3 Comments

Summary:

As executives contemplate the emergence of cloud computing, it’s important that they understand the questions they need to ask about why they’d adopt the new IT paradigm. Those deciding should consider the history and decisions made by Borders, the bookstore chain. Its execs chose poorly.

2353373666_397aa8dd90

Choices matter. Just ask Indiana Jones. In The Last Crusade, he was forced to pick the Holy Grail out of a lineup of cups that spanned everything from a crude wooden model to a high-end chalice apparently designed by Fabergé. The stakes were high. His adversaries chose poorly; Indy chose wisely, and won the day. Cloud computing strategies are a lot like that.

Every decade or so, we’re confronted with the arrival of a new mega-technology that has the power to shape our businesses in powerful ways. In the 1980s, it was personal computing. In the 1990s, it was the Internet. Now, we’re faced with cloud computing. It’s important that we choose a wise strategy for dealing with this technology. In order to understand the future, let’s take a look at the past.

Amazon chooses wisely

In 1994, Borders Group was already one of the largest book retailers in the world. That same year, Jeff Bezos founded Amazon.com recognizing that physical bookstores were limited in the number of titles they could stock. In contrast, an online storefront could “stock” as many titles as needed, delivering a huge competitive advantage in product selection.

These two organizations had vastly different Internet strategies. Without the Internet, Amazon simply couldn’t exist–the web was central to it’s business model. In contrast, Borders largely ignored the Internet through the 1990s. Instead, Borders pursued a traditional retail strategy, opening large stores in the U.S. and expanding internationally in Europe and Asia.

Borders finally took note of the Internet in 2001, deciding to open an e-commerce storefront. The company knew that it didn’t understand e-commerce, and so it made the decision to outsource its online operations to an expert — Amazon. In hindsight, the move was foolish, but it reflects a vastly different strategic vision and set of choices about how to view the new Internet technology. For Borders, the Internet was a way to take orders for books and augment transactions occurring at its retail stores. Amazon viewed the Internet as a competitive weapon that could deliver strategic differentiation through greater selection and ease of purchase.

Borders ended its Amazon alliance in 2008 and finally developed its own online presence, but the company never found its stride. In early 2011, Borders filed for bankruptcy and finally ceased operations in late 2011.

Lessons learned

There are some lessons here:

  1. New technologies can significantly change the way that businesses operate, creating new business models and obsoleting old ones. Make sure you’re on the right side of that transition before you decide to move slowly with the adoption of a new technology.
  2. The market will often take a wait-and-see approach with new technology, particularly established enterprises. While the Amazon vs. Borders comparison provides one of the starkest examples of Internet success and failure, Borders wasn’t the only company that “didn’t get it.” Barnes & Noble also struggled to incorporate e-commerce into its business model, for instance.
  3. So, choose your technology strategy quickly and wisely. And remember that if you choose not to decide, you still have made a choice.

Making the wise cloud computing choice

Today, the Internet transition is behind us, but the cloud computing transition is upon us. The conventional wisdom says that:

  1. The biggest benefit to cloud computing is the cost reduction associated with efficient external cloud suppliers, operating at massive scale.
  2. The biggest risk associated with cloud computing is security.

Do CIOs have their heads in the sand?

That analysis provides a huge mental crutch for people who are comfortable with the status quo. Budget savings are always interesting, but they are rarely compelling. If we’re currently profitable under the current cost structure, there is less pressure to change our behavior to save money. And that’s particularly true if that means taking additional risk on things like security. Better to pay more for the moment and be safe, the conventional wisdom says, than to be overly aggressive and get burned. Let someone else go first. That’s exactly how Borders approached the Internet.

Here are some questions that might help shape your thinking about a cloud computing strategy:

  1. Is information technology be a core input to your business strategy? If you’re a Web 2.0 company, the answer is obviously, “Yes!” If you’re a manufacturing company in a very old, stable market sector, on the other hand, the answer may be “No,” but remember that Borders didn’t think the Internet was core. And they were right as long as book selling remained a brick-and-mortar business.
  2. What is business agility worth to you? Again, if you’re in an inherently slow-moving business sector, the answer might be, “Not much.” But remember that book selling wasn’t very fast-moving in the 1990s either. But Amazon has used the Internet multiple times to evolve its business model, lately innovating with e-books. In 2011, Amazon reached the crossover point where it sold more Kindle e-books than physical books, which really starts to undercut competitors based on brick-and-mortar storefronts.
  3. What is the risk to your company if your competitors embrace cloud computing first? If that’s troubling and you can think of ways the technology can be used against you, then you’ll want to move before they do. It’s important to think outside the box here and consider new market entrants. If you’re Borders in the 1990s, you need to be thinking about young upstart Amazon, not just your historical competitor Barnes & Noble.

The Amazon vs. Borders comparison puts technology adoption strategies in stark perspective. Cloud computing is upon you right now and its important that you create a proactive strategy for its adoption in your enterprise. It may be the case that you can slow-roll your adoption, taking advantage of the wisdom and experience of first-movers, but make sure you aren’t being lulled into a false sense of security, sustaining the status quo just because it’s easy and low risk for the moment. Border did that and got crushed in the process. They chose poorly and paid the price.

Dave Roberts is SVP of Strategy and Evangelism at ServiceMesh. He blogs here, and tweets as @sandhillstrat.

Indy image courtesy of Flickr user zombieite.

  1. It really depends on what cloud computing means to to your company. It is moving your entire infrastructure for serving your single outlet (e.g an ecommerce website) to a cloud hosting provider like EC2 or is it just a case of decommissioning that old mail server in the corner of the office and replacing it with Google Apps? Both have different risks and benefits but the first risk is mis-defining “cloud” in the context of your business.

    Share
  2. In my opinion, it is the efficiency that cloud could bring to all the companies which want to make more profit. So cloud is absolutely the trend of modern technology. In terms of security, we should wait for the development of more secure technology to support cloud. That is the core problem.

    Share
  3. Interesting article . I work for McGladrey and there’s a whitepaper on the website about the benefits of cloud computing and related technologies for the retail industry ( http://bit.ly/RRlVrP )

    Share

Comments have been disabled for this post