Even though ‘the cloud’ is such a common term these days, not many are aware of its exact definition, complexity, possibilities, nor its far reaching impact on our daily lives. Without getting into the intricacies of the differences between Software as a Service (SaaS), Platform as a Service (PaaS) or Infrastructure as a Service (IaaS), the basis is fairly straightforward. A product can be defined as a cloud solution when the necessary soft/hardware is externalized to a third party and ‘leased’ back through a form of subscription based payment. The cloud provider aggregates the varying levels of demand from different customers and decides autonomously the location and level of resources to utilize and scales up if demand requires this. In this way a virtual and scalable infrastructure is created to match soft/hardware needs from the customer. It is important to note that only a limited number of SaaS categories have been adopted by consumers so far. Online email services like Gmail were leading the way before, followed by online storage and — more recently — entertainment solutions. Even though many people are actively using services like Apple iCloud, Google Drive, Spotify or Netflix, I argue that it is of crucial importance to understand that its full potential is yet to be unleashed, as it will impact future markets, consumers, technology manufacturers and retail as we know it thus far. At the moment some of the main IT-groups are moving within the Product Life Cycle from the maturity into the saturation and decline stage, which to me is a first sign.
In spite of the fact that the first mainstream cloud based operating system from Google (Chrome OS) was clearly not massively adopted in Europe, it seems to be very much the case in the US. Super market chains define a significant part of the retail landscape and their margin model allows for lower profits on hardware in comparison to many European countries, which I believe to be the reason why this Google solution hasn’t had the same impact on the other side of the Atlantic. The reason why I state this, is because I want to underline that the concept of always being able to login to one’s own account and settings with always up-to-date software, however, is here to stay. Besides this platform and the before mentioned software developments, hardware is now also getting some early attention with the launch of NVIDIA’s GRID and OnLive solutions for gaming. These services are best described as ‘Netflix for games’ and enable one to stream interactive high quality games from central servers, packed with heavy duty (graphical) processing power. The consumer always has access, through a subscription, to the latest games run by the latest hardware. The latter has stopped its services as important parts were acquired by Sony; further underlining its potential.
On top of this, we are seeing the first commercially viable solutions where you can literally rent an external computer (server) for your web hosting, apps, programs or entire cloud solutions — with the ability to scale up if based on then current requirements and without ever knowing the exact physical location of the hardware. Both Microsoft (Azure) and Google (Compute Engine) are pushing hard on those products, to cater to the needs of (mainly) developers so far. However, it is important to understand that the step to mainstream consumers is surely going to be next.
In the eyes of many people the biggest providers of cloud solutions seem to be offered by new players and major operating systems. Nonetheless, one of the world’s biggest retailers is highly active in this field as well. Amazon Web Services is actively attacking Microsoft Azure and Google Compute Engine and to underline their level of engagement and focus, I reckon the clearest example of this is the fact that their service provides the back bone of the popular Netflix. Simultaneously, they have also launched a service called Amazon Prime, which for many users might seem centered around perks for the online store. More interestingly to me, however, is the fact that the package also includes access to free e-books, unlimited streaming of music and movies, as well as an integrated cloud solution with ‘unlimited photo storage’. Observing those developments and combining it with the insights learned from The Next Web 2015 keynote of the CTO Werner Vogels in Amsterdam, it becomes clear to me that they have decided what is going to be the next big thing for their future consumers. In my eyes these are not just separate examples of different categories, but an indication of a trend where the entire array of different hard/software groups are going to be affected by the process of externalization of technology and software.
As revenue models seem to be shifting, I believe the focus of retailers should therefore also be moved towards building and/or expanding their cloud offerings through both on-demand entertainment (i.e videos, e-books and games) and storage solutions. Not only is this a great diversification and potentially alternate source of income (i.e. through subscription fees or a white label revenue share model), it also helps the retailer to understand the customer, build a stronger relationship and provide him with tailored offerings.
Even though a business case might prove difficult given the aforementioned globally operating competitors, I do believe that the aforementioned addition of a retailer owned cloud storage solution is key as well. Not only would this expand the relevance and impact of the build entertainment platform, it also provides a stronger connection to the hardware sales. When an IT-product is purchased and an online storage solution is used as a sell-up, the chance of that person to become an active user of the overall platform greatly increases. Adding these features allows for a push from multiple sides of the platform, growing its user-base and transforming it into a relevant and cost efficient advertising channel as well, because retailers have both the marketing exposure and ability to create unique propositions with hardware sales.
I therefore argue it is key for retail to keep broadening its horizon of relevant competitors and understand where the market is moving in order to remain relevant, claim their share of wallet and not be suffocated by the ‘clouds’ of competitors.
To be prepared is half the victory.
Miguel de Cervantes