An Electric Engine Doesn't Make it Cloud

I loved the Tesla shareholders meeting, for the same reason I love it when VCs write posts about "all the investments we passed on and regretted later." Bessemer Venture Partners even has a page dedicated to its "Anti-Portfolio."

Fortune magazine called the Tesla meeting, "Elon Musk Confessions: All the Stupid Things Tesla Has Done." In the meeting, Musk catalogued many "stupid" mistakes (his words), although at the time they probably appeared smart, if slightly crazy (a characteristic required by every entrepreneur).

One particular confession, however, stood out to me. Here is the quote from the aforementioned Fortune article:

Another false premise was that Tesla could just use the AC Propulsion tech and stick it in a car body supplied by Lotus Cars, a British car maker. There were major issue with converting the technology to fit it in the small Lotus car body, including that the battery pack was just too big for the car and Tesla had to stretch the car’s body. In addition, the Lotus car couldn’t use the air conditioning system because that relied on the gas engine power, so Tesla had to remake the air conditioning system.

In my career, I have learned the following time and again: you cannot take advantage of new technologies by simply swapping out the old ones for the new ones.

Most recently I have seen it in the transition from on-premise to cloud as well as virtual machines to containers, although I also see it in other conversions.

Tesla believes in the electric car. Personally, I also believe in the electric car, although for vastly different reasons. Tesla believes in it for its environmental value. I have no objection to that per se, but I believe the true value in an electric vehicle is "decoupling."

Gasoline powered cars take their energy directly from the source of that energy: petroleum. The oil which we extract from the ground in Alberta, Arabia, Texas or Venezuela is the same physical item which, after refining, powers our cars.

Electricity in a battery, however, is converted and stored energy. Because it is converted and stored, the car and battery are agnostic about where it came from.

As in technology, decoupling creates flexibility. Today, oil is the most cost-effective and convenient way to generate energy. If one day it does become wind, solar, fission, fusion or beer and banana peels, electric cars would not need to be changed or retooled, nor would new distribution mechanisms and filling stations need to be built, to support it.

Often have I seen companies attempt to switch from on-premise to cloud or virtual machines to containers simply by swapping one technology for another and expecting it to work.

It doesn't.

There are two primary reasons why companies swap out technologies:

• Save costs
• Create new opportunities

Saving costs can, at times, be achieved with a simple swap. If the new technology has the identical inputs and outputs yet performs better - a new HP server with a faster CPU but the same architecture, for example - then not much needs to change.

But if you are trying to create new opportunities, whether in how you operate internally or what you can offer to the market, then you cannot simply swap one out for the other.

The new business models enabled by new technology require different, sometimes radically different, structures: organizational, financial, operational, sales & marketing.

You can replace VMs with containers, or take software you used to sell on a CD and run it for customers in "the cloud". You cannot expect to have customer success, new revenues, new profits, or even stable (as opposed to falling) ones, simply by replacing.

Summary

Swapping out fundamental parts of your technology or market offering without changing almost everything about how you develop, operate, finance, support, market and sell the service, is like Tesla's trying to put an AC Propulsion electric engine in a Lotus Cars body. It just doesn't work.

Do you have a successful product and operation, but struggle to switch to cloud or containers? Ask us to help you be even more successful in your new world.