Zhang, X., Nickels, D. W., & Stafford, T. F. (2010). Understanding the organizational impact of
radio frequency identification technology: A holistic view. Pacific Asia Journal of the
Association for Information Systems, 2(2), 1-17.
Purpose (What are the objectives for writing the paper?):
Provide an overview of RFID technology and its uses and to propose its effects on an
organization’s IT infrastructure, business intelligence, and decision making.
Design / Methodology / Approach (How are the objectives achieved? Include the main methods
used for the research and the approach to the topic.):
•
•
Provide a comprehensive overview of RFID and its current uses
Propose general effects of using RFID on IT infrastructure, business intelligence, and
decision making in the form of propositions
• Propose a theory dubbed the “IT Decision Chain” employing and linking the propositions
Main Points / Findings / Conclusions (What are the main points? What was found in the course
of the work, and what are the major conclusions? This will refer to analysis, discussion, or
results.):
•
•
•
•
RFID is a diverse architecture with unlimited uses for tracking objects
RFID presents challenges to existing IT systems during design and implementation
RFID can increase the level and efficiency of real time data in a retail supply change
There are assertions (propositions) that can be made regarding the effects of an RFID
based system on IT infrastructure, business intelligence, and decision making.
• The effects (propositions) on a business using an RFID based system can be linked into a
decision chain
• The creative use of the data from an RFID system is the real value, not the technology
itself.
Implications to Practice and Knowledge (What outcomes and implications for practice and
knowledge as well as applications and consequences are identified?):
The contribution to knowledge consists of a comprehensive literature research summary of RFID
technology and its uses. The literature research is used as the basis to assert propositions to the
effects that an RFID infrastructure and the resulting data can have on the firms overall IT
infrastructure, business intelligence, and decision making. The propositions are then linked into
an information technology decision chain that establishes a hypothesis for understanding the
organizational impacts of employing RFID.
Critique (Which parts of the paper you like, and which parts of the paper you don’t like? Why?):
The article overall read well and flowed nicely through three major phases: literature research,
establishment of the propositions, and IT Decision Chain hypothesis. One key area for IT that
appeared to have been somewhat overlooked in the literature review was the use of RFID for
security of assets outside of the supply chain. Transferring and moving of capital assets within a
company not related to supply chain operations for large companies can benefit greatly by the
establishment of an RFID infrastructure, perhaps a secondary benefit to establishing the
infrastructure from which value could be attributed to. Proposition 1 includes data abstraction at
the data source but this is fairly well established already as the basic tag has just a simple number
while the data system can return detailed information about the tagged item. The paper and
hypothesis also seem to be directed specifically at retail supply chains although that is only
explicitly detailed at times. It does appear that retail supply chains would benefit most by current
RFID infrastructure while tracking of small parts and raw resources for manufacturing would
benefit only at the container level.
I did like the assertion of the propositions. They progressed logically through the establishment
of the infrastructure and data gathering up through the high level decision making process. In
particular Proposition 4 regarding the increased use of data mining appeared the most important
proposition established. Data mining especially for customer relations management could benefit
greatly by more “real time” data management. This aspect of the data gathered by the
infrastructure could be the most valuable as now more than ever companies try to establish a
competitive edge realized by more up to date customer data. I am not that versed in business
intelligence so I had to take Propositions 5 and 6 at face value as they do make logical sense. I
thought overall that the logical progression through the eight propositions assisted in establishing
the benefits of moving to an RFID infrastructure as there is value established by the propositions
at all three levels: infrastructure, business intelligence, and decision making.
Provide the article’s citation information in APA style here
Purpose (What are the objectives for writing the paper?):
Design / Methodology / Approach (How are the objectives achieved? Include the main methods
used for the research and the approach to the topic.):
Main Points / Findings / Conclusions (What are the main points? What was found in the course
of the work, and what are the major conclusions? This will refer to analysis, discussion, or
results.):
Implications to Practice and Knowledge (What outcomes and implications for practice and
knowledge as well as applications and consequences are identified?):
Critique (Which parts of the paper you like, and which parts of the paper you don’t like? Why?):
SPRING 2005
VOL.46 NO.3
Nicholas G. Carr
The End of Corporate
Computing
Please note that gray areas reflect artwork that has
been intentionally removed. The substantive content
of the article appears as originally published.
REPRINT NUMBER 46313
The End of
Corporate Computing
S
omething happened in the first years of the 20th century that would have
seemed unthinkable just a few decades earlier: Manufacturers began to
shut down and dismantle their water wheels, steam engines and electric generators. Since the beginning of the Industrial Age, power generation had been
a seemingly intrinsic part of doing business, and mills and factories had had
no choice but to maintain private power plants to run their machinery. As the
new century dawned, however, an alternative started to emerge. Dozens of
fledgling electricity producers began to erect central generating stations and
use a network of wires to distribute their power to distant customers. Manufacturers no longer had to run their own dynamos; they could simply buy the
electricity they needed, as needed, from the new suppliers. Power generation
was being transformed from a corporate function to a utility.
