Market Hacking the XaaS Economy
In less than 2 years a new model and competitive pattern has snapped firmly into place on the software superpower landscape.This pattern now defines superpower rivalry in both enterprise and consumer markets. I describe this pattern as the 'device + service' or D+S pattern.
Let's look first at the enterprise superpowers.
Oracle: In the wake of its acquisition of Sun Microsystems, Oracle has repositioned itself as a D+S company. Even their new brand messaging "Hardware and Software Engineered to Work Together" reflects their embrace of a D+S value proposition. After rolling up a few dozen major and minor ISVs over the past decade, Oracle got into hardware to maintain strategic parity with its key enterprise rival, IBM---Which under Gerstner emerged as an integrated hardware/software/services powerhouse.
Hewlett Packard: HP's recent strategic refocus on its enterprise business and its announced plan to spin-off the PC group means HP has clearly seen the new pattern and threat posed by the enterprise D+S model of IBM and Oracle. Of necessity, the new CEO has made the decision to concentrate his forces in enterprise markets and not risk defocusing the business with PCs, tablets and the Palm assets.
It's also important to mention that hardware ingredient leaders are also tipping in the D+S direction, e.g. Intel, via it's McAfee acquisition.And let's not forget that it was hardware storage systems vendor EMC that brilliantly executed the acquisition and incubation of VMware as today's cloud virtualization superpower.
At a basic level, the enterprise D+S model is seen by IBM, Oracle and HP as a way to maintain the current balance of power in enterprise IT spend---75% of which goes to maintenance of existing infrastructure and applications. It is primarily a defensive move in an age of cloud and software-as-a-service, which have proven highly disruptive to this maintenance monopoly, as seen in the success of Salesforce.com.
In consumer markets we see the same D+S superpower pattern being locked into place.
Microsoft/Nokia: In response to Apple's breakout partner-advantaged revenue platformula in iPhones (carrier subsidies, app store revenue sharing on both paid and sponsored apps, content upsell revenue---music, videos, etc., cloud services initiative--iCloud, commerce fees) Microsoft made the strategic decision to fully embrace the D+S model via their deal with Nokia. (Note: They already have it in gaming markets with Xbox.) Without this move it is likely that Windows Phone would have been an also-ran behind Blackberry in mobile markets. Now Microsoft has positioned themselves to compete head-to-head with the Apple D+S platformula and has rejected the now dated Bill Gates assertion that 'hardware cost is going to zero'. Hardware is definitely not going to zero when ATT pays Apple hundreds of dollars a unit to subsidize iPhone adoption, or when it becomes strategic to your competitive model. Ray Ozzie referred to a 'post-PC age' in his Microsoft exit memo, making the same point.
Google/Motorola: Google's recent acquisition of Motorola is way for them to diversify their revenue mix beyond advertising while also meeting the Apple platformula head-to-head. While open source Android has had tremendous adoption by device OEMs, and even surpasses iPhone in market share growth in some surveys, market share is not the same as market power, as I point out in my book. Hence Google needs a captive hardware partner to fully compete with an end-to-end D+S model. Larry Page clearly states this in their announcement when he says "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers." In other words, Google needs to compete at the level of the D+S commercial platformula, not just the Android open source community bandwagon.
At the end of the day, what we're seeing here in both enterprise and consumer markets is a 'back to the future' moment in which 'open' has been replaced with 'optimized' as in the old 'terminal/mainframe' model. Here's how an Oracle exec describes it. "Now that we have the full hardware and software portfolio in front of us, we can evolve everything from the semiconductor chip design to the system design together with what happens in the entire software stack to create the best-possible applications-to-disk environment.” This is also why Apple also makes their own ARM chips for iPhone, and tightly manages their app store, i.e. to 'evolve' everything together...to evolve the end-to-end platformula.
So what about ISVs? How do they profit from this (now mainstream) D+S superpower pattern. Since it's that time of the year again, let's use football as a metaphor.
1. For ISVs partnering with the enterprise superpowers, i.e. IBM, Oracle and HP, it's time to 'Play Defense'. In other words, if you can be of value to the enterprise superpowers in helping them defend their installed base, you will get deal access and perhaps an exit event.
2. For ISVs partnering with the consumer superpowers, i.e. Apple, Google and Microsoft, it's time to 'Play Offense'. These 3 dueling superpower ecosystems will all differentiate around their associated app and cloud services offerings and partners. The best way for growth ISVs in mobility to game them all is to go 'cross-platform' and simultaneously launch apps in all 3 ecosystems. Cross-platform developer solutions are in the market to make this easier to accomplish.
3. For pure play cloud ISVs in both public and private cloud markets, the D+S model is becoming increasingly relevant and it's time to Play Special Teams. For example, open source initiatives like Eucalyptus and OpenStack enable ISVs to enter the private cloud appliance business and embrace the D+S model, while also continuing to deliver pure play or cloud apps, e.g. PaaS, IaaS and SaaS.
To take creative license with a common open source term, we have witnessed nothing less than a 'hard fork' in the superpower pattern.
Wise marketing strategists will leverage this hard fork in the road of superpower evolution through both co-evolutionary partnering (asymmetric marketing) and pure-play head-to-head competition (asymmetric open source community innovation).
In either case, platformula strategy can serve as a useful tool to guide product marketing and go-to-market action.