It has been 2 weeks since my last blog, and it has a reason. I started a book called “Consumption Economics” by J.B. Wood, Todd Hewlin and Thomas Lah, and it has changed the way I look the future for the IT industry. Every thing we have experienced up to now will change looking forward.

The new IT consumption model, that some people call “utility consumption model”, is a result of the big inefficiency we have in this industry. In summary, there are 3 aspects that has driven it: excessive number features, infinite combinations of a IT solution, and upfront payment. Those 3 aspects combined with the industry maturity have produced a big waste of time and money, and consequently have forced the entire industry to change.

Let me start with the upfront payment. The vast majority of the IT vendors have offered their products (hardware and software) and collect the payment before the customers get the value of it. In average, customers pay around 60% of the solution cost in the first year, and 40% on the following 4 years when they will get the return (or value) for their businesses. Compare this model to your personal bills, such as telephone, cable TV, Internet etc. The majority of of your cost are paid on monthly or per use basis. You might conclude that the model may not be sustainable.

The second aspect is the excessive number features. For the past 3 decades, IT vendors have innovated by increasing the number of features to their products, what has been excellent for the evolution of the industry. It has attracted lots of investments, and as consequence the growth/progress has been fast. In contrast to it, end-users have paid for the innovation but have NOT used all the features, and worse, they have NOT transformed them all in value to their businesses. I am not saying the features are not useful, but that the end-users don’t use either because they don’t know how to do, or due to lack of resource/time to implement them.

Infinite combinations for IT solutions is the third aspect. There aren’t two end-users in the world with the same IT solution. When you think that an IT solution has 3 layers – Infrastructure, Platform, and Application – and for each of them there are not only several vendors, but each vendor has several options, then it is clear that it is impossible to have 2 end-users with the same stack of solution. It is as each implementation is a hand-made job, no optimization can be done. Can you imagine the amount of resource in people and money to put all combinations to work?

Undoubtedly, IT industry will grow in the next decades because there are still a lot of adoption to happen as well as potential productivity increase to be enabled by IT solutions. The question is “Can the IT industry grow despite the existing inefficiency?”. Probably not. Based on those aspects described above, it looks like the innovation investment will move from product (hardware and software) R&D to new business processes to enable “pay-per-use” model.

The change of the business model will impact how vendors, channels, and end-users play as protagonists of the IT supply chain. Can you visualize how it will change?

If you agree or not with me, please let me know your opinion about the change ahead. If you are not in the IT industry, please contrast your reality to ours.