Cloud Profits

Cognitive Cloud Taps Consumer, Things, and Enterprise Clouds

In previous Cyclefund essays, we defined the following four cloud service groups that we believe will drive the cloud AI cycle of the cognitive things era:

1. Cognitive Cloud
2. Consumer Cloud
3. Things Cloud
4. Enterprise Cloud

For each cloud service group, we defined its organizational structure, service categories, and leading brands. We then went a step further and combined the cognitive cloud with each of the remaining clouds to form and define the following intelligent clouds:

1. Cognitive Consumer Cloud
2. Cognitive Things Cloud
3. Cognitive Enterprise Cloud

The cognitive consumer cloud visually defines how the cognitive cloud accesses and controls top consumer services, such as commerce, streaming, search, productivity, communication, and application services within the consumer cloud. The cognitive things cloud visually defines how the cognitive cloud accesses and controls wearable, mobile, home, and industrial things within the the things cloud. The cognitive enterprise cloud visually defines how the cognitive cloud accesses and controls top enterprise services, such as customer, health, finance, middleware, employee, manufacturing, and platform services within the enterprise cloud.

Now, we take one final step and combine the cognitive consumer, cognitive things, and cognitive enterprise clouds into a unified visual image that illustrates how services within the cognitive cloud access the wealth of information provided by the consumer cloud, things cloud, and enterprise cloud, as shown for the first time in the diagram below.

We refer to this diagram as the Cognitive Cloud Architecture for the Cloud AI Cycle of the Cognitive Things Era. It is structured as a network of cloud service groups, with the cognitive cloud located at the top of the diagram, the consumer cloud to the left, the things cloud in the center, and the enterprise cloud to the right.

By closely examining the cognitive architecture diagram, one can clearly see the vast reach of the cognitive cloud and envision its immeasurable potential to transform traditional businesses into cognitive businesses. More precisely, by directly tapping into the vast amounts of data generated, streamed, and stored by the consumer cloud, things cloud, and enterprise cloud, the cognitive cloud provides the ability to transform these unstructured and structured data sources into valuable and actionable insights that provide cognitive businesses with a distinct competitive advantage over non-cognitive or less-cognitive competitors.

Investment Opportunities in the Cognitive Cloud Stack

In this section we examine the cognitive cloud stack, a thinner version of the cognitive architecture presented above, to identify game-changing categories with large and sustainable profit margins. Firms operating within these high-profit categories typically offer products or services with durable competitive advantages that lead to category dominance over time. Also, it is precisely this small set of category-dominant firms within the cognitive cloud stack that represent outstanding opportunities for investors looking to capitalize on the new and emerging cloud-based artificial intelligence (AI) wave, or cloud-AI wave for short, which be believe will be larger and more impactful than the preceding PC wave and post-PC wave combined.

Given the unprecedented size of the cloud-AI wave, we expect leading cloud-AI firms to deliver strong equity returns to shareholders and achieve record-breaking market capitalization values during the course of the cloud-AI cycle. We have two historical business precedents to support this rather bold claim. The first precedent is Microsoft whose shares appreciated almost 600 times during the PC cycle making it the most valuable company in the world at the time. The second precedent is Apple whose shares appreciated over 100 times during the post-PC cycle making it the most valuable company on the planet as of this writing.

Cloud Service Profitability within the Cognitive Cloud Stack

Given our primary thesis that the cloud-AI wave will eclipse all prior waves in size, reach, and impact, the central question now becomes: what is the best way to capitalize on this new wave? More specifically, what is the best way to identify strategic investment opportunities in cloud-AI firms with disruptive growth potential and moderate risk profiles? To answer this question we have constructed two investment opportunity diagrams below. The first diagram focuses on top cloud service brands, while the second companion diagram focuses on game-changing cloud service categories.

We refer to this diagram as Investment Opportunities by Brand for the Cloud AI Cycle of the Cognitive Things Era. It is structured as a vertical network of cloud service groups, with the cognitive cloud located at the top of the diagram, the consumer cloud in the middle of the diagram, and the enterprise cloud at the base of the diagram. The cloud service groups within the diagram highlight leading cognitive, consumer, and enterprise cloud service brands. Cloud service brands have profitability profiles that range from high margins to medium margins as depicted by the green and yellow cloud linings, respectively.

We refer to this companion diagram as Investment Opportunities by Category for the Cloud AI Cycle of the Cognitive Things Era. It is structured as a vertical network of cloud service groups, with the cognitive cloud located at the top of the diagram, the consumer cloud in the middle of the diagram, and the enterprise cloud at the base of the diagram. The cloud service groups within the diagram highlight leading cognitive, consumer, and enterprise cloud service categories. Cloud service categories have profitability profiles that range from high margins to medium margins as depicted by the green and yellow cloud linings, respectively.

