Business Cloud Technology Booms as Foreclosure Looms for Old Software

Facebook will surpass one billion members in early 2012. If it were a country it would be the third largest in the world. It may soon be the largest, beating India and China, in a few more years. The social network is fueled by information exchange technology designed for consumer (or friend) networks that could not have existed before the world-wide Web. The Internet, now just 15 or so years into broad acceptance, was key to enabling these kinds of collaboration systems.

What’s the value of Facebook’s core intellectual property—its software and technology—today? If you were handed the CD with the source code to the most powerful social network on the planet, what could you do with it? The answer might surprise a lot of people who’ve spent their lives building and selling commercial software systems.

For some time now, software has been about the innovations and inventions that architects and engineers could capture and protect. The product was their angle. But Facebook’s biggest value is not its technology but its network. It’s the community of nearly one billion members who go to Facebook, many of them several times a day. Even superior IT platforms cannot compete with the overwhelming advantage of a one billion member community. You don’t go where the great functionality is, you go where your friends are. You want to see their updates and know where they are—and you want that information now.

What’s happening today with information exchange technology in the consumer world will be the same in the business-to-business world. You need great innovation and invention to penetrate the market, to get started. And then you need a great strategy to drive adoption in the market, to build the community.

It’s a race to get critical mass in the market in which you compete and the larger the community, the bigger the prize. What would Facebook be, if say, its numbers were the size of a city instead of one of the largest countries?

The world of global commerce and supply chain—the sourcing, ordering, shipping, receiving and paying for product—is both a huge industry and a critical function for every country on the planet. It’s also highly fragmented, inefficient, uncontrolled and unmonitored. Even the biggest companies run their global operations in a state of “blindness” because they cannot efficiently and cost-effectively share information with their trading partners. There is no B2B community platform leader in the market today. It’s wide open. All the big software players who’ve dominated the industry for the past 30 years are focused on “old guard” software—the software of record keeping within a single company. Think of it as Facebook if you could only see the status and updates of people who share your last name—it just isn’t that valuable anymore.

Today, companies need technology networks that empower them to see a product in every stage of its lifecycle—in real time. They need to make quick decisions to re-route shipments and engage partners and suppliers to meet consumer demand. Without a way to see all of this, they will fail. It’s much more serious than what happens on Facebook. Any given post can carry with it implications for thousands of other linked companies.

To get your entire trade network on the same page you need software and systems that go beyond your single company. You need systems that can connect you with your community. In commerce and supply chain, these systems are network systems and they are transformative. They are code breakers. They enable, for the first time in history, massively scalable information sharing across entire trade networks that span the world.

But the key to their power is the breadth and depth of their communities. Just as in social networks, people will go where they know they’ll find action.

Here’s the key to valuing global commerce and supply chain technology companies: they are more like real estate than software. They get more valuable over time as they become more populated. They deliver more value to everyone, over time, as they grow. When your neighbor improves his asset, the value of the neighborhood goes up for everyone in the neighborhood. There is a reason why the rent in New York City is more than the rent in Anchorage, Alaska, and the reason is very similar to why Facebook is far more valuable than MySpace—its population and the assets they provide to the community.

When companies evaluate systems for monitoring, controlling and improving commerce and supply chain today, they are still thinking about it as a feature/function solve. It isn’t. They need to be thinking about it as a network solve. Which network is likely to be a New York City kind of network? Which of these systems is most likely to give them the scale and reach and “fast-connect” they need to be truly agile when the world is changing so quickly?

There are no break-away critical mass leaders yet, but there are at least a few who have the right models, and they all share this commonality—they’re cloud-based and collaborative. Cloud is making possible for business what Facebook did for consumers. The notion of a shared, multi-tenant software delivery model that gets deployed across the entire customer base offers better economics for every company involved. When the cost of IT is shared and spread across multiple companies, customers begin to see real benefits. This is called multi-tenancy and it’s the cornerstone of cloud technology.

The world of global commerce and supply chain is prime for this type of cloud model because of the sheer number of partners and suppliers that collaborate to make products. When any one partner modifies its connection to the multi-tenant cloud platform or improves the quality of that connection, it’s done once, in one place, and the change is immediately available to all others invited to be in the network. Conversely, when any company on the network improves a partner connection, it’s improved for all. In other words, if you are on this platform, the stability and value of your integrated solution improves over time not just because of your hard work but also because of the hard work of others. Like real estate, the value of the asset grows when the value of the neighborhood grows.

These are still early days. The market does not yet understand how to evaluate and choose these emerging systems. But sit tight, we’re about to see the Facebooks of the business-to-business information exchange technology world experience a period of booming growth, while the MySpaces fall quickly into foreclosure.

About the Author: Greg Kefer is Director, Corporate Marketing, at GT Nexus in Oakland, Calif. GT Nexus provides a cloud-based collaboration platform to automate hundreds of supply chain processes on a global scale, across entire trade communities. For information, visit www.gtnexus.com.

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