Cloud Consulting + Distributed Professional Services

The Times recently ran an article by Michael Fitzgerald on the red hot cloud computing trend. Fitzgerald defined cloud computing to be “obtaining computing resources . . . from someplace outside your own four walls, and paying only for what you use.” The concept of cloud computing makes perfect sense: instead of paying for massive amounts of computing capacity to be ready for spikes in usage, site owners pay only for what they need, when they need it.

Fitzgerald’s definition illustrates the parallels between cloud computing and what we’re up to at KnowledgeBid as well as, in a larger sense, a growing trend in the professional services space. Like cloud computing services, KnowledgeBid provides services on an as needed basis, the difference being that instead of tapping into a cloud of computational power, KnowledgeBid facilitates access to a cloud of expertise and information.

A new lean breed of professional service companies is maturing with similar operating models, silently taking market share from the incumbent players. These firms have minimal office leases on their balance sheets and aren’t burdened with massive annual partnership payouts. They offer customized, lower priced services and often have broader offerings than their traditional competitors. The management of these firms plays a new and rapidly evolving role, combining matchmaker, headhunter, temp agency, accounting firm, compliance officer, and human resources department.

One of the hottest of these new breed is Axiom Legal Solutions, Inc. Founded in 2000 by Mark Harris and Alec Guettel and backed by Greenhill & Co., Benchmark Capital, and Panorama Capital, Axiom is disrupting the legal world by working closely with the in-house counsel at major corporations to fuel them with niche, qualified attorneys on a contract basis. Axiom “combines the flexibility of outside counsel with the best attributes of a sophisticated corporate law department”, collecting fees on attorney hours but without the weight of partner payouts and massive office leases. Axiom “is not a law firm” and “does not provide legal representation or advice” but does interview attorneys, hire them full-time, then place them directly with clients for specific engagements. Their clients include American Express, Bank of America, Cisco, Dow Jones, Goldman Sachs, Johnson & Johnson, New York Times, Nokia, Sun Microsystems, and Viacom, among others.

The most advanced segment of these new service providers is arguably the web development and design sector. Dominated by oDesk and eLance, these companies give customers access to a global network of developers, designers, and database architects. They don’t hire service providers directly but serve as a platform for clients to screen, interview, monitor and compensate service providers. These companies have seen explosive growth thanks to the web 2.0 boom. The chart above shows the number of hours worked through oDesk by month since 2003.

Running a similar model in the engineering space, Exponent, Inc. hires professionals on full time and staffs them with clients according to their specific needs much like Axiom. Exponent has been around in one form or another since 1967, and has morphed several times. It’s currently a publicly traded company and employs over 500 engineering and scientific professionals, covering 20 practice areas including biomechanics, buildings & structures, civil engineering, construction consulting, ecological & biological sciences, electrical & semiconductors, environmental & earth sciences, health sciences, chemical registration, food safety, epidemiology, biostatistics, computational biology, toxicology, mechanistic biology, exposure assessment, public health, industrial hygiene, industrial structures, mechanical engineering, materials science, statistical & data sciences, thermal sciences, and vehicle analysis. Exponent does have significant lease liabilities (~$5M in ‘07) but most/all is non-premium warehouse and laboratory space. The company saw solid growth vs the S&P last year.

At the end of the day these companies all provide value by making connections and managing relationships. As the world becomes more and more connected, I think this trend will continue. The professional services cloud will become more accessible, and the companies that facilitate access to it will gain market share at the cost of traditional professional service providers.

The Wisdom of (Expert) Crowds

There is an interesting little article in the September ’07 HBR entitled “The Wisdom of (Expert) Crowds”. Its free for the time being here. The article examines the Delphi method, a research method in which corporations speak to several experts within a field and implement change based on the analysis (the wikipedia entry is quite good as well). The HBR author argues that the strength of the research form lies not in prediction but in the creation of detailed scenarios which the company can monitor after the research has been completed. The article also notes the recent resurgence of this type of research given the heightened level of “connectivity” available in today’s world. I have written in the past on web applications in the “wisdom of the crowds” and predictive market spaces, but none that I am aware of touch directly on this area…