By Nicholas G. Carr
This article, appearing in the Spring 2005 issue of the MIT Sloan Management Review, is something of a sequel to my 2003 Harvard Business Review article IT Doesn't Matter. Whereas the earlier piece examined the demand side of business computing (how companies use IT), "The End of Corporate Computing" examines the supply side (how the technology industry will be organized to supply IT to companies). In particular, it shows how the wastefulness of the current, fragmented model of IT supply is unsustainable. As with the factory-owned generators that dominated electricity production a century ago, today's private IT plants will be supplanted by large-scale, centralized utilities. The transition to the new supply model promises to bring challenges and opportunities to the users of IT while upending the status quo of the computer industry.
The title of the article has a dual meaning. Computing utilities will bring to an end the traditional model of "corporate computing" in which computing is carried out within individual corporations - just as electric utilities made "corporate electricity generation" obsolete. And utility computing will represent "the end" toward which business computing in general is heading. It's IT's destination.
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"...As a business resource, information technology today looks a lot like electric power did at the start of the last century [when manufacturers built and maintained their own generators]. Companies go to vendors to purchase various components — computers, storage drives, network switches and all sorts of software — and cobble them together into complex information-processing plants, or data centers, that they house within their own walls. They hire specialists to maintain the plants, and they often bring in outside consultants to solve particularly thorny problems. Their executives are routinely sidetracked from their real business — manufacturing automobiles, for instance, and selling them at a profit — by the need to keep their company’s private IT infrastructure running smoothly.
The creation of tens of thousands of independent data centers, all using virtually the same hardware and, for the most part, running similar software, has imposed severe penalties on individual firms as well as the broader economy. It has led to the overbuilding of IT assets, resulting in extraordinarily low levels of capacity utilization. One recent study of six corporate data centers revealed that most of their 1,000 servers were using just 10% to 35% of their available processing power. Desktop computers fare even worse, with IBM estimating average capacity utilization rates of just 5%. Gartner indicates that between 50% and 60% of a typical company’s data storage capacity is wasted. And overcapacity is by no means limited to hardware. Because software applications are highly scalable — able, in other words, to serve additional users at little or no incremental cost — installations of identical or similar programs at thousands of different sites also create acute diseconomies, in both upfront expenditures and ongoing costs and fees. The replication, from company to company, of IT departments that share many of the same technical skills represents an overinvestment in labor as well. According to a 2003 survey, about 60% of the average U.S. company’s IT staffing budget goes to routine support and maintenance functions.
When overcapacity is combined with redundant functionality, the conditions are ripe for a shift to centralized supply. Yet companies continue to invest large sums in maintaining and even expanding their private, subscale data centers. Why? For the same reason that manufacturers continued to install private electric generators during the early decades of the 20th century: because of the lack of a viable, large-scale utility model. But such a model is now emerging..."
ZDNet's Dan Farber, in an April 18 posting on his blog Between the Lines, discusses "The End of Corporate Computing," calling the article "another clarion call for extinction of enterprise computing as we know it." While Farber says he agrees that a utility model for IT supply seems "natural and necessary," he cautions that "it will take decades to kill the way corporate computing is practiced today." He points out that we don't yet "have efficient marketplaces, like commodity futures, for selling IT services. Nor is the standardized metering and billing infrastructure in place to enable IT utility marketplaces." I agree with Dan that there's much work to be done, but every advance will help to reshape the current model of IT supply in ways both big and small.
In the April 21 edition of the Toronto Globe and Mail, Dan McLean offers a long analysis of my article. "To his credit," McLean writes, "Mr. Carr challenges computing convention, even if the reality of what he believes is a lot more complicated than he's making it sound." In particular, Mclean says, "Mr. Carr hasn't addressed what is likely the biggest obstacle to creating an IT utility: Managing all that data as it traverses its way along a multitude of cyberpathways through potentially millions of unknown sources and destinations." That will indeed be one of the biggest challenges in shifting to a full utility model, though I think McLean may be overstating it at least a little. 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 I have no doubt will - be met.
