Isn't cloud the great leveler?

Happy belated new year, dear readers. After a long hiatus, I'm back blogging, courtesy of some very interesting stories I noticed during my year-end break.

The first is how traditional retailers in the U.S. have been struggling against their online counterparts during the shopping boom last month. Reuters reported how Tom Nenon, a philosophy professor at the University of Memphis, was vexed with his online shopping experience at Best Buy, a sentiment shared by other U.S. Internet shoppers this holiday season.

According to the news wire, Nenon received an e-mail from the top U.S. consumer electronics chain just days before Christmas, informing him that his online order for a 42-inch Samsung TV would not be fulfilled.

"You can count on me not being a Best Buy customer anymore," Nenon told Reuters, adding that he was disappointed the chain tried to make him buy an older model at the same price as a replacement, rather than trying to make amends for its shortcoming.

According to the report, Best Buy, along with other brick-and-mortar chains including Target, Wal-Mart Stores and Barneys were struggling to keep up with online demand--an indication of poor execution by retailers during the biggest selling season of the year.

Another article by New York Times (NYT) touched on how Salesforce.com, an acknowledged leader in cloud computing, ended the year with its competitors copying its cloud deployment model by acquiring companies playing in the cloud space.

The story noted that three of the largest business software players--IBM, SAP and Oracle--made investments in DemandTec, SuccessFactors and RightNow Technologies, respectively, last year alone.

The NYT report noted that Marc Benioff, who co-founded Salesforce in 1999, said these acquisitions were a vindication of his strategy. "Amazon Web Services is making over US$1 billion in revenue with cloud software," he said. "Google Apps is close to that. We're on track for revenues of US$3 billion in 2012. That is US$5 billion, and that is what has them worried. Where are SAP, Microsoft, Oracle? Why haven't they taken our customers?"

The two stories got me thinking. For years traditional vendors--be they those in the retail sector like Wal-Mart and Best Buy, or software players such as IBM, Oracle and SAP--ruled their respective marketplaces dominantly, and often without little way for rivals, especially smaller ones, to break their hold.

What may seem in the past as a foregone conclusion when these more established players pitched for business is now cloudier than before.

And behind this disruption is the cloud.

Having covered cloud computing for at least two years now, I am often bombarded with the superior benefits of the cloud. For example, how companies can rent everything from compute power to storage to bandwidth and do so in a dynamic fashion, rather than having to pour precious capital expenditure into hardware and software and can instead write it off as operational expenditure.

Or how the cloud's ability to pool the processing resources of many processors together, and to enable their total computational power to act as one virtual supercomputer delivering solutions to customers in an "on demand" way.

But rare is the proposition that the cloud is a leveler, or dare I say, a disruptive force to traditional business models, which many people have come to accept as de facto.

In the case of Best Buy or Wal-Mart, online purchases aren't their bread and butter. So in order to compete with online retailers such as Amazon, they have had to offer their wares in the same way the latter had done during the Christmas season last year.

But Best Buy and Wal-Mart was probably not set up to do so in the way Amazon cloud-based infrastructure is, which severely disadvantages them.

There goes the cloud in leveling the playing field.

Similarly, enterprise software players have long depended on systems being bought and sold via top-level negotiations between vendor and customer. But in a cloud world, this top-level relationship may not be as key as it was in the former paradigm.

With the cloud model, direct value can be immediately seen by all in the company--be it the pay-as-you-go proposition, or the scalability factor of cloud, or even the flexible licensing schemes. And this means that smaller, more nimble players can have a shot at challenging the incumbent players, as long as they are able to execute their products and services well.

This is what the Web 2.0 companies, the likes of Salesforce.com and Amazon, have been able to inflict on old-school companies like IBM, Oracle, SAP, Best Buy and Wal-Mart.

At the end of the day, this development will be good for the industry because I believe that such leveling of the playing field will only spur more competition between vendors and offer more choice to customers--something that was proven over the last Christmas shopping season.

As for old school players, no one would doubt that they are still a force to be reckoned with. But it does mean that 2012, and beyond, is where they need to play the game most legacy players have played before--that of catch up--with smaller, more nimble players.