The Google Price

In Santa Clara last week, I delivered a keynote on the impact cloud computing will have on technology providers. In the section of my presentation titled “Breaking Glass”, I emphasized the emergence of “The Google Price.” The Google Price is the baseline price IT consumers will be willing to pay for commodity IT capabilities. Companies like Google, Amazon, and Apple are setting price expectations for basic IT capabilities like email, storage, and targeted software applications.

I argued in Santa Clara that for legacy IT providers to compete in this emerging environment, they would need to provide basic IT subscription services that are competitive at the Google price. Then, they would need to wrap a set of value added service capabilities around these base subscriptions. I have been making this argument since November of last year:

This week, a reporter at CRN echoes the message TSIA is driving to members:

Price Is A Key Issue For EMC-Cisco Cloud Venture

By Steven Burke, CRN

Check out these excerpts from the article:

“The question for Cisco and EMC as they collaborate is how do they get to a price point that makes sense for customers?” said one executive for a large systems integrator that is partnering with the two giants to deliver private cloud solutions.

That’s a sensitive topic given that Hewlett-Packard, the world’s largest IT company at $124 billion, is pushing forward with its converged infrastructure (servers-storage-networking) offerings and has vowed to drive down margins both in the networking segment, where it says Cisco has enjoyed 80 percent margins, and in the storage segment, where it pegs margins at 48 percent. HP has pledged to leverage its $70 billion supply chain to pressure competitors.

A big question for solution providers looking to play in the cloud is the services opportunity that comes with the territory. “It’s all services,” said one executive for a systems integrator. “That is the only place margins are being made.”

Cloud computing will be incredibly disruptive to the current business models of IT product providers. I cannot emphasize this fact enough. Attendees at the conference last week heard my message: Smoke, Cloud, Breaking Glass.

If your company is not calculating the impact of cloud consumption models on your current business model, you have your head in the sand.

If you are not on a journey to develop value added services that augment basic technology subscriptions, you are in a race to the bottom.

If you believe your company will navigate its way through this storm on the back of product innovation, you are throwing good investment dollars at an option that is getting marginalized by the quarter.


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One Response to “The Google Price”

  1. Tim Matanovich Says:

    Several years ago I listened to a presentation by a senior executive at Michelin describing how his company had broken out of the commodity trap and began capturing a value price for their tires. At the close of his presentation I asked what prompted the change. After he gave me what I considered a line of BS, I asked again: “What prompted the change?” At that he looked me square in the eye and said “our hair was on fire and we had to do something”.

    The Google price is great news for services. In the closing TSW presentation, Geoffrey Moore and JB Wood talked about how to get capital for investments in services. The Google price may very well be the answer. Traditional revenue streams are drying up and product innovation is not the answer. What’s left? Services.

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