The End Of Corporate Computing

Editor's Notes

• #5: The traditional IT model is unsustainable in the sense that companies are needlessly spending tons of money on maintaining and even expanding their data centers even though most IT departments use very similar software and hardware compared to competing companies in their industry. Thus companies are missing out on all the savings they could realize from consolidating or centralizing supplies. Carr further emphasizes how in order for a new IT utility model to be truly effective, external suppliers must take responsibility for delivering all of a company’s IT requirements and ownership of the assets must be consolidated and transferred to utilities rather than kept inside widely dispersed data centers.
• #6: Carr argues how the building blocks are already in place to make the switch possible in stating how such rising technologies as virtualization, grid computing and web services combined with high capacity, fiber-optic communication networks will allow companies to turn fragmented pieces of hardware and software into a single transformable infrastructure that they can each share and deploy in their own way. Because the new industry will be scale driven and capital intensive, size and focus will be paramount to success. Thus, the larger traditional suppliers of enterprise computing such as IBM, HP and Sun, all of which, not surprisingly, have already aggressively positioned themselves as suppliers of utility services will be among the top candidates. Carr explains how all that’s needed is a visionary with a clear plan to make it all happen. Much like Samuel Insull was able to convince manufacturers that they would be better off shutting down their generators and purchasing electricity from his utilities, someone needs to come along with a plan to convince executives of the reliability, stability and benefits that centralized IT utilities can bring
• #7: Although its not exactly clear what the new industry will look like, according to Carr it will most likely embody 3 main components: 1) Large companies that maintain core resources in central plants for distribution later, much like General Electric does with electricity today, 2) Component suppliers such as Microsoft, Dell, and Oracle that make the hardware and networking gear and develop the software apps, and 3) Network operators- companies that maintain the high capacity data communication lines needed for the system to work According to Carr, vendors such as IBM, HP, and DELL will be isolated from the end user companies and will be forced to go through large centralized utility companies with greater bargaining power. Most of the computer components will likely be purchased as cheap, generic commodities, much like electricity.
• #8: Although Carr eventually sheds a little pessimism on the subject by stating how developing a clear vision for how IT utilities will operate and convincing execs of the reliability, stability and benefits that utilities can bring will be a huge challenge, he overlooks several other key obstacles. One of the most obvious obstacles standing in the way of IT transforming from an asset into a service is the fact the process will take much too long. Given that it took several years for electricity to for electricity to evolve into the utility it is today, a momentous shift to IT utilities will not come over night and may still be several years into the future. How to manage and secure vast amounts of data as it travels in cyberspace through millions of unknown sources and destinations will present another challenge for managers to overcome. The safeguarding and security of assets may take precedent over increased capacity and reduced costs in that many IT companies have highly sensitive data which if exposed could put them at great risk to competitors. Another overlooked obstacle is a massive consolidation of the industry could lead many of the larger firms such as IBM and Sun to merge together or possibly acquire smaller companies in order to cut costs. This in turn could lead to possible downsizing or outsourcing. As a result, such a transformation could be resisted heavily by management External suppliers may resist the change heavily given that having to sell through a large utility company would be no different than having to go through a middle man with the bargaining power to lower your costs and slash your profits. And lastly, there is the possible threat of monopolization of the industry in which a very small number of companies could seize control of the industry, thus slowing the pace of growth and innovation
• #9: A general-purpose technology is a term used to describe a technology that is used by numerous companies to do many different things, and one that brings widespread and fundamental changes to commerce and society. It offers the potential of extensive economies of scale but in its early stages is not possible to furnish centrally. As Carr states, the supply is fragmented and individual companies must purchase the various components required to use, house, meld, and maintain those parts on site
• #10: Some examples of it that have developed in the past are the steam engine, the railroad, electricity, the automobile, the computer, and the Internet. Information technology, much like steam power and electricity, has evolved over time into a general purpose technology.
• #11: The two pictures show the parallels between the electricity and IT equipment - both require overhead expenses such as these listed here (the bullets).  These costs are ultimately paid for by the end-customers, a factor that makes you less competitive as a business
• #12: Like electricity, these factors (the bullets) are signs that IT is shifting to a service.  These are some of the main points Carr makes in his article.
• #13:   - IT requirements are more customized -- There is an obvious correlation between mass production and minimal customization.  Electricity involves little customization, where IT requires higher customization to meet the individual needs of their customers.     - Software development requires creativity -- Carr himself identified this as an issue of IT becoming a service; unlike electricity, software development requires creativity to grow and mature, and receives protection as Intellectual Property.   - Market Size for IT -- As mentioned in the previous slide, increasing demand is an ingredient for a service shift - however, demand for electricity comes from all consumers, whereas IT is generally used by businesses.  Home internet access is an exception, which has become a service already.   Closing Comments: The ingredients for IT and Electricity to become a service have more similarities than differences.  Although for IT to become a service there may be more roadblocks in the process, it will eventually become a service nonetheless.
• #14: Virtualization is the creation of a virtual rather than actual version of something, such as an operating system, a server, a storage device, or network resources. This can be viewed as part of an overall trend in enterprise IT that includes utility computing in which computer processing power is seen as a utility that clients can pay for only as needed. The usual goal of virtualization is to centralize administrative tasks while improving scalability and work load management. For example, VMware, Inc. launched a product called VMware Workstation in 1999 that allows multiple operating systems to run on personal computers.
