Cloud Computing-the new business model!

Nicholas Carr, author of Does IT Matter, has written another book – The Big Switch – on the implications of utility computing, as a note on his web site says:-

A hundred years ago, companies stopped generating their own power with steam engines and dynamos and plugged into the newly built electric grid. The cheap power pumped out by electric utilities didn’t just change how businesses operate. It set off a chain reaction of economic and social transformations that brought the modern world into existence. Today, a similar revolution is under way. Hooked up to the Internet’s global computing grid, massive information-processing plants have begun pumping data and software code into our homes and businesses. This time, it’s computing that’s turning into a utility.

He discusses the switch to the ‘cloud’ business model for computing and what that might mean.

He suggests:-

Cheap, utility-supplied computing will ultimately change society as profoundly as cheap electricity did. We can already see the early effects — in the shift of control over media from institutions to individuals, in debates over the value of privacy, in the export of the jobs of knowledge workers, even in the growing concentration of wealth. As information utilities expand, the changes will only broaden, and their pace will only accelerate.

This is the book that forms part of Adam’s bedside reading at present. It is a thought provoking read.

Now we see a discussion of the ‘cloud’ in a mainstream publication, not the only such Adam is sure, as in the most recent edition of The Economist is this article:-

The real-world implications of the rise of internet computing

Data Islandia

EVEN when the sky is blue over Quincy, clouds hang in the air. The small town in the centre of the state of Washington is home to half a dozen huge warehouses that power the global “computing clouds” run by internet companies such as Yahoo! and Microsoft. The size of several football pitches, these data centres are filled with thousands of powerful computers and storage devices and are hooked up to the internet via fast fibre-optic links.

Yet even more intriguing than the buildings’ size is their location. Quincy is literally in the middle of nowhere, three hours’ drive from the nearest big city, Seattle. But it turns out to be a perfect location for data centres. As computing becomes a utility, with services that can be consumed from everywhere and on any device, ever more thought is being put into where to put the infrastructure it needs.

The article discusses the forecast huge growth in servers and requirements, plus the move to the ‘cloud computing model’. The requirement for massive amounts of electricity and ideally cheap power.

At the same time as data centres grow ever bigger many firms are consolidating and simplifying their infrastructure. Consequently much more thought is going into location of centres, regulatory impacts etc.

Hewlett-Packard, the world’s biggest computer-maker, for instance, is replacing its 85 data centres across the world with just six in America.

Internet firms, meanwhile, need ever larger amounts of computing power. Google is said to operate a global network of about three dozen data centres with, according to some estimates, more than 1m servers. To catch up, Microsoft is investing billions of dollars and adding up to 20,000 servers a month.

On power needs the article notes:-

The largest data centres now rival aluminium smelters in the energy they consume. Microsoft’s $500m new facility near Chicago, for instance, will need three electrical substations with a total capacity of 198 megawatts. As a result, finding a site for a large data centre is now, above all, about securing a cheap and reliable source of power, says Rich Miller of Data Center Knowledge, a website that chronicles the boom in data-centre construction.

So:-

the boom in data-centre construction is spreading to unexpected places. Microsoft is looking for a site in Siberia where its data can chill. Iceland has begun to market itself as a prime location for data centres, again for the cool climate, but also because of its abundant geothermal energy. Hitachi Data Systems and Data Islandia, a local company, are planning to build a huge data-storage facility (pictured at top of article). It will be underground, for security and to protect the natural landscape.

Therefore, remoteness may not necessarily be a barrier to the siting of data centres. But for many users speed is critical so some companies will have a need to be located in particular places, some global businesses need to have a number of centres distributed geographically to ensure rapid and balanced response.

Plus for various reasons some wish to be proximate to their centres:-

Demand for secure locations for back-up centres, which many firms now have to maintain, will give rise to huge regional data centres, such as the one being built in Newport in Wales.

But as the article notes

Yet it will not just be market economics that determines the shape of the clouds. Local governments give tax breaks in the hope that the presence of big data centres will attract other businesses (the computing plants themselves usually employ only a few dozen people). Regulation is a factor, too. SWIFT, a bank-transfer consortium, has announced plans to build a data centre in neutral Switzerland, so that data collected in Europe will not be stored in an American facility, where it could be subpoenaed by the United States government.

An interesting article, one that raises issues that will have implications for New Zealand and the way business manage their information systems and where such systems are located.

Does it also represent an opportunity for New Zealand especially if any centres which might be located here could be linked by ultra powerful cable to the rest of the world.

Might the South Island attract such business as a replacement for the Comalco aluminium smelter?

Carr’s blog carries this recent item on a Microsoft statement on the move to cloud computing, which whilst more about margins makes a number of points which corroborate the Economist article, a brief extract is below, but the full items should be read:-

Microsoft expects corporate customers to accelerate their shift to the cloud computing model over the next five years, bringing changes in the company’s financial model, says Chris Capossela, the senior vice president who manages Microsoft’s Office business. In one of the most forthright statements of Microsoft’s view of the shift from in-house to utility-run software, Capossela said, as summarized by Reuters, that “the company will see more and more companies abandon their own in-house computer systems and shift to ‘cloud computing,’ a less expensive alternative.”

The blog is well worth a look as it carries various interesting comments and articles.

Questions arise as to what this major shift means for NZ. Adam raises a few initial ones below, but believes there is much more to be considered.

• IS anybody considering the impact of cloud computing on New Zealand?
• The cloud model has seen new types of business emerge, data centres are not necessarily operated by traditional IT businesses – Amazon has emerged as a player for example.
• What will this shift mean for the way in which the IT industry here is structured?
• Will there be a split as between ‘Cloud utilities’ and the applications/services?
• Would that be a good or bad thing?
• What will the cloud mean for software developers?
• What will it mean for the nature and extent of IT spend?
• What will it mean for communications?
• How will the cloud model and broadband mesh for example?
• What will it mean for data storage and location?
• What are the legal implications?

In looking at New Zealand’s broader infrastructure needs, electric power requirements, nature of business activity undertaken – the ‘cloud computing model’ may well have an impact.

The shape of our presently accepted business model is changing and Adam is concerned that this is not fully appreciated by many as yet.