Clayton M. Christensen has written one of my favorite books – Innovator’s Dilemma. The basic paradox presented in the book to innovative companies and entrepreneurs is that you need to basically cannibalise your existing business to survive.
A good example of this is the ebook market in relation to physical books. Consumers are asking a justified question with regards to pricing; why aren’t the prices of ebooks lower than those of physical books considering their dramatically lower publishing costs?
Let’s say, that currently publishers are getting 10 units of currency for a physical book. If they’d sell the same book as an ebook for 5 units of currency, they would voluntarily let go of 5 units of revenue. Despite letting go of the revenue, they still need to pay for fixed costs regarding the publishing of physical books. The sale of an individual ebook isn’t complimentary to a physical book, but a substitute sale – the overall revenue of the publisher will go down.
This is the innovator’s dilemma in a nutshell. The publisher must cannibalise and disrupt their own business to survive.
Similar development is ongoing, at a faster pace, in the hosting industry. Amazon Web Services has publicly stated and promoted the amount of times they have lowered prices of their public cloud services. Despite the new lower prices, many (me included) believe that AWS has actually managed to dramatically improve their margins due to Moore’s Law. In short, the cost of IT infrastructure has lowered faster than cloud providers have dropped their prices – thus the increase in margins over time.
For what I have gathered, the price wars have somewhat slowed down. Regardless, innovator’s dilemma is an ongoing state of business in the cloud industry. If you stay constant and wish to focus on running your business as it is – you’re going to lose your revenues. You constantly need to innovate and also have a certain share of your revenues up for grabs, to successfully overcome the innovator’s dilemma.
This has also been one of the key principles in running UpCloud and we’re currently in a very good position, going forwards. Our innovator’s dilemma hasn’t been so much of one regarding revenues directly, but our lack of possibility to build obvious features into our service. We’ve simply been too busy building a completely new innovation – our new storage backend MaxIOPS.
Having said this, I do realise we have a lot of backlog to catch up with. Then again, having gone down this road – I believe we’re much better suited to tackle the future going forwards. While AWS, Azure and other big boys have just moved to SSD (DigitalOcean and CloudSigma slightly earlier), we’re already going beyond it with performance increase north of 300-500% of regular SSDs currently available (plus an array of other benefits I won’t mention here). That’s definitely something to look forwards to.