a16z Podcast - a16z Podcast: Mapping the Information Economy -- Where’s the Cloud Going Next?

Episode Date: June 13, 2014

a16z Board Partner Steven Sinofsky and Box CEO and co-founder Aaron Levie discuss findings from a study of the information economy that has been built on cloud and mobile. The findings were based on workflow data collected anonymously from a subset of 25 million users, 225,000 businesses, and five industries (you can see the report here: http://blog.box.com/2014/06/mapping-the-information-economy-a-tale-of-five-industries/). It all amounts to big shifts in enterprise IT. But what are the implications of these findings for everyone’s business ... beyond Silicon Valley and the software industry? And finally -- shared in a live brainstorm at the end -- what’s the future of the cloud?

Good morning, everybody. This is Steven Sinovsky, and we're here with another edition of the A-16 podcast. This time joining me, this is going to be a first for us, and we're hoping to have a lot of fun here. It is Aaron Levy, the co-founder and CEO of Box. And we're going to talk about modern productivity and the transformation of IT. And we also really want to start off by talking about a white paper that the folks at Box just did, it called Mapping the Information Economy. And it's a tale of five industries. fascinating, fascinating white paper, and I think everybody should go and...

That was a sincere, fascinating that you just said. Yeah, no, you can't see there was no eye-rolling, nothing. I didn't see it. No, it's actually, you know, I looked at it and, you know, what you guys did was so cool because you, first, of course, everything was anonymous and private and all the people involved knew that you were doing this, but you looked at how people were using Box and across like some crazy, 225,000 businesses, 25 million users, and 2.5 million users and two-point five billion times quarterly that they were interacting with content. It's a lot of data.

Yeah. Like I think about the products that I designed, just we never had that kind of data. And I'm a guy who loves telemetry. So what did you learn in just in terms of being able to use that kind of data about how work is done in a modern way? Yeah. So that's the numbers that you just cited are the sort of scale of our platform. And what we did was we zoomed into a few different industries and started to talk to clients that were using the products in different industries and try to understand how does an enterprise use information in this new world? And it's really easy for us in Silicon Valley to sort of generically talk about enterprise software and how enterprises use their data.

But actually, by industry, you tend to see very, very different use cases and very different workflows around collaboration, around how data is consumed and worked with. So everything from financial services being sort of very top-down, very sort of closed network, works and not sharing a lot of data all the way out to sort of media and entertainment industry or software industry where there is a lot more collaboration, where there's a lot more sort of much flatter structures of how work gets. And internal and external too, yeah. Internal and external.

And we found surprises along the way. I think we think of, you know, the tech industry as being very mobile. Well, it turns out construction workers are actually far more mobile than those of us in the tech industry. So there's a lot of interesting ways that data is consumed and work. worked with in the enterprise that we were able to discover. And I think what we also found was a lot of enterprises are still going through this process of reimagining

what their workforce is going to look like in the future. And what are the software tools and platforms that they're going to need to actually accomplish the business outcomes that they're looking for? And that's going to be a radically different set of tools than what they maybe used five or 10 years ago. Yeah, I think that, in a way, that's sort of the most fascinating thing is it forces all of us.

When you see a paper like this, and we get so enmeshed in the software world, like just what it's like, we're all software people, you know, most of the people listening work very closely in the software industry. The interesting thing is we do get so wrapped up in that industry that we forget that other industries have a whole different timeline. And actually, it's not really just their resistance or seeking out of change. It's just that they have different priorities. Like, you know, if you were running a car company 25 years ago, like IT was not like the most important. thing on your mind. Like, you would hire people, and it would be an important function, but so was finance and human resources. But you were like, supply chain is everything. Or if, you know, whatever industry you were in, like, software wasn't quite the most important

thing. And now we're seeing, like, in fact, the way that I used to talk about it was, was like you could go to Detroit and you can see these three car companies. And basically, we used to think what really differentiated them was, you know, how they did software inside, like the tools. And of course, they all ended up with kind of a similar set of tools. Right. And then the incremental. difference over who had 99.9% uptime of running their email and 99.99% time and the resources that they devoted to that extra nine just to run the same software. You basically differentiated if you could deploy SAP better than the next guy. Right, right. And keep it running. And so in the

world of SaaS, like that whole thing just completely changes. And you've obviously been talking to a bunch of customers all the time, but you just got back and you've been going through a bunch of different kind of industries. What are you really seeing about this whole? you know, this kind of dramatic shift and focus of a CEO-level person. Yeah, well, so it's pretty interesting. So if you connect the evolution of software and technology with just literally the evolution of the economy and I think what we would consider the core economic drivers of the U.S. and the globe, they actually map very closely.

