Utility computing

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History Lesson: On a chilly winter night in 1881, a 21-year-old British stenographer named Samuel Insull arrived in the port of New York aboard the City of Chester. Thomas Edison's chief engineer had lured him to America to serve as Edison's private secretary. 11 years later, Insull oversaw the merger that created General Electric, and shortly thereafter was offered the presidency of the Chicago Edison Company. Little did anyone know, the world of electricity was about to drastically change. At the time, cities like Chicago had dozens of small, privately owned power stations transmitting direct current (DC) electricity to neighborhoods within a small radius. With due respect to Edison, Insull knew that the model Edison had created was flawed. So he set out to transform Edison's legacy into something far greater and more efficient than its creator had ever imagined.

Insull realized if he could create a "utility" by building giant central power stations that would transmit alternating current (AC) electricity over great distances. These power stations could be linked to form a giant grid that would serve homes, businesses, and industries in even the most remote locations. Once electricity was readily available everywhere, more and more electric-powered devices would come to market -- creating more and more demand for the electricity that the utilities produced. Because these utilities could match supply with demand, realize superior economies of scale, and use their generating capacity much more efficiently, they could deliver electricity for a fraction of what it cost people to produce it on their own.

And Insull was right on the money. By 1907, utilities produced 40% of the power in the U.S. In 1920, that number stood at 70%, and a decade later, it was over 90%. What was once unimaginable had suddenly become reality. Now, history is repeating itself… The next great technological revolution is already under way.
You probably remember when computers took up entire rooms and were used only by companies that needed to do intense mathematical calculations. That all changed when Intel unveiled the microprocessor and a geeky college dropout started writing software with his former high school pal. Thanks to the virtual desktop they developed, the PC quickly replaced the mainframe as the center of corporate computing and began showing up in homes across America. Before long, companies began building intraoffice networks so that their employees could run programs like Microsoft Word and Excel on their PCs, and also access programs, files, and printers from a central server. But, like Edison's, this model was far from perfect. Due to a lack of standards in computing hardware and software, competing products were rarely compatible -- making PC networks far more inefficient than their mainframe predecessors. In fact, most servers ended up being used as single-purpose machines that ran a single software application or database. And every time a company needed to add a new application, it was forced to expand its data centers, replace or reprogram old systems, and hire IT technicians to keep everything running. As a result, global IT spending jumped from under $100 billion a year in the early 1970s to over $1 trillion a year by the turn of the century.

IT-consulting firm IDC reports that every dollar a company spends on a Microsoft product results in an additional $8 of IT expenses. Yet, companies have had no choice but to run these obscenely expensive and highly inefficient networks. But that's all about to change... and that's precisely why the two words "cloud computing" scare the hell out of Bill Gates. You see, he realizes that thanks to the thousands of miles of fiber-optic cable laid during the late 1990s, the speed of computer networks has finally caught up to the speed of computer processors. As IT expert Nicholas Carr explains, "What the fiber-optic Internet does for computing is exactly what the alternating-current network did for electricity." Suddenly, computers that were once incompatible and isolated are now linked in a giant network, or "cloud." As a result, computing is fast becoming a utility in much the same way that electricity did...

Think back a few years -- any time you wanted to type a letter, create a spreadsheet, edit a photo, or play a game, you had to go to the store, buy the software, and install it on your computer. But nowadays, if you want to look up restaurants on Google... find directions on MapQuest... watch a video on YouTube... or sell furniture on Craigslist... all you need is a computer with an Internet connection. Although these activities require you to use your PC, none of the content you are accessing or the applications you are running are actually stored on your computer -- instead they're stored at a giant data center somewhere in the "cloud." And you don't give any of it a second thought... just like you don't think twice about where the electricity is coming from when you plug an appliance into the wall. But cloud computing isn't going to be just a modern convenience -- it's going to be an enormous industry. You see, everyone from individuals to multinational corporations can now simply tap into the "cloud" to get all the things they used to have to supply and maintain themselves. This will save some companies millions and make others billions.

"Is cloud computing the next big thing?"
That's the title of an article in PC Magazine. The answer was an overwhelming yes. And PC Magazine isn't the only one taking note of this sweeping trend...



The Economist claims, "As computing moves online, the sources of power and money will increasingly be enormous 'computing clouds.'" David Hamilton of the Financial Post says this technology "has the potential to shower billions in revenues on companies that embrace it." And Nicholas Carr, former executive editor of the Harvard Business Review, has even written an entire book on the subject, titled The Big Switch. In it, he asserts: "The PC age is giving way to a new era: the utility age." He goes on to make this prediction: "Rendered obsolete, the traditional PC is replaced by a simple terminal -- a "thin client" that's little more than a monitor hooked up to the Internet." While that may sound far-fetched, in the corporate market, sales of these "thin clients" have been growing at over 20% per year -- far outpacing that of PCs. According to market-research firm IDC, the U.S. is now home to more than 7,000 data centers. And the number of servers operating within these massive data centers is expected to grow to nearly 16 million by the end of 2010 -- that's three times as many as a decade ago.

"Data centers have become as vital to the functioning of society as power stations." -- The Economist
The simple truth is that cloud computing is becoming as big a part of our everyday lives as cell phones or cable television. Like Microsoft in the early 1990s, Google is just getting started. They've already won the search engine war, set the standard for online advertising, and turned the company's name into a word tens of millions of people use daily. And now they're fast becoming synonymous with the future of computing. Over 500,000 companies -- including GE and Procter & Gamble -- have already signed up for Google Apps. This grab bag of business applications can be purchased and run over the Web for just $50 per year and is just one of many Google products now giving Microsoft a run for its money. Considering that Google Apps costs just 1/10th of what a traditional business software suite does, it's no surprise that more than 3,000 businesses are signing up per day. No wonder the Financial Post says, "The cost savings in offering scaled-down versions of large enterprise software is making cloud computing a huge business." But at just $50 a pop, you might be wondering how big this business can really get. Industry research firm Gartner Inc. says the market for Internet-based software recently hit $5.1 billion and conservatively estimates it will more than double to $11.5 billion by 2011. Given its dominance over the online world, massive network of strategic partnerships, and unmatched ability to innovate, you can bet the great majority of the fortunes generated by cloud computing will flow through Google's coffers.