Discussions of policy in an era of “cloud computing” will continue the debate about classic questions:  the terms of market access for services and the rules for privacy, security, IP and more. However, the Cloud must be understood as at once a competitive service, a dynamic enhanced utility, an ICT infrastructure/platform and innovation eco-system, a marketplace, and a production environment. The pervasive, disruptive multi-role character of “cloud computing” demands that a new array of vital questions be opened.

First, though, what exactly is Cloud Computing? Firms are marketing a wide variety of services as “Cloud Solutions,” leading – often deliberately – to some confusion. If broadly used to include all online services, the term loses meaning and risks obfuscating the critical policy issues at play.

Put simply, Cloud Computing delivers computing resources – data storage, computation and networking – to users at the time, to the location and in the quantity they wish to consume, with costs based only on the resources used. In its simplest form “Cloud” transforms computing resources from a capital expense to an operational expense. Users simply procure from providers the “amount of computing” they want without needing to invest in their own computing infrastructure.

Cloud Computing depends on the ability to abstract applications and software platforms from the underlying physical hardware and computing resources on which they depend. As an example a company storing customer data in Amazon’s Elastic Cloud Service never needs to know – and is never informed about – which physical server or servers the data is stored. This “Virtualization” enables greater flexibility in how workloads are managed, and how datacenters are constructed, since providers can dynamically add, remove or modify hardware resources without having to reconfigure the services that depend on them. The use of “Virtualization” is not new in the technology industry – having originated in the 1960s – but when combined with very sophisticated systems management software today’s “Cloud Fabric” environments enable truly global scale computing environments.

Cloud Computing changes the location of data processing or – more correctly – makes the location of data processing irrelevant – technically if not in policy terms. In traditional models of computing, data and applications are local – usually running on a personal computer (PC) for consumers and in private data centers for firms. The location of data storage and application execution is pre-determined by the design of the system. With the Cloud model applications can be run – and data stored – anywhere within the global cloud environment – which may encompass many data centers in multiple physical locations. The execution and storage locations are no-longer pre-determined by design but are now automated real-time decisions based on the availability of computing resources at any particular time.

The competitiveness of Cloud Computing service provision critically depends on providers’ ability to build out capacity at a scale far greater than any individual user or firm could afford and to fully automate the allocation of these computing resources. Aggregate demand can then be amortized over this highly scalable – and automated – infrastructure and sold back to the user at a much lower – per unit resource – cost than users could provide themselves.

Cloud Computing is, in our view, an “enhanced-dynamic” utility, having some characteristics of infrastructure and some of competitive service.  Cloud computing is frequently referred to as a “utility” service, sharing many of the characteristics of other utilities such as contractual levels of availability, reliability, and consumption-based pricing.  It is also ‘utility-like’ in the sense that Cloud providers are large companies operating at a significant scale, serving small users as well as giant corporations.  Yet, Cloud Computing does differ from traditional utilities in several critical respects. Cloud providers compete aggressively with differentiated service offerings, service levels and technologies. Cloud services can be completely customized to the needs of the largest commercial users. Consequently, we have often referred to Cloud Computing as an “enhanced utility”.

But Cloud computing is much more than just an “enhanced utility”.  It is a utility that can be configured and customized depending on user needs.  In a very real sense Cloud computing is – in our terminology – a dynamic utility.

Cloud Computing is much more than simply a new set of technologies and business models.  It is rapidly emerging as the platform that will underpin the next generation of digital products and services. Cloud Computing is transforming how consumers, companies, and governments store information, how they process and exchange that information, and how they utilize computing power.

Cloud Computing is also rapidly becoming a major source of product, service and business process innovation and – importantly – is unique in being both the production environment and market platform for these innovations. It is this combination of roles – Innovation ecosystem, production environment and market place – combined with the transnational nature of the platform itself that makes the Cloud Computing historically unique. This uniqueness poses significant challenges for pre-existing approaches to policy in a number of important areas.

For advanced industrial countries, Cloud Computing provides new opportunities for innovation and entrepreneurship, and promises substantial efficiency gains. The Cloud platform also opens significant new global market opportunities for developed economy producers and technology suppliers. For developing countries, Cloud services also open up new possibilities to enter international markets and find niches in global value networks but Cloud also creates a number of very substantial challenges.

As with the previous computing platforms – mainframes, PCs, and networks of PCs – Cloud computing is becoming a baseline for national and corporate IT infrastructure against which other forms of infrastructure and service delivery must be measured. In this respect it is likely that Cloud Computing will become an important component of national critical infrastructure. Control of Cloud infrastructure will matter to national governments.

Cloud Computing offers unprecedented new levels of configurability for diverse groups of users. Services are dynamically configured to the needs of each user with a single unified, usually global-scaled, architecture. Cloud providers’ scale and cost merits are available to all types of users, from individuals to multinational corporations. The tradeoff between the economic advantages of global scale infrastructure and the desire for governments to have policy influence over this critical market place, innovation and production environment will tax policy makers and historic approaches to global market regulation.

Critical to Cloud Computing is the abstraction of end-user applications from the underlying hardware. Put simply, application software is not tied to any particular server or physical hardware; instead, it can utilize the massive scalability and resiliency of the underlying global-scale datacenters to deliver the same services to one user or several million users. In general, users do not know or care about where the datacenters are or how they are configured. Policy makers will – however – care about where value is created and extracted in this global network.

The emergence of the Cloud Platform – which is at once Innovation Ecosystem, Production environment and Marketplace – will drive a convergence of policy making from each of these – previously distinct – domains. Prior policy norms focusing on free trade and open access to global markets will not be able to ignore the fact that national governments will care greatly about control over the innovation and production benefits of the Cloud Computing platform in addition to dependency issues for Cloud enabled critical infrastructure.

