Understanding Business Models on the Cloud

Understanding Business Models on the Cloud

Arash Najmaei (Australian Catholic University, Australia)
Copyright: © 2018 |Pages: 12
DOI: 10.4018/978-1-5225-2255-3.ch098

Abstract

The relationship between business models and cloud-based systems has not been explicitly discussed in the literature. In this paper I posit that the intersection between business models and cloud computing creates two distinctive technological paradigms: cloud computing as a business model which can be seen as the development of cloud computing driven business models' (hereafter CCBM) and cloud computing-enhanced or enabled business models which can be broadly thought of as improved business modelling with the help of cloud computing (hereafter BMCC). The former refers to a technological model or system that commercializes value solely created by cloud-based systems in public and private sectors whereas the latter refers to various ways that cloud-based systems are integrated into existing business models to enhance, improve or enable creation and commercialization of new value. An explicit acknowledgement of these two trajectories and their underling architecture are remarkably absent in the literature. This chapter addresses this deficiency.
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Background

Technologies are developed to provide solutions to the problems humanity face. One of the most striking characteristics of our era is the exponential growth in the amount of information produced and the consequential need to process and store it. Information technologies refer to a family of technologies that solve such problems by enabling us to systematically collect, storage, clean, organize (mine), analysis, transform and present (visualization) information to satisfying our evolving needs.

Technologies do not emerge in vacuum. Their development is based on a purposeful orchestration of resources and application of knowledge. Business models play a fundamental role in this process. A business model defines the purpose of the technology and determines how resources are configured and orchestrated to bring the technology into the market (Chesbrough & Rosenbloom, 2002). When a technology is brought into the market it opens new avenues to develop new business models (Teece, 2010). This interplay pushes the technological frontiers forward, makes old technologies obsolete and creates demand for new technologies (Najmaei, 2012, 2014b). Let’s look at the information technologies as an illustration of this process. The traditional and still prevalent business model of ITs is based on investment in infrastructure. Simply said, if one needs to store and process data one has no choice but to buy or build a datacenter and a server to get these tasks done. This business model has worked well for years, and evolved into a global cluster of industries that offer advanced tools, systems and models all requiring heavy upfront investment and ongoing maintenance. In addition, technologies to process and store information are not easily available when we need them, where we need them.

Cloud computing (CC) is a technology developed based on a radically different business model aimed at solving these problems. It is a revolutionary approach to the provision of information technologies and radically changes the traditional business model of IT. CC offers a new way to make information technologies available to those individuals and organizations who demand it, when they need it, and where they need it by reducing the need for initial investment, hosting and ongoing maintenance (Hayes, 2008).

Key Terms in this Chapter

Technological Paradigms: A model or pattern of solution of selected technological problems.

Cloud Computing Business Models (CCBM): A business modeling process in which new business models based entirely on the clod computing (its value creation and capture potential) come into existence.

Technological Trajectories: The pattern of normal problem solving activity on the ground of a technological paradigm.

Business Modelling with Cloud Computing (BMCC): A business modeling process in which existing business models adopt cloud computing to improve their agility and functionality.

Business model: The strategic logic that defines how a technology creates value and how its value can be captured.

Value Creation: The act of creating a value proposition for a technology that clearly defines its benefits/value for customers and specifies how they can be perceived as useful and unique in the market place.

Business Modeling: The process of continuously managing business models.

Cloud Computing: A new technological paradigm in IT that is based on computing services as utility and provides them on a pay-as-you-go basis to public and private sector businesses.

Value Capture: The act of capturing profit from a technology by developing a profit formula that entices customers to pay the specified price to obtain the technology and coverts the revenue into profit.

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