Are you saturated by all the cloud hype? Recently, a leading analyst firm published a report on cloud computing that listed 24 variations. It’s tough to name a vendor that does not claim to have a cloud offering. With all of the confusion, it’s hard to identify what part of cloud technology will really benefit logistics and other sophisticated ecosystems.

I believe that community cloud has the potential to transform not only company performance, but industry performance too. This claim may sound like a stretch, but there is history and some sound economics behind it.

First, let’s start with the definition of community cloud. It addresses unique industry requirements, connects organizations with common business interests, leverages shared data, streamlines common business processes, allows organizations to create new shared business models, and is delivered through a software-as-a-service (SaaS) model. Community cloud is industry focused. Community cloud is versus enterprise or two-party technology.

There is considerable mathematics, economics and technology to support the emergence of community cloud. Let me cite four cases.

  • Everyone is familiar with the “network effect.” A simple example is the telephone. Two phones have little value, but billions of phones connect the world and are the backbone of communications.
  • Anyone who took economics in college knows the concept of “diminishing returns” with scarce resources. But the technology world has proven that you can turn this concept into “increasing returns,” where the conflict between “guns and butter” goes away, and you can actually create more when more organizations and individuals adopt ecosystem standards. W. Bryan Arthur published a paper in the HBR over 10 years ago that used Microsoft as an example. Today it would be Apple.
  • The Internet has leveled the playing field by allowing all members of a “community” to get electronically connected, from large to small companies, local to global organizations, and even individuals.
  • SaaS-based computing has enabled complex network-oriented solutions to exist outside the enterprise and scale to an ecosystem or even industry level.

So why is logistics a perfect fit for community cloud? Let’s take a look at the fundamentals of logistics, the business of moving goods. It is a $3.4 trillion global industry with millions of geographically dispersed logistics organizations, both large and small. Logistics has always been about companies working together — business processes are multi-party (meaning more than two) and many activities are ad hoc. Much of the information resides outside of the enterprise. Data is shared and leveraged. There is some degree of communication standardization.

There are many nascent examples of community cloud. Cargo community systems were the first electronic logistics community facilitators. Messaging networks (aka VANs) have been prime examples of the value of connecting multiple organizations and moving data between them. Product information data pools serve the retail ecosystem by standardizing critical multi-party information between retailers and suppliers. Shipment “load boards” are great examples of how carriers and shippers can leverage community “arbitrage” to increase revenue or decrease costs. Content aggregators provide a critical, but overlooked community service, such as shipping schedules that collect and standardize  information used by community members. The emergence of multi-party applications has shown that enterprise applications haven’t addressed the vast “white space” that exists between logistics organizations. Social networks have demonstrated the viral effect that can be achieved with cloud-based technology.

So why haven’t any of these emerged as true community cloud providers? Without diving into the details, all of these suffered from one of several maladies: they were too narrowly focused in scope or geographic coverage; they were significantly under-capitalized; too focused on information as opposed to action, on applications as opposed to industry platforms; and they were not able to support, streamline or leverage information across the community.

What will it take to be a community cloud leader? Three simple words: network, applications and community.

You need a backbone that can connect organizations, regardless of their IT sophistication (high-tech, low-tech, and no-tech enterprises and individual users). This backbone also needs to manage the flow and transformation of information between the parties. It has to be independent of the applications, because community members will need to be able to construct their own business processes through a combination of network and enterprise-based applications.

The network-based applications must facilitate and streamline basic business processes like booking, tracking, customs filings and invoicing. In addition, the community applications must support true multi-party processes that support an ecosystem, for example, linking retailers with suppliers, logistics services providers and carriers to reduce total purchase order-to-delivery cycle time and system-wide inventory.

Lastly, the community needs members, lots of them. Building business networks takes lots of time, effort and, most importantly, money. Unlike social networks which are largely unsecure, transacting in a business community requires the adoption of industry trading norms and trust between the parties. There are ways to streamline this effort over time, but don’t expect the viral explosion of consumer-oriented social networks. The infrastructure for these kinds of cloud-based network services is extremely sophisticated and the level of performance has to be well beyond what the consumer is willing to tolerate.

Most of the cloud hype that exists today will be just like the weather – it will pass. However, a few, like community cloud, will stay and be industry transformative.

Chris Jones is the Executive Vice President for Marketing and Services at Descartes. He has over 20 years of experience in the supply chain market, holding variety of senior management positions including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group.