Is Our Market Insight Based on the “New Math?”

Analysts all have something in common, which is prognostication.  One of my missions is to predict, to analyze, and there are a lot of people out there who think this sort of thing borders on just “making things up”.  Personally, I welcome a chance to look at real objective data and see how it compares with what I’ve been saying.  I just wish we had some, and you can see why in some data on Twitter and the hybrid cloud.

Twitter reported their numbers, and their customer growth failed to impress the Street, who took their stock down as a result.  Twitter and some of the media have blamed this slowing of growth on the difficulty in using the service.  Gosh, correct me if I’m wrong but haven’t we been using Twitter for ages here?  Why is it that the learning curve that everyone went through is suddenly too steep?  Could it be that there’s another explanation?

Here’s my off-the-wall speculation.  Twitter’s growth is slowing because most of the people who want to be bothered with it are already engaged.  Social media is a form of entertainment, too, and at some point people have actual lives that they have to get on with—work, keeping up their homes or apartments, eating and sleeping…you get the picture.  Some people don’t want to know what their friends’ dogs and cats and kids are doing at every moment.  Facebook has experienced similar challenges for what I think is the same reason.  We don’t all have the time to Tweet back and forth, or we simply don’t want to.  So if Twitter changes its UI or process to make it easier to use, they’ll likely then have to come up with a different reason for lackluster subscriber growth a couple quarters down the line.

The Twitter situation also demonstrates the issues associated with online advertising as the revenue driver for everything.  There are two factors that influence the revenue yield for advertising—one is the effectiveness of the media in reaching the audience desired and the other is the total ad budget, which is related to the retail value of the market being addressed.  We’re not going to grow GDP in response to changes in Twitter’s UI, and the time available to be online is a bit of a zero-sum game, so what Twitter gains Facebook loses.  At some point, don’t we have to actually grow revenue somewhere to create an enduring market?  Maybe I missed that part of economics.

The cloud has its own issues of realization.  While we’ve had reports of extravagant growth in public cloud services and private cloud adoption, the problem is that nobody much breaks out audited financials on public cloud revenue and statistics on private cloud adoption are, well, cloudy by nature.  Fortunately we now have a survey, from Jefferies, that offers a bit of statistical rigor, but only a bit.  This one focuses on the hybrid cloud, and it’s a survey of VARs.

The survey says that hybrid clouds are mainstream now, that almost a third of workloads of the VARs’ customers were on private clouds and a bit less than a tenth on public clouds.  It says that new applications for the cloud outrank migrated apps by about 2:1 in the cloud, that most usage of the public cloud is for development and the least for mission-critical apps.  There’s a lot of interesting data here, in fact, but this is one of those cases where I have some issues with the findings.

I’ve done end-user surveys of IT and networking for over 30 years now, and I’ve learned a couple things along the way.  One is that people don’t want to say “I don’t know what X is” or “I don’t have any plans to use X” when X is some hot thing like cloud computing.  Years ago I worked with a big tech publication in analyzing the results of a survey they did on networking, and a third of all those who responded said they used a technology that was not even commercially available at the time.  The point is that if you ask a question you’re likely to get a very large number of positive responses clustered around what people think the smart or cool people would say, not around the truth.

Another problem with surveys is that they can be self-biased, through what insurance companies call “adverse selection”.  If you survey VARs you don’t get a picture of the average user because the average IT dollar isn’t spent on VARs.  VARs tend to serve the SMB space more than the enterprise space, for example.  SMBs are not the kinds of companies who typically attract and hold highly technical IT gurus.  Now, here we have a survey that says that VAR customers are hosting a third of their workload on the cloud (total public and private) when logically we’d know that the average SMB has zero chance of having a private cloud data center or even knowing what a hybrid cloud is.  And how many SMBs do you know who do their own software development?

There’s a common point to be made here, which is that in the end everyone ends up facing reality.  All hot trends look hot at the beginning because they’re growing from zero to something, which any algebra fan will tell you generates an infinite growth rate.  All trends in the end follow the classic “S-curve” of adoption that plateaus at a point of market saturation.  That point is set by the size of the benefit case, the money on the table to drive changes in practices or behavior.  There’s never going to be a company who can drive continual explosive growth through a single market paradigm.  Not Facebook or Twitter or IBM or Cisco.  There’s never going to be a technology that does that either.  Phones exploded as an alternative to letters, mobile exploded versus landline, chat and social media exploded versus even mobile calls.  At some point people will get tired of stupid pet tricks and what their friends are eating, and we’ll move on to something else hot and different.  When that happens, Tweet me.  It will help out all those Twitter investors.

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