And I think you've pointed this out kind of over the years where, you know, if you go back 20 or 30 years, we were in an industrial economy, and that meant that. Scale mattered more than anything that meant, you know, economies of scale mattered more than anything. That meant that you had to centralize as many resources as possible. To get efficiency from those resources, you wanted as much standardization and as few defects as possible. That applied to the products that you built, but that also applied to the technology that you built up to power your organization. And so, you know, to the Detroit example, you know, if you were in IT, the job was to build scale in your data center and in your operations and, you know, run your ERP better or at least as good as the next automaker in your, field and that was how you competed and all of a sudden just in a I don't know

three five seven year period we have infinite computing from Amazon we have everyone has a device both in their pocket in their bag at their home and and and so you have the infinite ability to get access to information and to work on a new platform so you have a whole new set of consumer technologies that we're using and there's also a new demographic entering the workforce that was literally born with the internet so when you combine all of those things things, the industrial age IT model starts to break down, where if you're spending all of your time building better uptime of your ERP system, when actually the way that people

are working is so radically different because they're more distributed, they're more mobile, they have to collaborate more, then you're not really going to be able to produce competitive advantage in this sort of more information age that we've moved to. And so what we're finding with customers and large enterprises is that that recognition is now becoming more and more apparent. And it's requiring and forcing a new delivery of IT, where you go from this world where, again, you know, if you had 10,000 CPUs, that was your competitive advantage, well, now you can just buy those 10,000 CPUs on demand from Amazon, and you're probably better off letting Amazon, Microsoft, Google, all compete

for your dollars than you going and building them and then not yourself, and then by the time you deploy them, Moore's Law cycle, another Moore's Law cycles has already occurred, and you've lost half of your investment. So that's the big shift, and the implications are massive on the IT side. a whole new wave of, I think, you know, software as service companies and startups to build for this new economy and a new way of working. And it has massive implications on the businesses themselves. And when you go, you know, east of Fremont, the, I think the thinking around, you know, digitization is still something that needs to happen in a much broader way. And that's going to relate to both, you know, the upside of digitization and IT as well as the downside of the, of the, of the, of the, of the, internet and all the new risks that are out there that, you know, CEOs and leaders have to pay attention to.

Yeah, don't you think, what I think is so interesting about what you said is how it shifts the focus of IT, you said, from systems to users. It also allows IT to focus much less on the deployment and management and scale and reliability and security, which, of course, the idea of competing with, you know, the Googles and the Amazon's and the Microsoft's on security, if you're, you know, an appliance maker in the Midwest, like, that's a really, where are you going to hire those people? how could you possibly compete. But also the focus instead on what IT's role is

with just information itself within a company. And how do they really think about the role of information? Because if they think about it strategically, now they can go, wow, we have all of our employees. What they're doing is creating, collaborating, and sharing our own intellectual property and our own competitive advantage. And what's the right way to really interact?

Because, of course, what they learned was over the past 10 years or so with this new demographic, If they don't pay attention and they make it harder for people to use that system that they put in place in the industrial age, then people are just going to ignore it, and all of a sudden corporate assets are flying around on Gmail. They're collaborating with their partners using ad hoc tools. And so I think that's what's so interesting about the white paper, about the SaaS model, and just about the way that IT can really participate in an up-leveled and much more value-added sort of way. Yeah, so the kind of two things to pull from that.

So on the first part of what you're saying, we were just at a major kind of top 10 pharma and life sciences company in the Midwest, and we're meeting with the CIO and the VP of Infrastructure, and they're obviously already biased toward this direction. They're a boxed customer, they're excited about the kind of future of the cloud. And the VP of infrastructure has a sign in his office

that says no infrastructure. So that is where things are going, where his job is not to build out data, centers and be, you know, someone that understands, you know, the power consumption and CPU utilization and, you know, the operational side of infrastructure. His job is to go get the, you know, best-in-class cloud providers that are going to produce the kind of scale that he needs for the operations that he's doing and not actually be in the hardware business. And that's a pretty dramatic shift if you think about that role and even the role broadly

of the IT organization. And it's interesting because a lot of, you know, what we tend to do in Silicon Valley sort of take things to the immediate logical conclusion, but not necessarily the derivative after that. So our immediate logical conclusion is, well, if everything's delivered as a service, then there's no jobs in IT anymore. But that's a little bit myopic because that's not thinking about what are then the next stage of things that the VP of infrastructure and the CIO of a company that's going to be more information driven. What are they going to be doing in the future? And the future is going to be, we were talking to one customer, imagine a world where once you have your infrastructure delivered for free, and once you have this new baseline of platforms, maybe it's workday for human capital management, maybe it's Zendes for customer support, maybe it's Gmail or Office 365 for email, we're obviously hoping it's box for content management.

