The Rented Business: The Shareconomy Hits IT Infrastructure

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Image copyright Andy Dean Photography

We’ve entered a multi-tenant economy. People are renting everything from cars through ZipCar, designer dresses via Rent the Runway and online accounting software from Xero. Even renting vacation homes through VRBO versus staying in a hotel is a popular option for consumers. So, why rent? It can be less expensive upfront, extensible, convenient and quickly disposable.

As this trend continues to infiltrate the workplace, the perks are becoming a reality across major business operations — IT in particular. According to Gartner, infrastructure as a service (IaaS), including cloud compute, storage and print services, continued as the fastest-growing segment of the cloud computing market, growing 42.4 percent in 2012 to $6.1 billion and expected to grow 47.3 percent in 2013 to $9 billion.

In the traditional “own” market, with enterprise resource planning being an example, your return on investment could take years to pay back when factoring in the consulting fees, the installation service and the cost of the first year’s maintenance. In many cases, making these decisions was difficult for the IT organization, and during these times, decisions came with great political risk to one’s career.

Also, if you look at the U.S. economy, the pace of innovation seems to be extremely high, especially with the invention of cloud computing. Where hiring has been lackluster, information technology has been a major beneficiary of this Great Recession. Companies have had to embrace flexibility, dynamism and tenacity — or falter. They now need to demonstrate ROI within the first six months, not the first three years. Legacy infrastructure can’t keep up with multi-tenant, “instant on” and “instant off” IT, where Capex is minimal and ROI is near-term.

Thanks to the power of the cloud, businesses can share IT resources across platforms and there is a diminishing need to install complex, expensive boxes and complex software applications that need to be housed and maintained. As-a-service companies are cropping up all over, providing businesses with state-of-the-art services at a fraction of the upfront costs of legacy providers. Businesses appear to be willing to accept fewer features for the sake of simplicity and a materially shorter ROI/instant gratification. A few startups that are changing the way we do business:

  • Box hosts file sharing and content management in the cloud, diminishing the need for in-house file storage for people on the go.
  • Twilio has a platform that enables companies to develop custom communication systems without complex telecom hardware. Through the platform and global cloud API, phones, VoIP and messaging can be embedded into Web, desktop and mobile software.
  • With Pertino, all you need is an Internet connection to build a business-class network that connects people everywhere with the IT resources they need from any location.
  • Blue Jeans Network offers an interconnected video collaboration network in the cloud. Before Blue Jeans, traditional video conferencing and collaboration methods were complex, offered almost no interoperability and left the participants at the mercy of the physical location of the device.
  • SendGrid moves email infrastructure to the cloud, relieving businesses of the cost and complexity of maintaining custom email systems.
  • Zscaler provides an in-the-cloud security service for enterprise mobility, cloud applications and social media.

These technologies give businesses the option to rent solutions rather than purchase them. Accounting software, file storage and email used to be major systems requiring full IT support and server closets. Now they can be deployed with practically a credit card. This ability to enable and pivot on a dime gives organizations the opportunity to deploy mission-critical services without worrying about making multi-year commitments and massive upfront cash. Likewise, it provides options and the ability to switch services as their business needs change. Companies are adopting these shared economy services in droves because they give them flexibility.

Thus, the “rented business” has become a reality: You pay for what you need, and aren’t stuck with what you don’t down the line.

Disclosure: Pertino and Blue Jeans Network are both Norwest Venture Partners portfolio companies.

Matthew Howard is a managing partner at Norwest Venture Partners. Matt has appeared on the Forbes Midas List as a top 100 investor for three years. He currently serves on the boards of Avere Systems, Bitglass, Blue Jeans Network, ConteXtream, Exablox, Hadapt, MobileIron and Pertino Networks.


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