From American Affairs Journal, volume III, number 3, Fall 2019:
The emergence of the internet changed
the business landscape in fundamental ways. Computer-based services
could be offered to anyone irrespective of geographic restrictions. This
meant that internet companies could become globally significant with
relatively little initial investment, as demonstrated by Facebook,
Google, and several others. Their ability to rapidly concentrate wealth
with relatively little overhead caught the attention of many
entrepreneurs and investors and continues to evolve today.
Basic internet services began in the 1960s with time-sharing on
computers. This gradually evolved into sharing entire applications
online. It was a simple step from there for companies to offer complete
online software services, some of the most prominent being full-service
email such as Hotmail and Gmail in the 1990s.
Monetizing the internet, however, was not a straightforward
proposition. When the internet first emerged, people saw it as a great
democracy where anyone with a good idea could set up a business with
little cost. This lowered barriers to entry and thus offered the promise
of moving the economy closer to a pure “free market,” a system that
better rewarded good ideas and merit over money or position.
Many free services appeared, not the least of which were search
engines. When Google was first born, it was simply one of many search
engines. In the process of becoming dominant, Google either bought out
or made irrelevant all other search engines. Today, there are some
people who think Google’s search engine is the internet instead of part
of the internet.
Despite Google’s near monopoly, Google’s search engine remains free
to use. At first glance, it seems puzzling that a large corporation
would spend considerable resources to dominate a market and not use its
place and power to force revenue from its users. This is because
licensing software is not Google’s main money-making strategy. Google’s
strategy requires large numbers of people to use its software, and the
best way to generate traffic is to build high quality, free-to-use
software packages that help everyone. On the surface, this aligns well
with the widely held belief that the internet should remain free.
Although free products propagated across the internet, businesses
never lost their desire to monetize the internet. At first, it looked impossible—how
do you monetize free goods? To monetize such an environment, either
everyone would have to agree to sell their software or no one could,
with the exception of large, highly specialized programs such as Adobe
Photoshop or (at the time) AutoCAD.
There were efforts to create
paywalls throughout the internet, but this largely failed, just as
newspapers are rediscovering today. This forced companies to think of
different ways to monetize their products. The process branched into two
distinct paths depending on whether the customers were enterprises or
consumers. Both these methods altered the basic business relationship
from one of sellers offering property in exchange for money to one of
sellers renting their property to customers. In other words, sellers are
increasingly retaining the power and rights of property ownership while
retaining its customer-derived income. This is changing the power
dynamics between customer and seller.
The Growth of Cloud Computing
As soon as internet technology became sufficient to reliably handle
high bandwidths, business-to-enterprise activity exhibited a marked
increase. Successful marketing of online services to businesses largely
succeeded because of demonstrated savings on the cost of doing business.
These new enterprises have been classified into various categories,
including Software as a Service (SaaS), Infrastructure as a Service
(IaaS), Platform as a Service (PaaS), Everything as a Service (XaaS),
Enterprise Resource Planning (ERP), and Functions as a Service (FaaS).
All these activities can be described as cloud computing, where a
service (be it storage, software, or other service) is supplied via the
internet.
Before cloud computing, every business had to set up their own
independent onsite IT operations, often duplicating the IT functions of
other companies. For example, large firms need software processes to
manage, track, and report their sales activity. After the proliferation
of fast internet connections and large shared servers, however,
entrepreneurs saw that if they set up a secure online sales service
package, they could offer the same or similar online solution to several
companies.
Development costs of IT functions are similar whether
services are offered to one or many companies, so it is obviously more
profitable to sell the service to many business customers.
The result, on the surface at least, is win-win—the
seller makes greater profits while the businesses save money by not
having to build their own IT functions. The customers receive leading
edge IT services offered at a fraction of the cost. Further, should
business IT needs suddenly increase, the cloud service is responsible
for scaling the software project, not the business customer. The
enterprise customer benefits from a lower cost of business and minimizes
the responsibilities of managing IT resources as the business grows.
Another advantage of using existing services is certainty. For a
business manager, purchasing a proven IT service removes considerable
risk. An online journal, ZDNet, recently asked: “Would you
rather host your data on an inflexible, costly and potentially unstable
in-house resource, or would you rather work with a trusted external
partner who is an expert in secure hosting?”1
It is easy to understand how an experienced manager would be much more
likely to reach for the proven software of a cloud service rather than
ask his IT department to create something from scratch. This is borne
out by the fact that the vast majority of cloud service contracts are
initiated by business managers, not IT departments.
Ownership and Control
It is important to note, however, that once the IT department work
has moved off premises, the business no longer owns that service or the
infrastructure that delivers it. Instead, the company is investing in an
intangible service from a centralized source. There are several
consequences of this trend....
....
MUCH MORE
