, having been a disruptor before learned the ropes and will come out a winner this time around. The magic potion: Software Plus Services. Software Plus Services does not work for me, like Dennis, I am a weirdo, living in the Cloud. I am a consumer / prosumer / business user, you-name-it, but not an IT specialist; so I simply want to enjoy the power of software, without the hassle. That is the promise of Software as a Service.

As a user / customer, I don’t like Microsoft offerings, including Office Live Workspace, because of the product tie-ins. But I don’t join the “venture capitalists and A-list bloggers who are ridiculing the Redmondians for not discontinuing immediately any more client-based Office development and turning Office into a Web-based product.” They can’t. They shouldn’t. They have a huge legacy business to defend. They owe it to themselves and their shareholders to milk the desktop market for as long as it remains this lucrative. But what am I doing here… I let Don Dodge explain it better: Why The Next Big Thing doesn’t usually come from market leaders.

Thanks, Don, for so persuasively debating with yourselfsmile_wink

Update to the Update to the Update (I’m losing it..): How could I have missed WinExtra and ParisLemon


  1. The analogy is apt, but the projection is all wrong. A better projection would look at the rate of penetration of electricity, compare that to the phone, personal computers, cell phones, digital cameras and Flash 9.

    It seems that the rate is speeding up with each new generation of technologies, and is tied to the decreasing cost of infrastructure, manufacturing and delivery.

    I have no reason to believe it will be different for cloud computing.

  2. Apologies for not referencing you Zoli. I could have used some of this when I filed:

  3. Oh, well, don’t worry about that…There are now two of us, weirdos:-)

    This thread is evolving fast.. I should probably have started a new post instead of updating this.

  4. Zoli, This is a complicated and fast evolving story. Thanks for the links to my posts. You are right about my conclusions on how the next round of disruption will turn out.

    I understand how one might conclude that I am debating both sides of the issue, but I think Microsoft is a unique case.

    I think there are a lot of paralells between Google vs. Microsoft today and Microsoft vs. IBM 25 years ago. Microsoft did indeed learn the ropes, what to watch for, and how to respond, and I think the outcome will be different this time. BTW, IBM is still doing pretty well after being disrupted by Microsoft 25 years ago.

    Microsoft has adapted to several market shifts in the past 25 years and has largely avoided ‘The Innovators Dilemma” that kills so many market leaders. This is rare but Microsoft has done it, and I expect them to do it again in response to SaaS web based services.

    Google is more of a “One Trick Pony” (search) and nothing ellse they have done has gained any revenue traction. They are placing all their bets on cloud based computing.

    BTW, cloud based apps are not free. Google charges $50 per user per year. After 4 years customers have paid $200…about what they would pay for Microsoft Office (in volume) and Office tends to ship every 4 years. So where is the savings?

    There are a lot of angles and perspectives to this issue. It is not as simple as it might first appear. Overall, I think Microsoft is doing a pretty good job of balancing the conflicting demands.


  1. […] print and in his excellent Rough Type blog), but also on John Paczkowski’s Digital Daily and Zoli’s blog (one accepting, the other criticising some assertions made by Butler group’s Guy Creese), […]

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