That's the new baseline. Now imagine a world where you have APIs into your information in every single one of those platforms. And the new role of IT is to think about, well, I have all of this information that is in the form of intellectual property and assets that I can now go, you know, produce, you know, end number of new use cases around that weren't possible before. And so you start to think about your information as not something that just people are transacting on, but actually as the assets of your business, which then means that the CIO and their organization should be thinking of, well, how can we better use that information? Some cases, it'll be big data. If you're in the appliance or industrial business, then you're producing a lot of data with the telemetry you now have. In other cases, if it's a more knowledge worker-driven business, like a consulting firm, then every project you do is producing IP.

In both of those cases, someone and some organization needs to be responsible for producing better productivity and better results because of that information. That's super cool, because one of the things that I think is so interesting about this transition from the industrial age, if you look at the white paper and you see the different kind of segments of usage, One of the things that jumps out for me is that the industrial age view of things was, okay, you're in a certain segment like FinServe or Pharma, and so you know your uses are different. So then you go, well, we need content management for our vertical. And then in the industrial age, that meant somebody was going to go and build a vertical solution for you, which then would try to jam all of the company's assets into this one vertical approach. But consistently over the years, those would get relegated off to the side, and then they'd can't get updated because they're hard, they're big, they're heavy, they're expensive. Then each of the companies that provides that is dealing with customers at different points and a life cycle and all of that complexity.

And so what kept happening is they would build up these very fragile sort of like jangas of software. And then people would just go and use file shares. Or they would go and use email attachments or things like that. And one of the things that I think is really interesting about what you said about APIs is you can take something like a box and people can use it in a broad and horizontal way that works on their phones, that works with partners, works with customers. You overlay the administrative controls.

But then that next level of IT, that information management, comes from building unique applications for your organization that can truly be a competitive advantage because they let you think differently about how you're going to use that information, whether it's mining the information or sharing it or collaborating or reusing it or finding it. And so you have all these cool APIs that are a very different level. Yeah, it's interesting. And I don't think we've thought about this before, but the... Just so right now, this is like a new feature.

This is a live idea happening. Okay, we are at the whiteboard now specking out the next iteration of box. This is the future of the cloud right now, what we're about to say. So it is interesting. So maybe the way to think about it is for the first 30 or 40 years of IT, right, most of our time was spent on just getting the input to work. like all of the infrastructure, all of the software, all of the technology, just to even get the data, now that is trivial because of software as a service, because of mobile, because of these platforms.

So getting the data has become, you know, orders of magnitude easier. And so the next job is really, what do you do with it? And so now all of the time should begin to shift to, once I have simpler platforms that give me, you know, comprehensive and authoritative information, what do I do to create value on top of that? And so maybe the next era really is just about what is it that you're doing with your information as opposed to how are you getting your information? Yeah, and I think what's so interesting is that if we just took a step back, like most evolutions of information technology ends up taking this sort of path. Like for a long time, IT was all about infrastructure, just like getting all the computers on a network. Yep.

Or then first getting all the computers in there, then getting them all on a network. And then what happens is these resources, they peak and then they sort of recede. And so what we're seeing right now is, and your recent tour through a bunch of customers sort of confirms that, that like even at what we in Silicon Valley would call the most state industries of the world, are starting to really see this whole world change in terms of where that goes. It's actually really exciting because the thing is, you know, we tend to, you know, we tend to see the early adopters in the valley. And we sort of say, well, why can't just everybody adopt this fast? And it's because, like, they're running the businesses that produce our drugs, that, you know, keep our, you know, highways, you know, safe that allow us to actually have, like, a refrigerator that works. And that's where they spend all their time. And so they don't want to dramatically work out all of the systems that they've built up over the years. And what's exciting, though, is that everyone is recognizing that there are going to be areas that change. It's not that every single process and piece of software and piece of infrastructure has to move to the cloud or become mobile.

It's that there's a net new area of work that's happening or opportunity that will align to more of these principles. And I think we finally have CIOs, which is important for the Valley, because that means that the budget is there, who realize that this is where things are going. And it's actually a pretty exciting time if you are in one of these blue chip businesses and understand this, because the potential of combining these two worlds is incredibly exciting. As a small example, we were with a manufacturer of signals and sensors in the municipal and sort of safety space. And this is a company that's been around for over 100 years. They make the sirens and the lights and a lot of the equipment to figure out where traffic's flowing. And if you just think about, like, that is the device that will be the industrial Internet and the Internet of Things device more than something around our wrist, like the ability to wire

up the world with better telemetry and better information. And this is a business that has been there for over 100 years, and they got really good at building these things. And now they have a CIO and a head of innovation that realizes that they can do exactly what GE just did on jet engines and bring that to completely. other areas and processes of the of the world. So, you know, I think leaders are getting this. I think that there's a probably maybe an emerging and, you know, still early amount of probably education and curriculum and ways to think about these things. But I think you can start

to see the examples of what the world might look like in, you know, 10 or 20 years. Cool. Well, thanks, Aaron. There's been Aaron Levy and Stephen here with another 860s podcast on SaaS and sort of the changing workplace and the information economy. Thank you. Thank you.