Appirio’s Growth: A Story of Disruption

August 26, 2011 Appirio

By Chris Barbin

“The established market leaders almost always try to cram the disruption into their established offerings. In so doing, they spend enormous amounts of money and fail.”

Clayton Christensen, on disruptive innovation

We founded Appirio 5 years ago with the idea that enterprises were going to need a new type of partner to help them adopt cloud technology (e.g., our very first post on the idea of “Services 2.0”). Today, we’re thrilled to announce yet another validation of that premise– a strategic investment by and GGV to help further Appirio’s global expansion in Europe and Asia Pacific.

The last 5 years have been an unbelievable journey for Appirio. We’ve grown from nothing to nearly 400 cloud experts in 25 states and 3 countries. We’ve gone from our first project (a cloud strategy engagement at ServiceSource) to our 1000th, for over 250 of Salesforce, Google, and Workday’s leading enterprise customers. We’ve recruited nearly 20,000 developers as part of the industry’s first cross-cloud developer community, CloudSpokes. And that’s just the beginning– today’s investment will allow us to help even more global enterprises, like Thomson Reuters and Japan Post, who want to use cloud technology to build mobile, social business capabilities around the world.

But the big news isn’t about us. Appirio’s growth and prospects for ongoing expansion raise a bigger question about the state of the IT industry: Why do companies like Appirio even exist? Why aren’t the on-premise SIs meeting the needs of global enterprises looking to move to the cloud? The simple answer is that the very things that allowed the global SIs to dominate the last 30 years of enterprise technology make them poorly suited for the next 30.

For example, the legacy SIs have always been able to pull out volumes of “industry expertise.” But in today’s world, how relevant are those binders full of antiquated industry knowledge? Two of our customers are using cloud applications to support advertising sales. They happen to be 2 of the fastest growing consumer social networks. How many “media best practices” do you think these rapidly growing companies borrowed from the way print magazines used to sell advertising? Not many.

Marc Andressen made a similar argument in last weekend’s WSJ. He argues that technology is “invading and overturning established industry structures” in dozens of industries. He cites examples from books, movies, music, entertainment, photography, telecom, direct marketing, recruiting…. even “traditional” industries like cars, retail, oil, healthcare, education, defense, and financial services. Yesterday’s “industry template” for any of these businesses is looking increasingly quaint– just ask Borders.

The functional best practices of the legacy SIs are equally suspect. Traditional best-practices for supporting customers, for example, reflect the limitations of on-premise technology, when the only way to engage with customers was through a centralized call center. Now, cloud-based CRM allows global companies like Plantronics to engage with customers where THEY prefer to be contacted (thanks to integrations with social networks), using representatives that are working where THEY prefer to work (thanks to integrated VOIP). This isn’t the call center described in your legacy SI’s best-practice binder.

Even the traditional strength of “global scale” offered by the legacy SIs is becoming more of a liability than an asset. Employing hundreds of thousands of people makes it very disruptive to adapt to new technology trends (Exhibit A: how long it took the on-premise SIs to start doing anything around cloud computing), or moving to capitalize on newly available talent pools.

More fundamentally, there’s a cultural misalignment between what today’s enterprise requires and what the legacy SIs are able to offer. Legacy SIs are structured to minimize a specific type of technical risk– that’s what drives their multi-year, waterfall-style project plans. Meanwhile, the biggest risk faced by their enterprise customers has changed– today, the biggest risk is sluggishness– the risk that IT is working on projects that are obsolete before they go live, allowing the business to be out-maneuvered by a more nimble competitor.

With the legacy SIs facing such fundamental challenges, who will help enterprises make this shift to cloud-based technology? It has to be a new type of partner. That’s why Appirio’s growth is attracting the interest of the industry and investment community– we’re a proving ground for a new way of doing things: We hire industry experts, but focus them 100% on using cloud technology to transform those industries. We hire functional experts, but have them focus 100% on inventing the next generation of cloud-powered sales, service, HR, Finance, and IT. We’re expanding globally, but will lead that expansion with CloudSpokes, our 20,000 member cloud-developer community, which already has participation from 65 different countries. And most importantly, we’re building a culture that is aligned with the needs of today’s enterprise – we were born cloud. We are wired to build cloud-powered businesses efficiently and effectively– our customers start to see value in weeks, not months or even years.

Today’s investment by is further validation that this new way of doing things is exactly what enterprise IT needs…. and will never get from their traditional partners. Appirio is disrupting the legacy SIs just as Salesforce disrupted the legacy ISVs, hopefully with the same positive outcome for the entire industry.

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