Chris is CEO of Tercera, founder and former CEO of Appirio, and a serial entrepreneur with 25+ years of tech experience.
Big things are happening in the world of cloud computing. While the market for cloud technology has grown at an incredibly fast clip for more than 20 years, that growth has skyrocketed in the last year — driven in large part by the Covid-19 pandemic.
There’s no doubt that 2020 was a record-breaking year for cloud companies. Bessemer’s State of the Cloud 2021 reports that $186 billion was invested in private cloud companies last year, and the average Cloud 100 company grew 80% year-over-year. According to Cloud Wars, the five fastest-growing cloud vendors generated about $37 billion in cloud revenue in the fourth quarter of 2020. And this growth doesn’t look to be subsiding as we look ahead to a post-pandemic world.
What’s Driving The Growth?
The short answer to this is digital transformation — an overused but accurate term to describe how businesses around the globe are modernizing their business models, systems, processes, mindsets and skills for a new world where digital interactions reign.
Cloud computing has become the enabler for digital transformation, but the landscape looks very different from 20 years ago. Salesforce calls this new era Cloud 3.0. (Full disclosure: Salesforce was an investor in my former company.) At my company Tercera, we call it the cloud’s third wave.
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Salesforce describes Cloud 3.0 as a digital-first future in which people can work from anywhere. It’s a future where “Remote work will just be work. E-commerce will just be commerce. Video meetings will just be meetings.” And it’s a future where channels will replace feeds, synchronous communication will replace email and the Internet of Things will loom large.
While our vision looks very similar to Salesforce’s vision, the third wave describes the business drivers for cloud growth. Whatever you call it, it’s clear that we’re entering a new era of cloud innovation — an era that will center as much on people as it does on products.
If Salesforce and other cloud platforms see themselves as the operating systems for Cloud 3.0, there’s a growing market for the operators — the people and people-based services firms that make technology work.
The Three Waves Of Cloud Innovation
The first wave of cloud computing started with the rise of software as a service. These were functional applications for departments and small businesses that promised to be faster to implement, easier to use and cheaper to manage than on-premise software.
The second wave gained momentum after the financial crisis of 2007-2008 when bigger companies (both vendors and enterprise customers) recognized the value of this new model. They saw cloud computing as a way to regain profitability and boost performance and agility at a time when nearly every industry was experiencing some kind of disruption.
This brings us to the third wave, driven again by an external event and the need for businesses to adapt quickly. The pandemic forced nearly every organization to rethink its business processes and to accelerate the adoption of cloud services. Organizations are fortifying their digital efforts to keep pace and stay ahead.
What Defines The Cloud’s Third Wave?
Like previous waves, this one builds on earlier attempts to improve productivity, profitability and performance. However, now we’re seeing connectivity and engagement as the driving factors.
Many companies are struggling with real-time supply chains; how to connect, manage, secure and monetize the growing amount of data they are collecting; and how to engage with customers, employees and partners worldwide in a different, digital and more seamless way. To do this well, they likely have to work with cloud solutions from a growing assortment of vendors, customize them to meet their industry-specific needs and tie them together into seamless systems that can evolve quickly. Those systems are a mix of public, private and hybrid cloud, and they’re becoming increasingly verticalized.
There’s a massive shift happening in how companies use and think about cloud computing, and it’s creating an entirely new set of opportunities, challenges and cloud leaders.
Who Will Lead This Third Wave?
We hear so much about technology and products, but I believe it’s the people who will lead this wave — the individuals and people-based services firms that are building on and creating these digital experiences and putting them to use in the real world.
IT service firms have always played a critical role in helping businesses adopt and adapt to new technology. This has been true at every stage of the tech industry’s evolution, and the same will hold true in this new wave.
It’s never been easy to find great tech talent, but it’s getting harder, especially as cloud platforms, data and security become more complex and critical to business success. The mainstreaming of disruptive technologies like artificial intelligence/machine learning, robotic process automation and the Internet of Things, along with the rise of new information architectures like microservices and headless commerce, are only compounding the issue.
The most important thing that companies can do to compete and win in the third wave is invest in finding, building, and retaining those who have specialized digital skills. Those people are already hard to find and will be even more in demand in the third wave. According to the Boston Consulting Group, nearly 90% of the 200 global companies it surveyed in 2020 reported that finding digital talent will be one of the biggest challenges they will face in the next couple of years.
Many companies will try to build their teams internally, but from what I’ve seen, more and more rely on third-wave cloud consultancies whose core competency is recruiting and developing technical talent. My company invests in and advises such service providers, and they not only stand out based on their talent but also in how they deliver their services. For example, many offer industry-specific services that are fine-tuned to solve a specific business problem or bring tech-enabled accelerators to make projects move faster and more smoothly. The more advanced service providers might even sell and price based on outcome, not output. Not all service partners are created alike in this new era. It helps to know the difference.