Resolving the tension between the economies that are home to the major global cloud providers and their desire to be free to sell Cloud Services around the world and the – justified – concerns of other economies to retain control over this important driver of economic growth will require significant creativity on the part of the global policy making community.

[This article was originally prepared as a briefing paper for The Transatlantic Policy Network's (TPN) Transatlantic Week 2011 Conference in Washington DC and was written jointly by Jonathan Murray - Co-Founding Partner, Innovia Ventures - and John Zysman - Co-Founding Partner, Innovia Ventures, Professor of Political Science, University of California Berkeley, and Co-Director, Berkeley Roundtable on the International Economy]

We’re very interested in receiving feedback, corrections and suggestions for improvements to the paper which can be included before final publication in journal form in a few months time.

What my clever brother did goes by a fancy name today: user innovation. But, it has been going on since the first caveman opted to stack his logs slightly differently than the first innovator so his fire would burn higher and longer. User innovation. Ugh…

My grandparents called it tinkering. And then academics studied it and called it a “process.” And they almost killed it.

And then a very smart guy named Eric A. von Hippel came along and started writing about user innovation with his colleagues in a way that made it all simple again.

He has been researching innovation for thirty years and recently collaborative innovation and today has amazing facts like these: he studied 111 scientific instruments to uncover that 80 percent of the innovations to those instruments were first prototyped and field tested by users. He learned that some industries innovate via users more than others. And he wisely reasoned that there were a variety of reasons for this not the least of which were onerous Patent laws and delays.

There is plenty for governments to think about here with regard to innovation policy,
But for businesses the message could not be clearer: Innovation is not a process that can be followed step by step with the results guaranteed. In fact, when firms try and mimic the ingredients of innovation, they usually get mush. Innovation process programs fail on multiple levels but chief among them is the lack of recognition of how very human the “process” is to begin with.

Humans sit and think alone until they get bored or frustrated and then they call in others and share the problem. They brainstorm over doughnuts. They walk away and stew. They get mad. They get excited. They get crazy. And sometimes in the middle of the night, they get it right and the solution presents itself.

If you are a business how do you take those ingredients and make them work for you? First step is to open the doors to user innovation. In other words, you listen. You go out of your way, in fact, to listen.

You put unusual groups of people together in a room and get them to talking about what it is they wish they could do with your products. You put users of your gear in the room, of course, and engineers, and salesmen and retailers and all the usual subjects if you must, but then you put in journalists. And authors and artists and truck drivers and any other unexpected voices you can think of and you let them talk. And you listen. And then you let these ideas stew a bit and you listen some more. And you talk to retailers and you listen some more. And in the middle of the night innovation happens. Maybe not in a big way all the time, but in countless little ways that mean you are listening to how people not only use your products today but also wish they could tomorrow.

Indulge Those Clients – Investors.com.

They also happen to be a case study in the use of social media – Twitter and Facebook – to build community for a small business.

… entrepreneurs don’t start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning.

And more words to live by:

People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen.

Thanks to @TheEconomist for the original pointer

What the heck are most business executives to make of the daily news of mobile advances, investment funds targeting new social media firms, global business leaders admitting they have lost their mojo when it comes to innovation.  (Nokia). Google announcing that the next frontier in advertising is mobile. And on and on until it is a blur.

Headlines like these are burying most executives because none of them answer a key question for them: What does all this mean for my business?

And the answer is everything and nothing.

Everything if the executive does the smart thing and profoundly adjusts his or her   thinking to understand that their firm – no matter what it does, whom it serves or where it is located – is a media firm too.

Yes, a media firm. You hear me, Mr. Mining Conglomerate. A media firm subject to the same turmoil that has rocked media executes around the globe because consumers learned they could have what they wanted, when they wanted it, in the   form they wanted it. Now.

And they could do this because the new media revolution provided them with access. Access to information, to shared opinions, to breaking news, to community forums and more. Access.

Of course, all this means nothing to you if you are an executive resigned to letting control of your customer, your supply chain, and even your corporate image slip away from you.

If you have been thinking that you could leave the fast-evolving world of new media to others, competent as they are, get over it. You need to recognize you are your firm’s leading media executive and this turmoil means everything to you and to your firm’s future.

And, the turmoil it creates opens up paths to new opportunity if you are willing to imagine a future that is not going to reward you for doing the same things the same way.

In today’s world, whomever controls the news, the data, the analytics about your customer, your suppliers, your retailers, and your demographics is the winner. And that might not be you.

In today’s world, it means that a whole new array of services will come out of the information you collect about your customers, your suppliers, your demographics that you will need to take advantage of to compete in the very near future.

And it means that the incredible ability you have to access data about your operations can be used to cut costs, build markets, control your global corporate image and on and on and on.

It also means the biggest companies in the world can now be brought down by the power of individual voices who demand change and accountability. It means you need to listen in new ways. It means you need to respond in new ways. It means you can no longer afford to stay in the closet and pretend all this sweeping change in the world of new media has nothing at all to do with you and your business.

It means you are now a media executive. Welcome to the turmoil.

VCs are taking a more holistic or “systems” approach to investing than they typically do in developed markets.

What Venture Capital Can Learn from Emerging Markets – Vijay Govindarajan – Harvard Business Review.

With Facebook playing a starring role in the revolts that toppled governments in Tunisia and Egypt, you might think the company’s top executives would use this historic moment to highlight its role as the platform for democratic change. Instead, they really do not want to talk about it.

via Facebook Officials Keep Quiet on Its Role in Revolts – NYTimes.com.