• #15: Grid computing involves a network of computers that are utilized together to gain large supercomputing-type processing power. Using this network of computers, large and complex computing operations can be performed. In grid computing, the network of computers may be present at different locations. For example, IBM announced it is building a computing grid for the University of Pennsylvania designed to bring advanced methods of breast cancer diagnosis and screening to patients across the nation while reducing costs.
• #16: Web services (sometimes called application services ) are services (usually including some combination of programming and data, but possibly including human resources as well) that are made available from a business's Web server for Web users or other Web-connected programs. Providers of Web services are generally known as application service providers. Web services range from such major services as storage management and customer relationship management (CRM) down to much more limited services such as the furnishing of a stock quote and the checking of bids for an auction item. Users can access some Web services through a peer-to-peer arrangement rather than by going to a central server. As Web services proliferate, concerns include the overall demands on network bandwidth and, for any particular service, the effect on performance as demands for that service rise. According to service-oriented architecture (SOA) concepts, web services can also be used to implement an architecture, where the basic unit of communication is a message rather than an operation. This is often referred to as "message-oriented” services. SOA web services are supported by most major software vendors and industry analysts.
• #17: There is no doubt that outsourcing has an important role to play, and likely an increasing one. The convergence of virtualization technology, grid computing, and Web services is potent stuff that will change the face of computing; making it possible to develop new applications faster and scale environments to meet demand and maximize hardware utilization rates. Outsourcing is here to stay and is one of the important ways companies will augment internal efforts but it won't lead to the demise of corporate computing. The low utilization rates of servers today demonstrate the over-investment in computing capacity in corporate data centers and how virtualization is a driver towards utility computing. However, virtualization promises to solve the problem of low server utilization without having to outsource the data center. The utility computing model will grow not because computing is a commodity but rather because the corporate application layer will be most effectively assembled from multiple best-of-breed software services. Corporate data centers may find it useful to run some of their own servers and host their own databases as they see fit. But they will still have to plan for, acquire, implement and integrate application software into their business, which is a timely process. This will be easier to do by subscribing to web services delivered over the web, and the application layer will be more flexible when it consists of remote web services.
• #18: The business driver for this trend won’t be data center economies of scale but rather the flexibility and speed with which applications can be upgraded and integrated. Every sign in the industry is indicating ventures in the direction of massive centralized computing. large companies such as IBM, Microsoft, and Dell will likely take the lead by beginning to outsource their computing. Much like the private users before them, these companies will pay for the resources as they are used and eliminate fixed costs with other organizations. There is a need to construct the necessary infrastructure to support the connection uptime and stability as well as the bandwidth required, but the public mindset is not set for such a massive shift. Most companies will be unable to comprehend the elimination of desktop computing overnight.
• #19: In summary, it is likely the biggest obstacle to creating an IT utility: Managing all that data as it traverses its way along a multitude of cyber pathways through potentially millions of unknown sources and destinations. That will indeed be one of the biggest challenges in shifting to a full utility model, One need only look at the ever increasing complexity of the Internet and its uses to know that managing extraordinarily complicated data flows is a challenge that can and have no doubt will be met. Also, the argument that we are beginning to see a fundamental shift in the nature of business computing. The transition will shake up IT companies, and put pressure on other companies to rethink their need to own IT assets. Companies have already had plenty of warning of the changes underway: many are already using application service providers (ASPs), or have at least considered business process outsourcing . On the other hand, The article neatly brings together several strands of this trend, illuminating it with a plausible historical parallel, and succeeds in pressing home the waste, expense, and security dangers inherent in today’s still-dominant model. For Managers, it is beneficial to Run the numbers on utility computing or 'renting' applications. When all is said and done, the smart Manager will offload as many capital costs, operating costs and upgrade costs as possible but will still keep his corporation computing. Even if the infrastructure is commoditized, that is if someone else owns the boxes and cables, how you compute, how you embody your strategic thinking in code and how you get your instructions executed will be the source of competitive advantage for decades to come. Utility computing makes sense for some small and medium-size businesses. But for large businesses, the decision to host applications outside or inside of the network depends on many different factors, including cost and network efficiency. Some of the largest companies can run their own applications much cheaper and more efficiently than any utility computing provider. Carr uses the analogy of the electric generating industry in the early 20th century. Companies initially were forced to run their own generating plant, but these were gradually replaced by centralized electric generating utilities. This centralization required the construction of the electric grid to distribute electricity, analogous to the internet of today. Firstly, there are huge economies of scale for the generation of electricity, but these don’t exist for the operation of a corporate data center. There are very few fixed costs to running a server farm. The servers themselves can be scaled in fairly small increments, unlike new electrical generators. Generators are designed to last many decades, while servers are often replaced in five years. Secondly, Carr’s implication that applications are a commodity. The actual computing cycles are certainly a commodity, but that isn’t where most of the costs, and the value-add, of corporate IT lies. The hard part is planning for, acquiring, implementing and integrating application software to support the business. There is no differentiation in computing cycles, but every corporate application layer is not only differentiated, but typically unique and a source of competitive advantage or disadvantage