ManyWorlds reviews my argument that we are beginning a fundamental shift in the nature of business computing. "Without doubt," it writes, "this transition will shake up IT companies, and put pressure on other companies to rethink their need to own IT assets. Carr may be overselling the general economic upheaval, however. 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, Carr’s 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."
In reviewing my article on April 29, Tom Steinert-Threlkeld, editor of Baseline, tells executives: "Form your own opinion. Don’t just sit on the sidelines. It is too important. Better yet: Run the numbers on utility computing or 'renting' applications. When all is said and done, the smart CEO will offload as many capital costs, operating costs and upgrade costs as possible. But the smart CEO will still keep his corporation computing. Even if the infrastructure is commoditized, even 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."
The May 1 edition of the Boston Sunday Globe features an article on "The End of Corporate Computing" by Robert Weisman. He sums up the thrust of the piece, noting that the shift to a utility model may disrupt "the business models of technology hardware and software suppliers" while freeing executives "to focus on their businesses." He quotes me: "'CEOs and managers in general want to think hard about the information. They don't care about the machinery." Weisman also quotes Forrester Research CEO George Colony as saying I'm at once "half right" and "totally wrong." It's understandable Colony would object. Once managers offload their information technology, they'll no longer have much need for the kind of arcane technical information that's been the bread and butter of researchers like Forrester.
Forbes calls "The End of Corporate Computing" one of "Ten Must-Read Tech Stories."
Sun Microsystems president Jonathan Schwartz is "lukewarm on Carr's latest," according to a CNET blog. Says Schwartz: "Nick missed ... the one fundamental point, that the concept of utility is predicated upon common platform multi-tenancy." I'm not sure exactly what "common platform multi-tenancy" means, but it sounds a lot like a long-winded, tech exec version of the word "utility."
In the May 9 issue of Computerworld, Kathleen Melymuka interviews me on "The End of Corporate Computing."
Over at Application Development Tools, editor Michael Alexander takes a whiff of my oracular gas and doesn't like what he smells.
John Fontana profiles me in the June 13 issue of Network World. He calls me "the quintessential disruptive force."
Martin LaMonica surveys responses to my article in a June 17 piece at news.com.
In a Datamation column, Steve Andriole, a business professor at Villanova, looks at my argument that we're approaching the end of corporate computing, as companies will increasingly shift from owning their own IT assets to renting most of the IT resources they need. "Long-term," he writes, "I think [Carr] is absolutely right. Initially, companies will purchase transaction processing services from centralized data centers managed by large technology providers, but over time companies will rent applications developed the old-fashioned way by the same old mega software vendors ... Eventually, as SOA proliferates, new software delivery and support models will develop from the old vendors as well as a host of new ones...The appeal of 'paying by the drink' is just too great to resist – especially since the alternative will still (and forever) require the care and feeding of increasingly difficult-to-find technology professionals."
Michael Hugos, CIO of Network Services, offers his take on my ideas in a Computerworld column. "I'm amused to see us all rush to refute [Carr's] pronouncements," he writes. "But, to paraphrase a famous quote, methinks we doth protest too much. Carr is right about a number of things, and many of us know it. A big chunk of what we do in the IT business - stuff like running networks and application systems, and installing and supporting packaged software - is necessary but no longer strategic to most organizations. Ironically, because we have gotten so good at these things, they have become commoditized. Now it often does make sense to outsource them to an IT utility, just as we outsource the production and delivery of electricity to an electric utility."
The Philadelphia Inquirer features a story on "The End of Corporate Computing" in its August 28 edition. Writes columnist Reid Goldsborough: "If it weren't for Carr's blue-chip resume and the big-name responses he has spurred, you might be tempted to write him off as the egghead provocateur a la mode who gives the digerati something to talk about over lunch ... But Carr provides compelling support for his 'utility' computing model. [T]here's unquestionably room for greater efficiency in the way information-technology tools are delivered and used, and Carr offers a lot to think about."