Is On-Demand Here to Stay?

Identifying a paradigm shift is most easily done in hindsight because separating a fad from a long term trend is something that requires a bit of historical perspective to get right. About the only professionals who make it a habit of prognosticating about changing trends are economists and, as the saying goes, they have reliably predicted 13 out of the last 5 recessions.

Some people regard on-demand computing as a passing fad or at most an alternative delivery model, while others hail it as the harbinger of a new world. Who is right and what the long term consequences will be are not idle questions because many billions of dollars in sunk costs and future investment hang in the balance.

Constant Change

I learned the term “secular change” from economics. It describes something that might occur very occasionally, perhaps once in a lifetime. Secular change is a game-altering event for everything that comes after. A similar term, “disruption,” is a far more common phenomenon and we see disruptions happening in the marketplace almost constantly.

The analogy I see is: Disruption is to Fad as Secular Change is to Long Term Trend. (Or if you recall your SAT’s, Disruption:Fad::Secular change:Long term trend.)

Listen to Denis Pombriant (5:48 minutes)

We recognize secular changes throughout history such as the invention of movable type and the printing press, the invention of electric light, or the introduction of computer chips into the automobile.

Take the automobile for example. In the 1970s, cars had no computer components, but today, microprocessors optimize air and fuel mixtures going into the cylinder even to the point of calculating the impact of air temperature and humidity on fuel mixture and spark timing. Microprocessors deploy airbags and adjust braking on slippery roads. At first, these innovations were considered luxuries or additional cost options, but increasingly they have made their way into cars at all price points.

In most cases, manufacturers and after market technicians went through a learning curve and today, not only are microprocessors a standard part of virtually all cars, they are taken for granted by anyone who deals with them. In short, microprocessors have become a part of the volume production of cars by all manufacturers.

Becoming the Norm

Secular changes are initially seen as common disruptions and for good reason — initially most secular changes are, in fact, nothing more than minor disruptions or curiosities. Popular putdowns in each era of disruption reveal the characteristic and unwelcome upset to the status quo caused by secular change. Epithets like, “Get a horse!” are frequently heaped on early adopters when the new technology inevitably breaks down.

I believe the technology industry is in the midst of a secular change and part of that change is embodied in the on-demand computing movement. In any sector one cares to examine, the introduction of digital automation was a complex systems deployment that over time was absorbed into the routine. For most of the history of the high technology era, for instance, technology innovations have been brought to market as complex systems which required high levels of expertise to customize and operate as well as lots of cash to keep the idea alive.

Geoffrey Moore, Once Again

In his new book, Dealing with Darwin, Geoffrey Moore identifies two basic business models, Complex Systems and Volume Operations. Complex systems represent the early adopter phase while volume operations identify a mass market phase. We have been most accustomed to seeing volume operations models succeed as one disruption after another has toppled complex systems models in a succession of software generations from accounting and finance to the front office.

Today there are no more green fields left in enterprise software, no major systems areas that have not been automated; even new on-demand applications focus on optimizing what other systems already do. The whole software industry is in a secular shift from complex systems to volume operations and that is the reason on-demand computing has an air of inevitability about it.

On-demand computing is the future, but as anyone who cares to look can see, it is not about to cause an immediate change in every company. Just as there are still mainframe computers in operation and doing useful work, legacy computing will be with us for some time. Nevertheless, new application development and new solutions will follow an on-demand trajectory which, for many, may also include different business models that separate software developers from marketing and distribution.

Accepting Change

The greatest challenge for existing software companies will be to recognize that change is afoot and to embrace it. As with other secular changes in history, the change in computing will not be limited to technology, it will affect business models for every company now competing in the traditional software arena.

Lately, some software companies have been deriding the on-demand model as nothing more than an alternative delivery method that will bring customers into hybrid deployments eventually resulting in a completely traditional use model. The danger for many of these companies is that they will believe their own marketing and see secular change as a mere fad that they can ride out.

The on-demand paradigm may not be completely ready to take on all of the challenges of traditional enterprise computing; nevertheless, the economic advantages of on-demand computing are so compelling that customers will continue to demand more and more, and on-demand suppliers will continue to invest and invent. On-demand computing has become the indispensable paradigm for the future of enterprise computing.

Denis Pombriant runs the Beagle Research Group, LLC, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing, and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at [email protected]

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