Cloud Service Profitability for Google

As of this writing in early January of 2016, Google competes primarily within the consumer cloud service group of the cognitive cloud stack. By focusing on this specific portion of the stack, we can quickly identify the top Google brands associated with the game-changing cloud service categories within the consumer cloud of the cognitive cloud stack, as shown in the diagram below.

We refer to this diagram as the Top Google Cloud Services in the Cloud AI Cycle of the Cognitive Things Era with Expected Profitability Highlights. It is structured as a network of Google branded cloud services, with the Google Now intelligent search cloud service at the center of the network and the Android things, YouTube streaming, Google Play commerce, Google Cloud platform, Apps for Work productivity, and Hangouts communication cloud services organized in a peripheral ring around the edge of the network. Google cloud service brands have profitability profiles that range from high margins to medium margins as depicted by the green and yellow cloud linings, respectively.

Cloud Service Profitability for Microsoft

Microsoft competes fiercely with Google within the consumer cloud service group of the cognitive cloud stack. By focusing on this specific portion of the stack, we can quickly identify the top Microsoft brands associated with the game-changing cloud service categories within the consumer cloud of the cognitive cloud stack, as shown in the diagram below.

We refer to this diagram as the Top Microsoft Cloud Services in the Cloud AI Cycle of the Cognitive Things Era with Expected Profitability Highlights. It is structured as a network of Microsoft branded cloud services, with the Cortana intelligent search cloud service at the center of the network and the Windows things, Xbox streaming, Microsoft Store commerce, Azure platform, Office 365 productivity, and Skype communication cloud services organized in a peripheral ring around the edge of the network. Microsoft cloud service brands have profitability profiles that range from high margins to medium margins as depicted by the green and yellow cloud linings, respectively.

Cloud Service Profitability for Apple

Apple competes fiercely with Google and Microsoft within the consumer cloud service group of the cognitive cloud stack. By focusing on this portion of the stack, we can quickly identify the top Apple brands associated with the game-changing cloud service categories within the consumer cloud of the cognitive cloud stack, as shown in the diagram below.

We refer to this diagram as the Top Apple Cloud Services in the Cloud AI Cycle of the Cognitive Things Era with Expected Profitability Highlights. It is structured as a network of Apple branded cloud services, with the Siri intelligent search cloud service at the center of the network and the iOS things, iTunes streaming, App Store commerce, iCloud platform, iWork for iCloud productivity, and FaceTime communication cloud services organized in a peripheral ring around the edge of the network. Apple cloud service brands have profitability profiles that range from high margins to medium margins as depicted by the green and yellow cloud linings, respectively.

Cloud Service Competitive Assessment Framework

By combining the top cloud service brands from Google, Microsoft, and Apple together in a visual competitive framework, we can precisely identify the most contested and least contested cloud service categories within the consumer cloud of the cognitive cloud stack. Firms with a relatively large number of highly profitable brands within relatively weakly contested categories possess a durable competitive advantage over firms with a relatively small number of profitable brands within relatively strongly contested categories. To visually analyze the relative strengths of Google, Microsoft, and Apple brands within the context of the consumer cloud portion of the cognitive cloud stack, we employ the framework below.

We refer to this diagram as the Cloud Service Competitive Assessment Framework for Google, Microsoft, and Apple Brands in the Cloud AI Cycle of the Cognitive Things Era. The assessment framework is a three-dimensional structure comprising three discrete cloud service networks: the Google cloud service network, the Microsoft cloud service network, and the Apple cloud service network. The Google, Microsoft, and Apple networks contain Google, Microsoft, and Apple cloud service brands for each category within the consumer cloud of the cloud service stack, respectively.

Google and Microsoft Dominate the Consumer Cloud

The cloud service assessment framework presented above provides investors with a powerful visual image for understanding the top brands offered by leading firms competing in game changing cloud service categories within the consumer cloud of the cognitive cloud stack. However, the framework lacks sufficient detail to identify firms that are likely to dominate these critical categories in the near future.

Therefore, we now augment the visual power of the cloud service competitive assessment framework with the cloud service competitive strategy and competitive differentiation matrices, two proven Cyclefund constructs utilized in the past to analyze the Apple iPod, Apple iPhone, Xiaomi Wearable Mobile Suite, Samsung Wearable Mobile Suite, and Apple Wearable Mobile Suite.

