Nicholas Carr, author of Does IT Matter?, has written a provocative and insightful book about the big switch that we are undergoing with respect to information technology infrastructure. He provides a persuasive historical analogy that computer utilities will replace in house computer facilities.
Carr sums up the basic premise in this way, “Why has computing progressed in such a seemingly dysfunctional way? Why has the personalization of computers been accompanied by such complexity and waste? The reason is fairly simple. It comes down to two laws. The first and most famous was formulated in 1965 by the brilliant Intel engineer Gordon Moore. Moore's Law says that the power of microprocessors doubles every year or two. The second was proposed in the 1990s by Moore's equally distinguished colleague Andy Grove. Grove's Law says that telecommunications bandwidth doubles only every century. Grove intended his "law" more as a criticism of what he considered a moribund telephone industry than as a statement of technological fact, but it nevertheless expresses a basic truth: throughout the history of computing, processing power has expanded far more rapidly than the capacity of communication networks. This discrepancy has meant that a company can only reap the benefits of advanced computers if it installs them in its own offices and hooks them into its own local network. As with electricity in the time of direct-current systems, there's been no practical way to transport computing power efficiently over great distances.”
“’The next sea change is upon us’ Those words appeared in an extraordinary memorandum that Bill Gates sent to Microsoft’s top managers and engineers on October 30, 2005. Bely its bland title, ‘Internet Software Services,’ the memo was intended to sound an alarm, to warn the company that the rise of utility computing threatened to destroy its traditional business.”
Microsoft has dominated the PC desktop. What was emerging was a totally different kind of business – software as a service. Something we now call SaaS. This new way to look at software will be very disruptive.
In 2005, Google began work on its Dalles, OR computing utility facility. “The town's remoteness would make it easier for Google to keep the facility secure-and harder for its employees to be lured away by competitors. More important, the town had ready access to the two resources most critical to the data center's efficient operation: cheap electricity and plentiful bandwidth. Google would be able to power its computers with the electricity produced by the many hydroelectric dams along the Columbia, particularly the nearby The Dalles dam with its 1.8-gigawatt generating station. It would also be able to temper its demand for electricity by tapping the river's icy waters to help cool its machines. As for bandwidth, the town had invested in building a large fiber-optic data network with a direct link to an international Internet hub in nearby Harbour Pointe, Washington. The network provided the rich connection to the Internet that Google needed to deliver its services to the world's Web surfers.” Carr speculates that in the future we may look back on this endeavor much as we now look back on Insull’s early electricity generating plants.
One of the first really successful implementations of SaaS was SalesForce, a CRM application. Marc Benioff, who left Oracle to found SalesForce, proclaimed the end of software as we know it. “As it turned out, the idea of software-as-a-service caught on even more quickly than Benioff expected. In 2002, the firm's sales hit $50 million. Just five years later, they had jumped tenfold, to $500 million. It wasn't just small companies that were buying its service, though they had constituted the bulk of the earliest subscribers. Big companies like SunTrust, Merrill Lynch, Dow Jones, and Perkin-Elmer had also begun to sign up, often abandoning their old in-house systems in the process. Benioff's audacious gamble, like Insull's a century earlier, had panned out. As for the once mighty Siebel Systems, it had gone out of business as a stand-alone company. After suffering a string of deep losses in the early years of the decade, it was bought up in early 2006 by Benioff's old company, Oracle.”
Amazon launched the first utility computing service in March, 2006. They allowed customers to store data on Amazon’s systems for a few cents per gigabyte per month.
One of the things that I really like the way Carr writes is that he mixes so many different perspectives and insights. “In the early decades of the twentieth century, as punch-card tabulators and other computing machines gained sophistication, mathematicians and businessmen began to realize that, in the words of one historian, ‘information is a commodity that can be processed by a machine.’ Although it now sounds obvious, it was a revolutionary insight, one that fueled the growth and set the course of the entire computer industry, particularly the software end of it, and that is now transforming many other industries and reshaping much of the world's economy. As the price of computing and bandwidth has plunged, it has become economical to transform more and more physical objects into purely digital goods, processing them with computers and transporting and trading them over networks.”
