The Idealog Guide to Megatrends: Cloud services

As a country, we’ve done pretty well out of this cloud computing thing. With business-to-business startups like Xero and Vend leading the way, and others growing below the radar, Kiwis have blasted through the old geographical barriers and reached global audiences to the tune of around half a billion export dollars annually.

If we want to continue to move from primary industry to high tech, then it’s very likely we’ll do that off the back of cloud services.

“The internet itself has been the disruptive technology that has enabled these things to occur,” says Dr Alan Litchfield, an academic leader and cloud computing researcher at AUT’s School of Computer and Mathematical Sciences. He says where pre-internet homegrown companies needed to leave New Zealand to grow, the present crop of cloud- based businesses can quite happily stay on home turf and still serve international audiences.

But cloud computing hasn’t only opened up global markets to Kiwi businesses; it’s made powerful computing capacity and enterprise software affordable for many of the country’s existing small- and medium-sized businesses. And as big data and wearable computing takes off, the cloud will power those technologies.

Then there are the businesses the cloud could supplant. Frazer Scott, Microsoft New Zealand’s marketing and operations director, says the cloud might put some professional services at risk of disruption, with its ability to automate processes and aggregate information.

“It can be big and scary but hey, how can you create and add value in other ways for your customers?”

Before all this comes to pass, however, there are a few kinks in the system that still need to be worked out if Kiwis are really going to take full advantage of the capabilities. The first two  are privacy and security. Scott says the marketing is maturing in that sense, and data security issues are waning – but businesses need to be conscious of where data is stored and who protects it.

“What I think we’re going to see before mainstream adoption is increased cyber- security solutions and tools,” says Matt Adams, a partner at intellectual property law firm AJ Park. “We need to acknowledge we can’t control where the data is stored. We just need to be a bit better at protecting the data, so if it falls into the wrong hands we’re not losing everything.”

The other issue, perhaps a New Zealand- specific one, is bandwidth. Kiwis are looking at a data bottleneck — and how to solve it is one of Litchfield’s areas of research.

“A lot of the services being delivered to New Zealand are actually offshore and there’s more digital traffic coming into New Zealand than currently stored here, overloading our local networks,” says Litchfield. “That’s a bit of a problem for us and one we need to redress. We need to convince cloud storage developers to create local data centres. Otherwise the idea of UFB is a waste of time.”

Globally, reliance on the cloud means we need to start building bigger data centres – but that’s another issue, because storage is a finite resource. At the same time we’re building huge data centres, so the draw on the energy resources is massive, which presents its own set of problems. Litchfield says basic server architecture is 30-year-old technology and we need to solve what the next generation looks like if we want to fuel all the developments the cloud should enable us to realise.

“This is why things like quantum computing are so important as a future solution,” he says. “That promises the potential for an infinite volume of data to be processed in a small space using much less energy.”

But if we can solve these problems, the future is pretty rosy for cloud users. Machine to machine communication, aka the ‘internet of things’, will run on the cloud (and next- generation wireless technology). Already tech giants are looking at developing intelligent computing services to monitor and self-correct.

“In an environmental control system, it might note ‘Oh, our data traffic is slowing down, what corrective action do we need to take?’”, says Litchfield. “We’re not talking about HAL, but we are talking about [systems] that know within the parameters set what is healthy and what is not.”

“You’re going to see retailers, manufacturers, importers and all aspects of the delivery chain grapple with that in the relatively near future.”

Head in the clouds

We talked to Vaughan Rowsell, chief executive and founder of point-of-sale software company Vend, about why Kiwis are flying so darn high with the cloud.

There was a Reuters story recently about how well New Zealand’s cloud-based tech industry is doing. Why do you think we’ve done so well?

Rowsell: I’ve been asking myself that for the last couple of years. We’ve always been good at inventing but never good at taking it to market geographically. Now with the internet, all those geographical barriers are gone and we have instant reach. I think maybe it’s one of those psychological things that we’re so far away from everyone, then all of a sudden there’s this amazing infrastructure. We naturally leap at it, at our opportunity to prove what we can do. there must be huge advantages for Kiwi businesses in that international accessibility? Geography is still an issue. For us to deliver a product there’s still good old-fashioned sales and marketing you have to do. Cloud solves one problem but it doesn’t change the age-old issue New Zealanders have always faced: how do you sell a product in an offshore market?

What sort of benefits does the software as a service (SaaS) model bring?
You can really only have a SaaS model in a cloud environment. You can’t have that model in any other form or mechanism. The win-win of it is it allows you to have an iteration feedback loop because you can constantly be delivering value to customers. Instead of an up-front investment of thousands or tens of thousands of dollars, it’s a gradual investment, could be $30 a month, pay as you go.

It’s quite hard for some businesses to get it right on the software provider side because you’re very much banking on long-term value for the life of the customer. You need to make sure you have an amazing product your customers love and stick with and tell everyone about. It’s very much a numbers game; make sure you’ve got your unit economics right. The amount you spend on acquiring a customer has to be less than their lifetime value.

What sort of challenges over the next 5-10 years do you see for cloud-based businesses?
I guess the biggest challenge is the cloud is going mainstream. We’re a little bit further ahead of the pack in New Zealand; we spotted an opportunity and build amazing products. The threat is the space is going to get busy... The risk is if New Zealand software companies don’t act fast, then someone else will crack that US or Europe nut first.

What about the opportunities it presents?
The inverse of that; the space is huge and opportunity is growing. It would be an amazing story for an exporter of technology to be regarded as a world-class supplier of ICT for the rest of the world. There are amazing pilot lights showing the way, with companies like Xero and the people who work for them. And there should be 10 more Xeros.

So how do we get more Xeros?
I think it’s just telling the story. There are literally dozens of other companies [in New Zealand] growing and developing below the radar, but you don’t hear about these stories... We need to go all the way down to college level, kids at secondary school and tell them about the amazing prospects in ICT and that it’s an amazing industry to get into. It’s a catch 22: if we don’t have the talent coming through to enable companies to grow, we’ll all miss out. But in order to encourage more people, we need more stories.

What advice would you have for up-and-coming cloud entrepreneurs?
Think big. It’s a global market and it’s huge.

The numbers globally in any industry are eye-wateringly amazing, so think further than your own back yard. Don’t be afraid to stick your head up and tell your story about how amazing you are. The more we talk about ourselves, the easier it comes when we do need to go out and raise money. The better we are at telling our stories, the easier that will be. 

Land of the long white cloud

Xero
The koro of the Kiwi tech scene, Xero has 250,000 users worldwide and a growing ecosystem of small business apps that it works with.

Vend
Auckland-based online point-of-sale (POS) software.

Transcribeme 
App and website for audio file transcription sourced from a combination of speech-to-text and real transcribers.

Merlot 
‘Software as a Service’ airline operations management systems.