After sipping a few cocktails in the excellent Callooh Callay bar in London, I discovered that the bar’s bathroom is decorated with cassettes as you can see in the picture. Followers of my Twitter stream will know that I get my best ideas while enjoying a good glass of red wine or a whisky and so in a lightly alcohol-infused state I started pondering over the events in the past two decades or so in the music industry that shaped my view on the concept of ownership.
From CDs to MP3s
I remember back in second grade in high school the day that a friend came to school with a recordable CD. Geeks as we were, we were gobsmacked. His uncle had a computer company and recently bought a 2000 Euro single-speed CD recorder and his nephew just wanted to show off. Little did we know that we were looking at something that would dominate our teenage life for the following 10 years.
One of the things I did in high school was converting my whole (and my dad’s) CD collection into MP3. That quite changed my perspective (and especially my dad’s) towards ownership of music. I remember having several discussions with people back then that they didn’t like this whole MP3 concept. Arguments going from “you’re not appreciating music anymore”, “the sound quality is rubbish”, “I don’t like it that I can’t grab it”, “what do I have to do with all my empty shelves now?”, etc.
In hindsight, I learned some valuable lessons back then:
- Good is good enough: yes the sound quality was in the beginning not as good as you’d get from a CD, but little did we teenagers care. Instead of having a wall with shelves full of CDs, we had it all stored in a 3.5″ hard drive. We were happy with the quality. This is the same lesson we’ve learned now with YouTube. In the rat-race to the highest pixels and HD quality, we tend to forget that the majority of the people are perfectly happy with the quality of YouTube. It works and it gives instant entertainment.
- The economic law of diminishing returns (or in this case value add): When you have 15 CDs and you’ve saved every week some money to buy after 5 weeks finally that new CD, then the added value of having that extra CD is pretty high and very satisfying. When you have 5000 MP3s and you get 1 extra, it’s more like “meh”.
- The long tail: When you have to save 5 weeks to buy a new CD, then you will most likely go for something that you’re sure about. No risks because otherwise you’re stuck with that CD for a long long time. You really weigh your choices and a lot of people end up with a CD that they are sure about (read: the ones that are heavily pushed by the record labels on the radio and commercials). Having easy access to thousands of songs, gives you the freedom to listen to some unknown artists just because the cost of failure (= you don’t like it) is pretty low, so why not give it a try?
The most disruptive life lesson we learned back then was the redefinition of ownership. In a world where acquiring a juke-box worth of music is nearly zero, how do we look towards ownership of that music? Think about it, very groundbreaking stuff happened on the playground, way before some smart people wrote books about this phenomenon.
From iTunes to Spotify
After giving up the notion of physical ownership, many youngsters happily embraced the model of meticulously categorising every MP3 song in folders, often in a tree structure with Artist and CD name as levels.
How shocking was it to embrace the iTunes model that took care of the categorising and completely screwed up your own folder structure. As with Google’s GMail, iTunes disrupted the market by focusing on searching and discovering your content, rather than relying on the old manual folder categorisation mechanism. That concept worked well when you have 25 CDs, but didn’t scale very well when you have 20 000 songs.
This slow change where people gave up the physical ownership and then gave up the management control over their digital assets, neatly prepared us for the next step in this “head shift” (no pun intended 
): “consume all you want subscription model”.
Enter Spotify, a subscription-based model where you can consume all you want for a monthly fee (there is a free version as well with some limitations).
I’m using Spotify for five months now here in the UK and by paying 10 GBP per month, I get unlimited access to their music library (hosted in their cloud) and all my music choices and playlists get automatically and wirelessly synced over my iPhone, work laptop and private laptop. A very convenient way to satisfy my music needs without the hassle of manually syncing devices and being legit with all my digital media.
By embracing Spotify, I’ve essentially given up the ownership of digital assets as well. Whilst you still kind of owned the MP3s that were stored on your computer, with Spotify you just rent them as long as you want to pay your monthly fee.
When you look at the process I’ve described, I’ve essentially sacrificed ownership and control to gain convenience.
Lessons for the enterprise market
The reason why I started this post was to understand what implications this trend in the consumer market can have on the more traditional enterprise market.