We refer to this diagram as the Cloud Service Competitive Strategy Matrix for Google, Microsoft, and Apple in the Cloud AI Cycle of the Cognitive Things Era. The strategy matrix is a multidimensional tabular structure with seven primary rows, twenty-one secondary rows, and seven columns. The 7 primary rows represent the game changing cloud service categories within the consumer cloud service group of the cognitive cloud stack. The 21 secondary rows represent the cloud services offered by Google, Microsoft, and Apple in each of the cloud service categories. The 7 columns represent core dimensions for assessing the relative strength and weakness of Google, Microsoft, and Apple brands in each of the cloud service categories.

We refer to this diagram as the Cloud Service Competitive Differentiation Matrix for Google, Microsoft, and Apple in the Cloud AI Cycle of the Cognitive Things Era. Its organizational structure is identical to the competitive strategy matrix.

By examining the highlighted elements of the differentiation matrix, we can quickly identify the relative competitive strengths and weakness of each of the cloud service brands offered by Google, Microsoft, and Apple within the context of the cloud service categories of the consumer cloud of the cognitive cloud stack. By examining the first row of the differentiation matrix, we expect Google Android to achieve a dominant position over Microsoft Windows and Apple iOS within the things cloud service category. By examining the tenth row, we expect Google Now to achieve a dominant position over Microsoft Cortana and Apple Siri within the intelligent search cloud service category. By examining the fourteenth row, we expect Microsoft Office 365 to achieve a dominant position over Google Apps for Work and Apple iWork for iCloud within the productivity cloud service category. By examining the twentieth row, we expect Microsoft Azure to achieve a dominant position over Google Cloud Platform and Apple iCloud within the platform cloud service category.

Facebook and Amazon Dominate Communication and Commerce

The tabular cloud service differentiation matrix presented above provides investors with a powerful tool for understanding the current and future profitability, current and future rank, and overall competitive position of top brands offered by Google, Microsoft, and Apple. But what about the competitive positions of other leading and perhaps even dominant firms that offer competing cloud services within the game changing categories of the consumer cloud of the cognitive cloud stack? To answer this question we take one additional step and extend the cloud service differentiation matrix to include leading competitors in each of the game changing cloud service categories, as shown in the diagram below.

We refer to this diagram as the Cloud Service Competitive Differentiation Matrix for Leading Global Tech Firms Competing for Dominant Positions in the Cloud AI Cycle of the Cognitive Things Era. It is also more simply referred to as the Extended Cloud Service Differentiation Matrix. The extended differentiation matrix is a multidimensional tabular structure with seven primary rows, forty-two secondary rows, and five columns. The 7 primary rows represent the game changing cloud service categories within the consumer cloud service group of the cognitive cloud stack. The 42 secondary rows represent the cloud services offered by leading global technology firms in each of the cloud service categories. The 5 columns represent core dimensions for identifying and assessing the relative strength and weakness of the brands offered by these firms in each of the cloud service categories. Core dimensions include company name, product brand name, product description, potential global reach in units of devices or users, and overall position within the category.

By examining the highlighted elements of the extended differentiation matrix, we can quickly identify the strongest cloud service brands offered by leading global tech firms within the context of the cloud service categories of the consumer cloud of the cognitive cloud stack. By examining the fourth row of the extended differentiation matrix, we expect Facebook Oculus to achieve a leading position as a virtual reality (VR) platform within the things cloud service category with a reach potential on the order of a billion wearable devices. By examining the eighth row, we expect Amazon.com to retain its dominant position as a physical and digital goods platform within the commerce cloud service category with a reach potential on the order of a billion or more users. By examining the fourteenth row, we expect Facebook to retain its leading position as a digital media sharing platform within the streaming cloud service category with a reach potential on the order of more than a billion users. By examining the sixteenth row, we expect Netflix to retain its leading position as a digital video distribution platform within the streaming cloud service category with a reach potential on the order of hundreds of millions of users. By examining the twentieth row, we expect IBM Watson to achieve a leading position as a cognitive assistant for digital enterprises within the intelligence cloud service category with a reach potential of over a billion users. By examining the twenty-eighth row, we expect Salesforce.com to achieve a leading position as customer relationship management suite for digital enterprises within the productivity cloud service category with a reach potential on the order of hundreds of millions of end users, including customers, employees, and suppliers. By examining the thirtieth row, we expect Facebook Messenger to extend its leading position and achieve a dominant position as visual messaging platform within the communication cloud service category with a reach potential of more than a billion users. By examining the thirtieth-second row, we expect Snapchat to achieve a leading position as visual messaging platform within the communication cloud service category with a reach potential on the order of a billion users. By examining the thirty-eighth row, we expect Amazon Web Services (AWS) to retain its leading position as cloud service platform within the cloud platform service category with a reach potential on the order of a billion or more devices.