Industry Clouds: An At-Scale Grass Roots Movement Changing IT Life within Sectors
One of life’s hazards is becoming so immersed in our own way of doing business that a major disruptive force develops all around us – a threat to our careers and livelihoods – that we can’t see. For enterprise IT vendors, one of those threats is happening right now.
For technology users, it’s a major opportunity.
We’re talking about the emergence of the “industry cloud,” which, according to one industry analyst, is a movement taking root in nearly all major sectors (or soon will be), it’s already overturned traditional IT vendor-customer relationships (customers have much more power) and it’s a “macroeconomic inflection” that many technology companies aren’t even aware of.
Nor, in many cases, are the CEOs of companies using industry clouds, even though they’ve existed, at increasing rates of adoption, for about five years. This is because industry clouds are grass-roots in nature, typically initiated and used at the line-of-business (LOB) level, leveraging new, at-scale technologies that help LOB managers get out from under vendor lock-in, from dependence on third-party IT consulting services and from control of the IT department and CIO’s office.
Industry clouds have other, profound strategic implications, driven by a set of four needs: the search for new revenue models, for more effective digital transformation strategies, for more innovation and business agility and the need to remediate risk.
IDC’s Scott Lundstrom, group vice president and GM, Software, Health and Government, discussed industry clouds at the IDC Directions conference in Boston last week. Here’s IDC’s definition:
“An industry cloud is an industry-specific, cloud-based, pre-integrated, elastic, scalable, set of capabilities / resources / information that complies with industry information security level requirements, offers APIs, and is delivered as-a-service.”
Put another way, it’s a channel for information and a point of aggregation for compute, storage and data, organized by companies within a sector that don’t directly compete. Alternatively, its functionality focuses on costly aspects of business that don’t deliver competitive advantage (such as regulatory compliance). Industry clouds enable organizations to store and share massive amounts of data, and use it to build intelligent models while sharing compute and storage hardware to reduce IT costs.
Lundstrom said he thinks of an industry cloud as “PAAS plus plus. Platform-as-a-Service, everything I need to operate a platform – plus, industry-standard transaction support.”
In healthcare, he said, an industry cloud can mean HIPPA compliance, in banking it means regulatory compliance, in government it means process compliance. Also in healthcare, it can mean the sharing of billions of medical images by a group of hospitals to improve diagnostics and precision medicine. In agriculture, it can mean John Deere collecting data from customers’ tractors and sharing that data to improve farmers’ crop planning decisions; in banking the aggregation of many institutions’ data to improve anomaly detection and complying with the next regulatory regime.
“And it means security,” Lundstrom said. “The industry cloud is a kind of new secure operating investment going forward…. In every industry there’s an opportunity for a platform that’s been tailored for that industry. That tailoring allows us to work thru APIs, to attach easily to services, to consume data in the form of answers, versus drinking from the fire hose trying to figure it out ourselves.”
Lundstrom primarily directed his remarks to technology providers, whom he said are generally absorbed in selling hardware, software, speeds-and-feeds and systems integration services – and ongoing maintenance – that this new model is taking them unawares. But as industry clouds spread, the traditional IT business model will be undermined. Instead of building on-prem infrastructures, more companies will plug into an industry cloud, eliminating many sales opportunities and revenue streams that IT vendors and systems integrators have come to know and love. By the same token, it’s a business model end-user organizations never loved and are open to something new that opens them to more data, up-to-date hardware, software and processes at greater cost efficiencies.
“I think the biggest surprise for many (vendors) when we talk to them is this: they don’t understand how mature a movement this is,” said Lundstrom. “They don’t understand this is already a five-year-old market, that there are already hundreds of major participants out there.”
Primarily directing his remarks at technology providers and consulting services, Lundstrom said, “This is one of the biggest strategic decisions that many of you will face over the next several years…. It’s no longer Capacity-as-a-Service, it’s Knowledge- and Value- and Answers-as-a-service. It’s a whole different set of equations, a whole different macroeconomic expression from the eyes of the customer.”
One of the best known industry cloud’s is Predix, General Electric’s “the operating system for the Industrial Internet…connecting industrial equipment, analyzing data, and delivering real-time insights…of both GE and non-GE assets.”
It’s one of three revenue models for the industrial cloud, according to Lundstrom, and possibly the only one that is generally known (though GE’s TV ads).
“Predix is an architecture, it’s not a product, and you’re going to see Predix-like products, like they use for aviation, power plants now,” Lundstrom said. “There’ll be a Predix for medical imaging, for diagnosticians, there’ll be a Predix for every major market GE serves in one form or another, and GE Digital is running this as a commercialization platform and they’re bringing their customers in.”
The idea is based on a joint venture (JV) approach, he said, “my buyers are my suppliers, how can I create a channel that we can both benefit from, and this is really important. This is an information driven model, GE is collecting, aggregating, building intelligence out of information, reducing your cost of ownership. These are by far the most popular of the early models here.”
In healthcare, Lundstrom cited the case of Athenahealth’s JV with Beth Israel Deaconess Medical Center of Boston.
“If you think about healthcare,” he said, “it’s a lot like ERP and other markets. You buy a vanilla product and then you spend three to five times what you spent on the software to make it fit your organization. So when a healthcare organization buys a clinical support package…it comes without documentation around how the clinicians enter and use data, all that has to be developed. Every implementation is different, just like ERP. Very expensive to own, to operate, very fragile, very rigid.”
In the case of a small community hospital, debt funded by a bond issue, up-to-date hospital operations software is probably well beyond its reach. “So you’re running poor technology, you’re on an older platform, you’ve poor security, you really can’t participate in the new marketplace at all.”
But now, Lundstrom said, there’s an answer. “Throw your old system away. Put your users on Athena’s cloud and by default they will operate the Beth Israel model: Beth Israel documentation, Beth Israel clinical processes, Beth Israel reporting, Beth Israel compliance. Best in class. The debt-riddled community hospital can save money by becoming a best in class organization from a technology perspective.”
In government, Lundstrom discussed the National Information Technology Center (NITC), developed within the U.S. Department of Agriculture by what he called “a breakaway group.”
“They’re smarter than the average bears, they understood what was happening to traditional IT, they looked out into the cloud and decided collectively: ‘We can do this, or we can fail,’” Lundstrom said. “We can sit around and wait to be outsourced, wait to be displaced. Or we can actually get out there and use what we know about the federal (environment) to create a better set of information services that’s better than what any vendor can offer.”
So NITC in effect formed federally compliant cloud services, Lundstrom said, shared-services PAAS for infrastructure to government organizations, both inside and outside the USDA. “Plus they added green, plus sustainability, which meets other federal guidelines, to pop them right up the procurement list. So now they’re aggregating federal IT business from other agencies… Kind of an interesting approach in this new cloud within an IT shop, but they’re doing it for the same reason all of these companies are doing it. They’re buying innovation out of the cloud and quickly creating it in their own environments.”
Note: EnterpriseTech will continue its coverage of industry clouds by profiling specific clouds within vertical industries. If you would like to suggest examples for coverage, please contact [email protected]