Business Model Innovation in a Cloud-Enabled Economy

An accidental business changes the world of computing – yes that is really a statement that sums up Amazon’s web services. In 2006, Amazon launched Elastic Computing (EC2) and many wondered why would an e-Commerce company that started as selling books get into selling computing power? It didn’t make any sense. According to an interview in The Wired Magazine[1], Jeff Bezos, the CEO of Amazon stated that about nine years ago the application engineers were wasting a lot of time in explaining to the networking infrastructure engineers. Instead of those fine-grained coordinated access, Amazon asked the data-center guys to give its software guys a reliable infrastructure. Since nothing like this existed, they started building it. Very soon, they achieved the maturity, with a little bit of work build something reusable, and recognized other companies could use it. They started selling it. Now companies like Nasa, Foursquare, Netflix, The New York Times, and many other powerhouses rely on this core infrastructure.[2]

This phenomenon that started with Amazon EC2 in 2006 would go on and inspire many start-ups to rapidly build disruptive products on top of Amazon’s infrastructure and herald a new era in computing also known as Cloud Computing. In many ways, Amazon made computing as simple as buying groceries online. It isn’t stopping though and continues to spawn products that now go beyond computing into infrastructure needed to run a full-fledged company (e.g. Email, Storage, and such). Who would ever think an accidental business like this would now inspire the likes of Microsoft to enter the fray with Azure Cloud, Google with its Compute Engine, and let Apple spawn something called as iCloud.

Apart from paving the way for a new era in computing, inspiring many startups and competitors to shape themselves (or) the cloud offerings, Amazon also inspired a brand new business model – Services (or) Subscription based. The cloud enabled economy can be classified into the following:

  • Infrastructure as a Service (IAAS): Rather than purchasing servers, networking and operating systems, datacenter, and other expensive infrastructure, any one can spin all that up on an on-demand basis and even better scale it with growth (e.g. if you need more space, you can go get it on-demand without locking in the capital expenditure).
  • Platform as a Service (PAAS): Now that you can get infrastructure, wouldn’t it be great to get Platforms such as easy ability to integrate Mobile Notifications and many other third-party integrations (e.g. Facebook, Twitter, other related software programs), pre-installed software development tools, ability for teams to collaborate on software development, and much more.
  • Software as a Service (SAAS): When you can get the infrastructure on-demand, platforms to build brand new software on demand, does it then make sense to pay Software and “license it” (or) “subscribe to it” on demand? That essentially is SAAS. Software is deployed over the Internet and the business model is basically “Pay as you go” & “Scale as you need”.
  • Other variations: Owing largely to the success of IAAS, PAAS, and SAAS, many other services such as Backend as a Service (BAAS) where database is offered on-demand along with all pre-requisite integrations, Data as a Service (DAAS) where large volumes of data can be connected, visualized, and appropriate decisions made on-demand, Desktop as a Service (DAAS) where a desktop is remotely accessible via the Internet, and many such models are beginning to emerge.

This pattern of service-enabled (or) subscription-enabled business models has taken the imagination by storm. Increasingly many businesses are rethinking (or) mapping their products and services to an IAAS, PAAS, SAAS, DAAS, or other equivalent to build recurring revenue models.

So what’s your IAAS, PAAS, SAAS, and DAAS equivalent?

[1] http://www.wired.com/2011/11/ff_bezos/all/1

[2] http://www.quora.com/How-and-why-did-Amazon-get-into-the-cloud-computing-business

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