How cloud com­put­ing has helped smaller, newer firms take on gi­ants

The East African - - OUTLOOK -

Is dig­i­tal tech­nol­ogy a democratis­ing force that al­lows smaller, newer com­pa­nies to com­pete against gi­ant ones? Or does it pro­vide an even greater ad­van­tage to in­cum­bents?

That ques­tion has re­ceived a lot of at­ten­tion lately, in re­sponse to data show­ing that the rate of new busi­ness cre­ation in the US has slowed, and that in most in­dus­tries the big­gest firms have higher mar­ket share than they did a decade ago.

De­spite those trends, our re­search sug­gests that tech­nol­ogy can in fact pro­vide an ad­van­tage to small and new firms.

We stud­ied the adop­tion of cloud com­put­ing across US busi­nesses. Cloud com­put­ing is an in­for­ma­tion tech­nol­ogy par­a­digm based on re­mote ac­cess to a shared pool of com­put­ing re­sources.

Putting data “in the cloud” es­sen­tially means pay­ing peo­ple to man­age your data, and be­ing able to con­nect to their servers via the in­ter­net to get ac­cess to the data when­ever and wher­ever you need it.

Where it all started

The pop­u­lar­ity of cloud com­put­ing has ex­ploded dur­ing the past half a decade. By cut­ting the fixed costs of com­put­ing — avoid­ing the need to hire IT staff, servers and hard­ware — even the small­est firm can sat­isfy large and un­ex­pected com­put­ing needs.

For ex­am­ple, Ken­sci, a small Seat­tle-based health care an­a­lyt­ics com­pany, uses ma­chine learn­ing tech­niques to an­a­lyse hun­dreds of vari­ables about pa­tients’ con­di­tions to pro­vide real-time pre­dic­tions about mor­tal­ity, re-ad­mis­sions and other health-re­lated risks.

By re­ly­ing on the cloud, Ken­sci has been able to scale up and of­fer its services world­wide, with­out build­ing a size­able It-in­fra­struc­ture be­fore­hand.

The com­pu­ta­tional agility of cloud com­put­ing has been play­ing a role in man­u­fac­tur­ing as well, fos­ter­ing the cre­ation of new smart prod­ucts. Pivot­head is a firm with 25 em­ploy­ees pro­duc­ing wear­able tech­nolo­gies to help the blind and vis­ually im­paired.

In­for­ma­tion col­lected by the wear­able sen­sors is sent to the cloud, pro­cessed through ma­chine learn­ing al­go­rithms, and trans­formed into speech or text in or­der to help the client nav­i­gate the sur­round­ing en­vi­ron­ment.

Th­ese anec­dotes sug­gest that cloud com­put­ing has “democra­tised com­put­ing” by bring­ing it to the masses.

Our re­search, based on a data set of over a mil­lion US firms, con­firms this. The data set comes from Aberdeen In­for­ma­tion’s call cen­tre, which has been keep­ing a record of the hard­ware and soft­ware used by US firms since the 1980s. We found three key re­sults: First, cloud com­put­ing has seen mas­sive re­cent growth.

Sec­ond, the adop­tion of cloud com­put­ing has oc­curred across the US, not just in one re­gion — al­beit with heav­i­est and ear­li­est adop­tion be­ing con­cen­trated in ur­ban and ed­u­cated ar­eas.

But third, and most strik­ing, cloud com­put­ing — un­like other tech­nolo­gies such as per­sonal com­put­ers and e-com­merce — has been adopted first by smaller and younger firms.

Cloud tech­nol­ogy across the US

Cloud com­put­ing has been ris­ing since 2010. We see cloud adop­tion rates ris­ing from 0.3 per cent in 2010 to 7 per cent in 2016, which is an an­nu­alised growth rate of al­most 50 per cent. More­over, this rise has oc­curred in ev­ery broad in­dus­try group we stud­ied, high­light­ing how the in­crease in cloud com­put­ing has spanned the US econ­omy.

Our re­search also shows the ge­o­graphic spread of cloud com­put­ing, in­di­cat­ing a broad adop­tion across US coun­ties. This is not just a tech­nol­ogy used by startups in New York and San Fran­cisco — it is be­ing adopted all across the coun­try.

Small, young and cloudy

Our data also shows that the very small­est firms have the high­est adop­tion rates. Firms with fewer than 25 em­ploy­ees have adop­tion rates of 10 per cent to 15 per cent on av­er­age, while medium-sized firms have lower -rates.

In­deed, adop­tion rates are low­est in firms with about 100 em­ploy­ees, per­haps be­cause they have enough scale to adopt in-house com­put­ing sys­tems but not enough scale to be able to af­ford both those in­house sys­tems and cloud services.

The largest firms — those with 500 em­ploy­ees or more — again see ris­ing adop­tion rates, typ­i­cally with 5 per cent to 10 per cent of firms adopt­ing cloud com­put­ing.

This in­crease in cloud com­put­ing use also turns out to be sur­pris­ingly ro­bust. We saw this across in­dus­tries, firm types and years in our data. Small firms re­ally do seem to be the pioneers of cloud com­put­ing adop­tion.

We com­pared the adop­tion of cloud com­put­ing to adop­tion rates for two other tech­nolo­gies: PCS and e-com­merce. Th­ese show the more clas­sic pat­tern of greater adop­tion by large firms. Cloud com­put­ing stands out as be­ing par­tic­u­larly at­trac­tive to small firms.

But it is not just small firms driv­ing the adop­tion of cloud com­put­ing. Young firms are adopt­ing cloud com­put­ing faster than older ones. So, the new­est en­tre­pre­neur­ial com­pa­nies are the pioneers of adop­tion. Again, we did not see that with other tech­nolo­gies — older firms tended to be the first adopters of PCS and e-com­merce.

All of this sug­gests that cloud com­put­ing is an un­usual tech­nol­ogy that ap­peals to smaller, younger firms. Its abil­ity to pro­vide high-pow­ered com­put­ing with­out the over­head costs as­so­ci­ated with in­house soft­ware and hard­ware pro­vi­sion has driven this.

In this sense cloud com­put­ing has been a democratis­ing force for many in­dus­tries.

Flex­i­ble ac­cess to com­put­ing re­sources al­lows small firms to scale up rapidly and to ex­per­i­ment with new prod­ucts and fea­tures.

This op­er­a­tional agility can be par­tic­u­larly valu­able when fac­ing un­cer­tain de­mand or a fast-evolv­ing com­pet­i­tive en­vi­ron­ment.

So, th­ese are en­cour­ag­ing find­ings, es­pe­cially in light of the de­cline in busi­ness dy­namism and the rate of new startup cre­ation.

Although we do not have data on how cloud com­put­ing af­fects firms’- per­for­mance, it is not hard to imag­ine that low­er­ing com­put­ing costs would sub­stan­tially im­prove the chances of suc­cess for younger and smaller com­pa­nies.

Pic­ture: Cour­tesy

Cloud com­put­ing con­cept.

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