Could it be that one day a large organisation completely gives up control and ownership of their IT assets to a company like Google to gain convenience and agility?
It wouldn’t be that impossible given the huge web infrastructure Google is building:
- Google Apps with Google Mail: unified communications and office productivity
- Google AppEngine: development platform for bespoke application development in the cloud
- Google Chrome OS: desktop access to the Google (web) applications
- Google Android & Google phones: mobile access
When you start mapping out the requirements to run your company, you start seeing a few holes, with the main one: ERP. With an ambitious giant like Google, what would stop them from building a cloud-hosted ERP system that will compete with SAP?
It won’t be long before the Spotify-generation will become the next generation of managers that will run large multi-billion dollar organisations. People that grew up with the fact that they can get 7.5 GB email storage on Google’s GMail for free, instead of being limited to 100 MB on the company’s mail server.
I’m telling you, the success of this cloud computing nirvana won’t be driven by cold financial calculations but it will be rather pushed by a new generation of “Spotify-hippies” that just doesn’t know any better…
This post originally appeared on the Headshift blog.
Lee, great post! And a good trip down memory lane
But, it seems like I’m making a habit of ‘letting myself go’ at Dachis’ blog posts. So I turned my extensive comment into a blog post of my own, and am redirecting from here:
http://www.martijnlinssen.com/2010/04/erp-from-cloud-or-just-mature-crp.html
I hope the Spotify-generation appreciates the notion of standard stuff, and push IT (and enterprises) into maturity…
Here it is:
I’m making a habit these days of writing huge comments to good blog posts, and then deciding to turn them into blog posts on my site
Lee Provoost’s blog post on Spotify at Dachisgroup was what triggered me to write this lengthy comment, and I’ve just turned it into this post
Lee’s gone back on a music trip to memory lane because he saw cassettes in the Callooh Callay bar’s bathroom in London, and making a great comparison from CD
to iTune to Spotify – read the post at Dachis, there are some great points in it
Going back 20 years, the really bad thing was knowingly paying for numbers you didn’t like – as of course you listened to the entire LP or CD before you bought it. Maybe you fastforwarded a few, but you listened to every single number before buying the record. Wow. Waste of time? No, actually having a good time and it simply was part of the music-buying experience
The thing I really like about MP3 is that I will just physically delete a song I don’t like. Not because it saves space, but simply because I don’t want to hear it again. Kick! Out of sight, out of heart
ERP from the Cloud, however? No. Salesforce.com is proving my point, wrote a blog post about that a few months ago and rant about it on a regular basis on Twitter: it’s simply not static enough to SaaS highly dynamic business, certainly not on that scale. Salesforce.com is taking so very, very long for Chatter because they are trying to fix a moving target onto a static base. And I wouldn’t be surprised at all if Marc Bernioff were to “redefine his ambitions” in the next few weeks. That on a sidenote
Cloud’s certainly not the same as outsourcing, but when it comes to plugging in and out of the Cloud with great ease, it must all be similar stuff
You can’t outsource manufacturing a car before you specified to death every single part of it, thereby freezing the design in its entirety and only allowing for a bit of bandwidth for the car parts to fluctuate within.
Back to my going back 20 years: paying for parts you don’t like is what ERP comes with. You can’t start to delete ERP-parts at will unless they’ve become absurdly cheap (compared to what we are accustomed to now) and completely detached from the monolith we’re used to see them in.
They won’t become that cheap unless they’re “made in China”. And they won’t be “made in China” unless they’ve been specified to death and become boringly dull, static stuff. But when they have, we can greatly standardise them and UDDI will finally take off
So, answering Lee’s question: primary processes are what make businesses tick. The businesses all support the same business, but just slightly differently so they can nick a few extra customers the competition can’t get to. Ask a CEO what makes him or his company so special, and he’ll start by saying: “what differentiates us from our competitors is…” – meaning that they all do the same business just slightly differently.
