Why The Cloud Just Might Be The Most Disruptive Innovation Ever

In his 1997 management classic The Innovator’s Dilemma, Harvard professor Clayton Christensen coined the term disruptive innovation.  The central premise was that a change in technology can completely transform the basic economics of an business.

A key example was steel minimills such as Nucor. Originally, they could only produce the lowest quality steel and weren’t seen as a serious threat to the big integrated mills.  Nevertheless, as the technology improved, they ended up disrupting the entire industry.

In the decade and a half since Christensen published his book, we’ve learned a lot about disruption and know the warning signs to look out for, such as a change in the basis of competition, new market entrants and new types of consumers.  But what if disruption isn’t specific to an industry anymore?  What if everyone gets disrupted all at once?

From Xero to $3 Billion In 7 Years

In 2004, Rod Drury was already a successful technology entrepreneur, having founded two successful companies and amassed a small fortune.  Yet, like many serial entrepreneurs, he found himself restless and was looking for a new opportunity.

He found one when he looked at accounting software for small business.  Unlike consumer technology, which was quickly moving to a web-based approach, business software was still sold in boxes.  That made it difficult to integrate with other software and almost impossible for the people who used it to collaborate effectively.

So he went to his friend and accountant, Hamish Edwards, and together they decided to build a software company that centered on the relationship between small businesses and their accountants.  Rather than just transferring files every quarter or so, their product would allow accountants to act as real-time advisors.

In 2006, they launched Xero, which has been revolutionizing how small business operate ever since.  It goes far beyond just keeping the books, it seamlessly integrates with a wide array of add-on software tools, from point-of-sale to timesheets to invoicing and payroll. Xero currently has a market capitalization of over $3 billion and is still growing fast.

Low-End Disruptions

To get an idea of why companies like Xero are so disruptive, think back to how software used to work.  You would buy a package from a vendor and it would be installed on your company server or PC.  Through partnerships and acquisitions, the software company would could then offer you additional products with expanded capability.

This was not only time consuming and expensive, but it limited you to the vision of your software provider.  If you had a restaurant and wanted to start selling take-out on the Web, you had to either buy a product that was compatible with your accounting software or basically run two sets of books.

In the best case, you were held hostage to the partnerships and acquisitions your vendor saw fit to make.  Most of the time though, your ability to was hampered by the strategies and vision of your software provider.  If it didn’t see why your point-of-sale system needed to be integrated with e-commerce, you were basically out of luck.

But cloud technology works differently.  Typically, an application programing interface (API) is set up so that any developer that wants to make its product compatible can do so on its own.  There’s even a company called Zapier.com that combines applications automatically in the cloud for you.  Power has shifted from software companies to everyday consumers.

Large Scale Disruptions

Most data are unstructured.  Everyday, there are millions of social media posts, customers filling out comment cards, mentions in mass media and on blog posts.  For a large enterprise, a keyword search would turn up thousands of hits per day.  It’s simply not possible for a human to read it all, but now machines can.

Lexalytics developed one of the most powerful text analysis software packages for exactly that purpose.  The company’s product can analyze tremendous amounts of content for meaning.  So, for example, customer service organizations can monitor the web for complaints in order to intervene and financial analysts can track sentiment on the companies they cover.

The company’s former Marketing Director, Oleg Rogynskyy, thought there was a better way.  He saw that by putting Lexalytics’ technology in the cloud, he could achieve three goals:  It could be downloaded by non-technical users, in under three minutes and used for less than $1000, instead of the tens of thousands needed for an installed version.

With the backing of Lexalytics, he founded Semantria, which offers low cost natural language processing through the cloud and can be deployed quickly and cheaply.  When Tesla suddenly ran into a very public problem with its batteries, it installed Semantria in minutes and was able to monitor sentiment in real time and manage the crises.

By greatly expanding the consumer base, Semantrix has not only been able to lower the cost, but also improve the software.  Because all of the data is housed together rather than distributed on clients’ servers, the algorithms are able to learn and improve from a much wider data set.  Semantria’s business is booming, growing at 20% per month.

We’re All Being Disrupted Now

Mike Saliter, Global Head of Market Development at QlikTech predicts that the cloud approach will soon become standard.   Anybody with an idea can go to Amazon, Microsoft or Oracle, sign up for a platform as a service and be up and running in minutes. Competition is fierce and prices are falling while features are expanding.

But what makes the cloud so disruptive is that it compels legacy players to change their business models, including pricing strategies, sales channels and even basic technology. The winners will prevail not by dominating the value chain, but through making it easy for developers to collaborate and for users to adopt the technology cheaply and easily.

It seems the cloud is now disrupting every industry it touches.  The world’s most advanced technologies are not only available to large enterprises who can afford to maintain an expensive IT staff, but can be accessed by anybody with an internet connection.  That’s a real game changer.

One thing is clear.  We no longer have to wonder whether or not technology is threatening to upend our business.  Rest assured, we’re all being disrupted now.

image credit: businesscloudnews.com

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Greg Satell is an internationally recognized authority on Digital Strategy and Innovation. He consults and speaks in the areas of digital innovation, innovation management, digital marketing and publishing, as well as offshore web and app development. His blog is Digital Tonto and you can follow him on Twitter.