SES: The Cloud And The New Utility Companies
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NEW YORK -- Exciting times we live in.
In a keynote address here at the Search Engine Strategies conference, journalist and author Nicholas Carr outlined a vision of an IT economy that stands on the cusp of a transformation more sweeping than the introduction of the mainframe or even the personal computer.
"I think we are at a major turning point in the history of computing," Carr said. "The change we're starting with today is even broader than the PC revolution."
That change, Carr said, is the fundamental redefinition of computing power as a utility, rather than as an asset that companies produce and manage internally. Utility, or cloud, computing is about much more than technological capabilities. Technology is the mechanism, but, as in any shift in business, the driver is economics.
Carr, the journalist who earned a reputation as an iconoclast for his article "IT Doesn't Matter" in the Harvard Business Review, likened the pattern and impact of the rise of utility computing to the emergence of another transformative utility: electricity.
Before companies were wired into the electric grid, they producing their own energy at great cost and with tremendous inefficiency. Then the utility companies began wiring up the country, and by 1930, 80 percent of U.S. electricity was produced through central supply.
The result was an explosion of innovation and affordable consumer goods. Henry Ford designed an electric assembly line and began producing cars that people could buy for $200. The chain is an easy one to follow, if a little broadly drawn: The mass production of cars gave rise to the uniquely suburban mode of living, the economic explosion built out a middle class that quickly settled into a life of TV sets, home stereo equipment and so on.
Fast-forward half a century, and we have an IT industry that, Carr argued, is poised to undergo a similar transformation, with some potentially troubling economic implications.
Just as the companies of yesteryear used waterwheels and such to produce their own energy, Carr argued that companies today are doing the same with their datacenters.
IT workforces devote as much as 80 percent of their time to fixing and maintaining in-house datacenters, Carr said. Aside from the exorbitant labor cost sunk into this model of information production, Carr said that IT staffs have little variance from one company to the next.
He said small armies of troubleshooters are conducting the same tests on the same equipment to produce the same results all across the country, everyday.
Computing power, like electricity, is virtually unique in its ability to be transmitted over a grid, Carr said. And just as businesses realized the competitive imperative of hooking up to the electrical grid when they saw their rivals do so with considerable savings, so too will modern companies abandon their private supply of computing power when paying for a monthly service from Google (NASDAQ: GOOG), Amazon.com (NASDAQ: AMZN) or Hewlett-Packard (NYSE: HPQ) provides the needed storage and processing power with none of the cost of producing or managing it.
Fundamentally, Carr argued, the rise of computing utilities similar to electric companies would allow businesses to concentrate resources on the reason they're in business in the first place.
"Companies, instead of investing in what is peripheral to their business, could invest in that business itself," he said.
Who, then, would become the new computing utilities? Google is a prime candidate, of course, with massive buildouts like its new complex on the banks of the Columbia River in The Dalles, Ore., where river water channels through the facility to cool a bank of servers the size of a football field.
Companies such as Microsoft (NASDAQ: MSFT) are playing catch-up, Carr said, and Amazon, with its Web Services initiative, has positioned itself as an important player in renting out computing resources.
Enterprise heavy hitters such as IBM (NYSE: IBM) and Oracle (NASDAQ: ORCL) aren't standing on the sidelines; just yesterday HP made a big announcement regarding the streamlining of its datacenter operations.
From a technological standpoint, the industry maxim born from Intel founder Gordon Moore is at work in this transformation, Carr said. Moore's Law is the uncannily durable precept that computing power roughly doubles every 18 months, while costs hold steady.
Alive and well, Moore's Law is at work in the virtualization technologies offered by companies such as VMware (NYSE: VMW), where the functions of a piece of hardware become software, and the functions of many computers can be performed inside one.
Then there is the massive buildout of broadband networks over the last several years, finally achieving a capacity where elemental computing resources such as raw processing power, storage and rich media can be deployed over a network.
Carr was quick to remind the audience that this idea is not a new one. While serving as CTO of Sun Microsystems in 1993, Google CEO Eric Schmidt presciently wrote, "When the network becomes as fast as the processor, the computer hollows out and spreads across the network." Hence, Sun's motto for a time, "The network is the computer."