As president of SAP's Product & Technology Group, Shai Agassi runs product development for the world's largest applications-software company. Ask him to name the most important development in the software industry of the last decade and he won't say Linux, Web 2.0, services-oriented architectures, or industry consolidation.
He will tell you it's the Amazon.com (AMZN) cloud. Chances are you won't know what he's talking about, let alone how this cloud has deeper implications for software developers in every industry.
Officially called Amazon Elastic Compute Cloud (EC2), it's the equivalent of a 21st century utility. Users pay 10 cents an hour to harness its nearly unlimited computing capacity, allowing anyone to leverage the size and reach of the world's greatest e-commerce engine—from the computer geek testing a new algorithm from her dorm room to a Mumbai-based startup that wants to roll out a new call-center service without spending all its capital on computers.
Infrastructures on Tap
Amazon's cloud is one of many new low-cost collaborative infrastructures—such as free Internet telephony, open-source software, and global outsourcing—that allow individuals and small producers to harness world-class capabilities, access markets, and serve customers in ways that only large corporations could in the past.
Unlike the previous generations, today's entrepreneurs can buy, off the shelf, practically any function they need to run a company. With storage, computing services, and other digital utilities on tap, business infrastructures that used to be expensive and complicated are increasingly cheap and easy to use. Kim Polese, chief executive officer of open-source software integrator SpikeSource, says her costs are less than a tenth of what they were six or seven years ago. Tantek Celik, chief technologist for Technorati, agrees, saying such services have "made it much easier and a whole lot cheaper to get up and running."
The potential of these modern-day platforms goes way beyond providing digital utilities. They can be a force for growth and competitiveness. As long as you're smart about how and when to take advantage of them, you can use open platforms as a foundation on which to build a successful business ecosystem.
Examples of platforms ripe for such innovation include Web services such as Google (GOOG) Maps, a rentable computing infrastructure à la Amazon's cloud, or an e-commerce system for warehousing, purchasing, and distributing goods.
The platform could even be a car. After all, the car needn't be just a means of transportation, when it could be a place for work, learning, and entertainment with a series of software services connected to a wireless network. Imagine a set of open interfaces allowing thousands of programmers and niche businesses to create custom applications for your vehicle—from remote personal assistants to navigation and geospatial-search applications to on-demand movies and music. And why not throw in mobile Skype for good measure?
A growing number of companies are leveraging such platforms to create on-the-fly partnerships with large communities of programmers who use the common infrastructure and toolset to innovate and create value.
Open platforms enable the small to become mighty—something today's generation of Web entrepreneurs learned from the open-source software community. Startups like flickr, 43 Things, Del.icio.us, and Technorati, for example, opened up their software services and databases via application programming interfaces (APIs)—bits of code that allow third-party applications to work with a company's core software—as a way to crank out new features, attract users, and scale up their businesses quickly.
Using the popular flickr API, for example, users have added applications for doing things like plotting the locations where photos were taken on a map to displaying flickr pictures through your TiVo.
"It comes down to a question of limited time and, frankly, limited creativity," says Technorati's Celik. "No matter how smart you are and no matter how hard you work, three or four people in a startup—or even small companies with 30 people—can only come up with so many great ideas."
By opening up their APIs, companies create an environment for low-risk experimentation in which anybody who wants to develop on top of their platforms can do so. "No need to send you a formal request," says Celik. "They can just take those APIs and innovate. Then, if someone builds a great new service or capability, we will work out a commercial licensing agreement so that everyone makes money."
Even relatively mature companies are getting involved. For example, Microsoft (MSFT) is turning its Xbox 360 home-entertainment console into a platform for amateur game developers. The company recently released a free game development kit (called the XNA Game Studio) to encourage avid game consumers to become game developers and market their own titles through the Xbox Live marketplace.
Opening the Borders
The strategy addresses a number of challenges facing the company, including a shortage of top programming and design talent, escalating development costs, and a paucity of games for its new console. Chris Satchell, general manager of the Xbox game development group, says "We're equipping the growing legion of hobbyists, students, and bedroom developers with the tools required to develop compelling content. We're saying you no longer have to have a big budget and the backing of a big studio to turn your great idea into a great game." Satchell reports that the development kit has been downloaded more than 200,000 times.
Giving away the keys to your most prized assets isn't a step a company should take lightly. "It's almost like you're taking down your borders and opening up for no tariffs, no tax competition," says SAP's Agassi. "You need to know that your core assets and your skill sets allow you to continue to innovate fast enough as a corporation."
SAP (SAP) recently opened up 30,000 APIs to its market-leading enterprise-software platforms—a fairly radical move within the traditionally secretive world of enterprise software. In opening up and adopting new standards, SAP aims to enable customers and partners to build new features, and, when necessary or advantageous, to allow third parties to seamlessly integrate. Customers that once had to live with monolithic one-size-fits-all software now get access to the inner workings, so they can mix and match enterprise services like Lego blocks to create new composite applications.
Leveraging Outside Intelligence
The plummeting costs of collaboration and the advantages of harnessing a larger talent pool are causing many to rethink their assumptions about innovation. "Do you take your core assets and processes and keep them to yourself," asks Agassi, "or do you expose them to every software company on the planet and entice them to come in and help develop those assets?"
For Agassi, it comes down to a basic principle of our networked world: There are always more smart people outside your enterprise boundaries than there are inside. "A large pool of innovative software companies can now provide customers with additional solutions with integration by design, not integration as an afterthought," he says. So far, SAP's platform for innovation includes more than half a million developers.
As a growing number of individuals eke out a living as free agents, open platforms can become a hub for innovation and wealth creation. And companies with the most dynamic platforms—and with great opportunities for partners to establish a synergistic business—have the best chance of harnessing the talent those free agents can offer.
Behind the Steering Wheel
The most important lesson to take away is that self-organizing phenomena tend to win in the marketplace. Tens of thousands of interoperating agents converged on a shared platform can marshal more bandwidth, more raw intelligence, and more requisite variety than the largest organization.
The business challenge is to foster symbiotic relationships within the ecosystem, since the fundamental nature of self-organization is such that it cannot be easily controlled. But it can be steered. And smart companies are thinking carefully about how to navigate the field of open vs. proprietary technology, and how to leverage the self-organizing power of suppliers, employees, and customers. This is particularly important in areas like innovation and knowledge management, but it applies widely across most business functions.