And, later, “Until recently, most information goods were also subject to diminishing returns because they had to be distributed in physical form. Words had to be printed on paper, moving pictures had to be captured on film, software code had to be etched onto disks. But because the Internet frees information goods from their physical form, turning them into entirely intangible strings of ones and zeroes, it also frees them from the law of diminishing returns. A digital good can be replicated endlessly for essentially no cost-its producer does not have to increase its purchases of inputs as its business expands. Moreover, through a phenomenon called the network effect, digital goods often become more valuable as more people use them. Every new member that signs up for Skype, puts an ad on Craigslist, or posts a profile on PlentyOfFish increases the value of the service to every other member. Returns keep growing as sales or use expands-without limit.”
One of the big factors that is contributing to the rising productivity of computers is social production (the social web and collaboration). “Whereas industrialization in general and electrification in particular created many new office jobs even as they made factories more efficient, computerization is not creating a broad new class of jobs to take the place of those it destroys. As Autor, Levy, and Murnane write, computerization ‘marks an important reversal. Previous generations of high technology capital sharply increased demand for human input of routine information-processing tasks, as seen in the rapid rise of the clerking occupation in the nineteenth century. Like these technologies, computerization augments demand for clerical and information-processing tasks. But in contrast to [its] predecessors, it permits these tasks to be automated.’ Computerization creates new work, but it's work that can be done by machines. People aren't necessary.
That doesn't mean that computers can take over all the jobs traditionally done by white-collar workers. As the scholars note, ‘Tasks demanding flexibility, creativity, generalized problem-solving and complex communications-what we call nonroutine cognitive tasks-do not (yet) lend themselves to computerization.’ That parenthetical ‘yet,’ though, should give us pause. As the power and usefulness of networked computers have advanced during the few years since they wrote their paper, we've seen not only the expansion of software's capabilities but the flowering of a new phenomenon that is further reducing companies' need for workers. Commonly termed ‘social production,’ the phenomenon is reshaping the economics of the media, entertainment, and software industries, among others. In essence, it allows many of those ‘nonroutine cognitive tasks’ that require ‘flexibility, creativity, generalized problem-solving and complex communications’ to be carried out for free-not by computers on the network but by people on the network.”
An example familiar to everyone is YouTube. All the users provide the content, catalogue and rate is value. Wikipedia is another example.
Why do people contribute? Carr lists several reasons:
* They contribute without knowing it (i.e. search engines)
* Self interest (i.e. tools they use to help them for free and results are shared like del.cio.us)
* Competitive or status seeking (i.e. Wikipedia)
And, I would add, altruism.
Ubiquitous inexpensive computing and communications with a constant flow of new software applications are fueling this phenomena. “In his book The Wealth of Networks, Yale law professor Yochai Benkler traces the recent explosion in social production to three technological advances. ‘First, the physical machinery necessary to participate in information and cultural production is almost universally distributed in the population of the advanced economies,’ he writes. ‘Second, the primary raw materials in the information economy, unlike the physical economy, are [freely available] public goods-existing information, knowledge, and culture.’ Finally, the Internet provides a platform for distributed, modular production that ‘allows many diversely motivated people to act for a wide range of reasons that, in combination, cohere into new useful information, knowledge, and cultural goods.’”
One of the reasons all of this works is the connection between people and the community it creates. “Richard Barbrook, of the University of Westminster in London, expressed this view well in his 1998 essay 'The Hi-Tech Gift Economy.' He wrote of Internet users:
‘Unrestricted by physical distance, they collaborate with each other without the direct mediation of money or politics. Unconcerned about copyright, they give and receive information without thought of payment. In the absence of states or markets to mediate social bonds, network communities are instead formed through the mutual obligations created by gifts of time and ideas.’"
This a book to be read and discussed.
The Big Switch: Rewiring the World, from Edison to Google
WW Norton & Company, NY, 2008, 278 pp