Rackspace CTO John Engates speaking at Rackspace: Solve 2016

While the concept of cloud computing has been normalized to a degree, the industry is now leaning towards the perceived benefits which can be derived from the technology on the whole. For the majority of companies who are evaluating cloud technologies, reducing CAPEX and OPEX simply isn’t a strong enough business case anymore.

This is certainly the case for Rackspace CTO John Engates. In fact, we’re starting to see the beginning of a new trend which will define the future of a vast number of organizations, the ability and desire to experiment. Those who can experiment with new technology, and are prepared to fail, will succeed. And those who don’t, won’t.

Although there can be savings made through the transition to a cloud environment, early adopters are now looking beyond. Cloud will underpin the growth and success of the new wave of next generation technologies, whether it is virtual reality, artificial intelligence or autonomous vehicles. The early adopters are already defining how these technologies will take their business to the next level, though the risk for the rest is how far they will get left behind is they don’t get up to speed quickly.

“Cloud as a technology is just about hitting the mainstream now,” said Engates. “Everything pre-2015 has been early adopters, but for mass markets it was business as usual.

“The main problem is that the majority of these companies are two or three steps away from the cloud. The cloud is not about saving money, but freeing up your developers so they can experiment with new technologies, learn new language and take the company forward. If you’re not thinking about these technologies now, how far behind are you. And you’re probably going to be in a very difficult position in a couple of years.”

Blockbuster is a classic example. Blockbuster and Netflix were in a similar position pre-digitalization, as most people now forget Netflix initially rose to fame through the delivery of DVD’s to its customers through the post. Fast forward to the digital era, where Netflix evolved and created its current market position, one in which a number of major player are now trying to emulate, and Blockbuster no longer exists.

For Engates, this example highlights the importance of experimentation. Netflix was a company which allowed its developers to play with new technologies and methods of delivery, whereas Blockbuster attempted to hold onto the traditional model. This will be the same for other verticals in the coming years, those who embrace the new digital era, adapt their models and allow their developers’ freedom to innovate will continue to be competitive, those who don’t will take the same route as Blockbuster.

“The successful companies of the future will be software companies,” said Engates. “They may not sell software but they will use it as a means to define their business and be creative in the marketplace. The likes of Google, Facebook, Uber and Netflix are all software companies. They aren’t people companies or infrastructure companies, they are software. If you want to compete with these companies you need to get better at creating the software experience.”

Nike and Under Armour are two more companies highlighted by Engates. While both are lifestyle and sportswear brands, both have had to create a digital experience to meet the demands of customers. A few years ago industry giants such as Nike and Under Armour were too big to be bothered by such trends, but the cloud computing era has levelled the playing field. No-one is bigger than the software revolution.

“I think that companies have to enable some of their organization to be innovative and to be creative,” said Engates. “Most of IT has been behind the wall; they haven’t been innovators, they’ve been keeping the lights on. It wasn’t about transforming the company into something new and different that was product development’s job or marketing. But today, inventing the new it-thing means you have to have a digital component, to connect with you users through your mobile device.”

Mobile devices are now redefining business and consumer attitudes. For the most part this is how the consumer connects with new companies; it’s almost exclusively digital and if you’re company is not embracing this, Engates thinks it won’t be too long before you’re not relevant.

But will companies take those risks? “Not all of them will,” said Engates. “Not every company will make that leap. The ones that don’t will be left behind. Now even banks are starting to do this as you’re starting to see more automated investing and digital advisors. Why would you need to go to the branch if you can do it over the phone?”

For innovation to occur within an organization, the conditions have to be right. In the majority of large scale organizations, innovation is very difficult to achieve. There are too many risks, too much red tape and too much politics. The notion that a new idea might not succeed, or reap short term benefits, scares the board and stakeholders, which in turn will inhibit innovation. It’s a difficult loop to get out of, and for a number of larger, stodgy organizations, it will be immensely difficult.

“The reason cloud is so important is because to innovate you need to be using the most modern tools, for example data science, continuous integration, containers,” said Engates. “You need APIs to interact with, you don’t want to wait six weeks on a server. You want to experiment and do things quickly. If you want to do analytics, you need storage and compute power; you need to have the cloud.

“A lot of the people who want to work on these projects have a lot of options. There are a lot of smaller companies who have these conditions to be innovative, so they attract these developers. Companies have to adapt to them, not force them to adapt to the company. Decision makers need to change their organization to have the modern environment for these developers to work in, to be innovative and to make the company competitive in the digital era.”