What is a Product — A Strategy Perspective — IV

Trying to answer the question “What is a Product?” we have looked at the following:

• A software product helps in gaining economies of scale.
• Products help in achieving economies of scale in marketing and sales functions.
• Products also enable organizations to achieve economies of scale in engineering functions.

We chose examples from the past to establish the same. We talked about on-premise server products or desktop products to ascertain our position. What about cloud environments? Do we gain economies of scale there as well?

Understanding the Infrastructure

As I type in this document on MS Word, I barely utilize 10% of the CPU, about 50% of the RAM, and hardly any network traffic. My laptop is an 8-core 1800 MHz processor and beefy hardware with little utilization. But hardware prices are continuously going down as well. Processing power, RAM, and even network connectivity charges have gone down. However, as the complexity of hardware increases, the management overheads also increase. The human resources have to be enhanced. If we could componentize our IT services in activity containers, we shall be able to utilize the same hardware more efficiently. Maybe when I am typing this mail, I am running a workload of automated test case run and keeping my CPU usage to 70% with hardly any perceptible difference in my typing. Now, I will be able to do more for less. These are the basic premises of cloud computing.

• In Infrastructure as a Service (IaaS), I will loan my laptop to you — the only advantage you get is I manage and keep the laptop usage ready.
• In the case of a workload management system, you submit a docker container of test cases. I place it wherever hardware capacity is available.
• In a Platform as a Service (PaaS), I provide application APIs for a test suite module that your applications invoke to register test run results. You will run your software in your environment, yet the results will be available on my website.
• In a Software as a Service (SaaS), I provide you interface to type the document of your choice. You have no idea where I have provisioned the hardware or software for you.

As you can see, each environment added value. The pricing will be higher based on the perceived value. If you are a SaaS vendor, you may be depending on other vendors in the value chain to provide the final service.

Realizing Economies of Scale

In relocating your infrastructure to the cloud, you reduce the need to stock infrastructure for peak load. You start incurring revenue expenses and not capital expenses. However, a marginal cost is associated with a new customer. To ensure you are agile in onboarding customers, you will be running at a slightly higher capacity. By default, you will not realize economies of scale.

Let’s discuss development environments. I am typing this document in MS Word. But, I am not typing the whole text in one sitting. I am interrupted by some colleague who drops by. I am thinking about how to plan my document, need to pick up a cup of coffee, or am involved in any other such activities humans never plan. I will most likely not shut down my system during these interruptions. If my system can recognize idling, it will probably go to standby mode after 5–10 minutes to save power. The same applies to developing in the cloud. When you pay 1 USD per hour for a cloud GPU, on-premise hardware may seem cheaper for development. For production environments, this may be a non-issue as your application is running continuously. When you are making significant revenues, the development costs can be a small part of your cost. If you are an early-stage venture, these small savings can be beneficial.

Configuring infrastructure as a workload or an IaaS can be significantly complex. Hence, developers use the PaaS offerings of the cloud services providers. A developer cannot be knowledgeable of all the tools. He gravitates towards his platform of choice. Vendors design the PaaS tiers for mid-segment usage. If you need to use the services in high volumes, you should create a platform-agnostic infrastructure plan with a reasonable usage estimate before choosing any PaaS provider. There is a possibility of vendor lock-in as well. Since your volumes are high, you can renegotiate a custom contract for your specific application needs. When you do not have an alternative in mind, the ability to negotiate will not be in your favor.

Conclusion

In this article, we tried to analyze how cloud delivery or SaaS software development can contribute to economies of scale. We can realize the scale only when we plan our infrastructure and development. Are your software development and infrastructure planning keeping all these in mind? Let’s discuss.

Note: Sambit Kumar Dash is a founding director of Lenatics Solutions Pvt Ltd, which provides product management services to businesses for Sustained Competitive Advantage. You can reach him at: sambit@lenatics.in