Our journey with Topcoder and crowdsourcing began nearly five years ago when we used the community to help prepare for a keynote at Salesforce.com’s Dreamforce conference – where Appirio would be compared against teams from Accenture and Deloitte. Our success at those early events defined the trajectory of Appirio, and from that moment, we knew that the cloud + the crowd could give us the ability to redefine the services industry. Today, we take a significant step forward in making that vision a reality.
The combination of Topcoder and CloudSpokes gives Appirio the technology, platform and community to create the “uber” cloud services provider.
The Sharing Economy Disrupts a New Industry: Services
Dr. Ronald Coase, a Nobel Prize winner in Economics, died last week at the age of 102. His most well known work was related to the theory of the firm – the very nature of why companies exist and how they relate to markets. In essence, his work explained that firms took on activities when the transactional cost of using a market was too high. In his lifetime, we witnessed the pendulum of consolidation (auto, services, vertical integration in software / HW, airlines) and specialization (airlines, software / HW, Internet) that played out his theories. But it has only been within the last few years, with the emergence of the sharing economy, that we have seen the full implications of what happens when transaction costs are dramatically reduced.
Look at what’s happening with transportation and hospitality. If we had gone about building a global taxi company or a new hotel chain a few years ago, we would have weighed the massive amount of capital needed to become competitive as a core part of our investment case. Yet by dramatically lowering coordination/transaction cost, we have seen the rise of Uber and AirBnB as major players in their respective industries. Each company has a fraction of the assets that would have previously been required to become a dominant player because they have used technology to take advantage of a shared economy – creating an efficient and mutually beneficial marketplace between consumers and producers.
The emergence of the shared economy is not just limited to these popular use cases. Jeremiah Owyang wonderfully catalogs how broad the impacts of the sharing economy have become and offers organizations advice regarding actions to take when their customers start sharing.
Why should technology services be any different from these other service industries?
The technology services industry functions in fundamentally the exact same way today as it did 30 years ago – even with the rapid pace of change in technology. In fact, the only major “innovation” in this industry in that time period has been the rise of global labor forces (offshore).
Firms like Accenture and Deloitte, who initially described cloud as just another technology (like mainframe or client server), have gone unchanged for two primary reasons.
1. Just like legacy software providers, their models are tied to the previous paradigms.
2. The newer paradigms, e.g. cloud (public) and mobile are still relatively small parts of their overall business.
While the analogy to the sharing economy is powerful, it’s a deeper set of principles that drive Appirio’s belief in the inevitability of the transformation of services. As Elon Musk, founder of Tesla and SpaceX eloquently states:
“I think it’s important to reason from first principles rather than by analogy…The normal way we conduct our lives is we reason by analogy…We are doing this because it’s like something else that was done..or it is like what other people are doing…slight iterations on a theme…“First principles” is a physics way of looking at the world…what that really means is that you boil things down to the most fundamental truths…and then reason up from there…”
While the services industry has remained stagnant, we have seen several key technology principles change:
Technology has become more ubiquitous, diverse and specialized
Cloud platforms have created consistent runtimes across large populations of organizations
Mobile has exploded, but standardized on three major platforms – HTML5, iOS and Android
In seconds, developers anywhere in the world can get their own version of the same cloud and mobile technology used by companies
and several societal ones:
Social platforms enabled and provided global scale to communities of interest
The world is flatter – more global and local because of the near ubiquity of connectivity
The workplace is less stable. No longer do you expect your employer will take care of you for a career. Instead you need to manage your career beyond any one organization.
It is these factors, their ability to enable the creation of marketplaces and the power of communities that make it clear that services will change dramatically.
As a result of today’s announcement, we now have nearly 600,000 professionals in our design, development and analytics areas and we are constantly amazed by what they can produce. For example:
Produces better results than Harvard and MIT researchers in how to calculate the edit distance between a query DNA and the original DNA string
Helped an elevator company founded in 1857 create responsive mobile apps to improve sales and service
Helped enterprises with hundreds of user application components on AngularJS – a new and hot technology pioneered by Google
Also, because the marketplace is focused on output (i.e. you pay only for the work produced, not the hours it took to do it) and brings in peer-based competition (analogous to how developers compete to be the contributor for open source components), it’s not enough to just show up and participate. You must actually deliver results to be successful.
In addition, contributors can participate without ever seeing a customer’s actual system. They can specialize in the areas where they are most effective and focus solely on getting the work done. Customers can get the very best developers to work with their projects no matter what industry or geography they reside in, and in the case of Topcoder and CloudSpokes, know that each piece of code can go through as many as fifty automated tests and a peer review panel before being deemed acceptable. These are advantages nearly impossible to replicate in the current services model.
The technology of crowdsourcing platforms makes it possible to bring together and manage the challenges of the market with the community seamlessly. For customers, this will result in faster ramp and execution of initiatives, lower cost of experimentation and scaling, easier access to emerging skills and a focus on value over effort. For developers, they can control their own destiny, work on what they care about and in the model they prefer.
Just like hotels and taxi companies, we don’t expect services companies to go away, but we do believe new models – and customers’ success with them – will force a dramatic upheaval. Ultimately, it will be the ability and need for customers to innovate – a topic on which we have written about many times – that will drive the search for better models of doing things.
As Steve Jobs once said “Innovation distinguishes between a leader and a follower.” Our belief in cloud led to our forming Appirio. Our belief in the crowd led us to bringing together Topcoder and CloudSpokes – because we believe the legacy services model is insufficient in a world where innovation is critical to strategy. Will you let the world work with you, or for your competitor ?