That’s why ERP hardly pays off. And that’s why Cloud will pay off for storage, virtual machines, networks and such: because the business just doesn’t care about that at all. Like you don’t care whether your car is manufactured in China, Poland, US or India. You just ordered that very car…
At a higher level, SaaS will service a standardised part of business applications. SaaS and service are the keywords there: it’s small, fine-grained, and standardised. Unlike ERP, the big monolithic ball on Atlas’ shoulders
I’m sure that System Integrators will loudly applaud the idea of ERP out of the Cloud as they now support SAP because there’s great money to be made in implementing and maintaining it. To me that’s totally defying the purpose of a package, but then again I haven’t seen a package that wasn’t customised to a great extend, so maybe that’s just today’s IT reality? Or business? Or are we all just spoiled rotten, and would we be equally happy when our options are limited to a wide few, like in the car industry?
So maybe we’ll not get ERP from the Cloud, but just Cloud Resource Planning. And will that finally help to make the IT industry mature
Thanks for your extensive comment Martijn, much appreciated!
Few remarks from my side:
- I’m not completely sure whether Salesforce is the best example here because Salesforce is predominantly focused on CRM, not on the core ERP like SAP and Oracle (or Microsoft to some extend). I don’t know enough about Salesforce’s chatter to judge its usefulness but I am convinced that going the route of tying up CRM-like functionality with social collaboration tools might be a good bet. My first feeling is that the industry is still searching bit for the right balance and is more in an experimentation phase rather than having released very mature products. Definitely a space to watch!
- a second thing is that we need to make a distinction between companies that have extremely customised business processes, the ones that distinct themselves from the rest, and the ones that actually have fairly standard ones. I can imagine that a company like Zara that owns the full supply chain will need a fully customised ERP solution, whilst a professional services firm won’t. And when we think about it, there are quite a lot of companies that can happily live with fairly standardised ERP solutions. It might be that some processes need to be slightly adapted to fit in these, but it should work out. For these latter companies, an ERP-like offering from Google in the cloud might be an interesting option.
The point I wanted to make in my post is that we’ll see more and more people taking up decision-making positions that will bluntly say in the boardroom: “make it happen”.
Btw I like your Cloud Resource Planning thing
Thanks Lee!
I’m kind of blunt on viewing both ERP and CRM as two big one-size-fits-all monoliths: packages.
Actually Patrick Brinksma made interesting comments on my post, saying that customisation impact comes with implementation scale – and I think he made a huge point with that
Point well taken by the way, and agreeing with you. We SI already feel the pressure of users regarding email when ye good olde Exchange mailbox complains again at 200MB where GMail happily takes 7.5 GB. It’s evolution, I feel it’s right, and mostly I love it
You make some good points. However, I’d also encourage you to think how the processes you are describing parallels (or differs from) the outsourcing of the 80s and 90s. Products and services, generally, are cost/benefit decisions. Perhaps your analysis includes a different (larger?) set of variables.
cheers.
Hi John. Good point. I’ll be the last one to argue that cost/benefit analysis is not a healthy way to assess these moves, so I’m all there with you. What you see now is that many large organisations are quite risk averse (especially corporate IT departments) which is often stiffling innovation and agility. Now, that has its justified reasons and I’ve blogged about those in some past articles, but with more and more “spotify-hippies” entering slowly more senior positions is that you will get a less risk-averse culture. This is not because they are recklessly, it’s more that they have been grown up with cloud-based services and they didn’t have the challenge in the past that they needed to adapt to this mind shift.
Is it ia good thing? That is a bit nuanced I think. What we don’t want is people that just push through a cloud-based service without doing a proper due dilligence with that vendor. Last thing you want is that you adopt a cloud-based accounting system, just to figure out 1) that you have some legal/compliance issues, 2) the vendor goes broke after a year.
I always liked the question: “is it better to ask for forgiveness, than to ask for permission?”
ps: not to say that it’s a good thing though, but you also need to put the legal/compliance thing in perspective. I’ve know companies that deliberately ignored certain legal/compliance aspects, knowing they’ll get fined for it, but the cost saving and business agility that a certain choice gave them, was far greater than the fine they got from the government…
Lee,
Thank you for your comments to my previous post. I enjoyed reading them and felt they added to the discussion.