Almost exactly a century later, history is repeating itself. The most important commercial development of the last 50 years — information technology
— is undergoing a similar transformation. It, too, is beginning an inexorable
shift from being an asset that companies own in the form of computers, software and myriad related components to being a service that they purchase
from utility providers. Few in the business world have contemplated the full
magnitude of this change or its far-reaching consequences. To date, popular
discussions of utility computing have rarely progressed beyond a recitation of
IT vendors’ marketing slogans, laden with opaque terms like “autonomic systems,” “server virtualization” and “service-oriented architecture.”1 Rather
than illuminate the future, such gobbledygook has only obscured it.
The prevailing rhetoric is, moreover, too conservative. It assumes that
the existing model of IT supply and use will endure, as will the corporate
data center that lies at its core. But that view is perilously shortsighted. The
traditional model’s economic foundation already is crumbling and is
unlikely to survive in the long run. As the earlier transformation of electricity supply suggests, IT’s shift from a fragmented capital asset to a centralized utility service will be momentous. It will overturn strategic and
operating assumptions, alter industrial economics, upset markets and pose
daunting challenges to every user and vendor. The history of the commercial application of information technology has been characterized by
astounding leaps, but nothing that has come before — not even the intro-
After pouring millions
of dollars into in-house
data centers, companies
may soon find that it’s
time to start shutting
them down. IT is shifting from being an asset
companies own to a
service they purchase.
Nicholas G. Carr
Nicholas G. Carr is the author of Does IT Matter? Information Technology and the
Corrosion of Competitive Advantage (Harvard Business School Press, 2004) and former executive editor of the Harvard Business Review. He can be reached at ncarr@
nicholasgcarr.com.
SPRING 2005
MIT SLOAN MANAGEMENT REVIEW
67
duction of the personal computer or the opening of the Internet — will match the upheaval that lies just over the horizon.
From Asset to Expense
Information technology, like steam power and electricity before
it, is what economists call a general-purpose technology.2 It is
used by all sorts of companies to do all kinds of things, and it
brings widespread and fundamental changes to commerce and
society. Because of its broad application, a general-purpose technology offers the potential for considerable economies of scale if
its supply can be consolidated. But those economies can take a
long time to be fully appreciated and even longer to be comprehensively exploited. During the early stages in the development of
a general-purpose technology, when there are few technical standards and no broad distribution network, the technology is
impossible to furnish centrally. By necessity, its supply is fragmented. Individual companies must purchase the various components required to use the technology, house those parts on
site, meld them into a working system and hire a staff of specialists to maintain them.
Such fragmentation of supply is inherently wasteful: It forces
large capital investments and heavy fixed costs on firms and leads
to redundant expenditures and high levels of overcapacity, both
in the technology itself and in the labor force operating it. The
situation is ideal for the suppliers
of the components of the technology, since they reap the benefits of overinvestment, but it is
ultimately unsustainable. As the
technology matures and central
distribution becomes possible,
large-scale utility suppliers arise
to displace the private providers.
Although companies may take
years to abandon their proprietary supply operations and all
the sunk costs they represent, the
savings offered by utilities eventually become too compelling to
resist, even for the largest enterprises. Abandoning the old model
becomes a competitive necessity.
The evolution of electricity
supply provides a clear model of
this process. When the commercial production of electricity
became possible around 1880,
many small utility suppliers
quickly popped up in urban areas.
These were largely mom-and-pop
Although companies may take
years to abandon
their proprietary
supply operations,
the savings
offered by utilities
eventually become
too compelling
to resist.
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MIT SLOAN MANAGEMENT REVIEW
SPRING 2005
operations that used tiny coal-fired dynamos to generate modest
amounts of power. The electricity they produced was in the form
of direct current, which could not be transmitted very far, so their
service distance was limited to about a mile. And their high-cost
operations forced them to charge steep prices, so their customers
were generally restricted to prosperous stores and offices, wealthy
homeowners and municipal agencies, all of which used the electricity mainly for lighting.
Relying on these small central stations was not an option for
large industrial concerns. To produce the great quantities of reliable electricity needed to run their plants, these companies had no
choice but to build their own dynamos. They contracted with
electrical supply houses like General Electric and Westinghouse to
provide the components of on-site generators as well as the
expertise and personnel needed to construct them, and they hired
electrical engineers and other specialists to operate the complex
equipment and meld it with their production processes. During
the early years of electrification, privately owned dynamos quickly
came to dominate. By 1902, 50,000 private generating plants had
been built in the United States, far outstripping the 3,600 central
stations run by utilities.3 By 1907, factories were producing about
60% of all the electricity used in the country.4
But even as big manufacturers rushed to set up in-house generators, some small industrial concerns, such as urban printing
shops, were taking a different route. They couldn’t afford to build
generators and hire workers to maintain them, so they had to rely
on nearby central stations, even if that meant paying high perkilowatt rates and enduring frequent disruptions in supply. At the
time, these small manufacturers must have felt like laggards in
the race to electrification, forced to adopt a seemingly inferior
supply model in order to tap into the productivity gains of electric power. As it turned out, they were the vanguard. Soon, even
their largest counterparts would be following their lead, drawn by
the increasingly obvious advantages of purchasing electricity
from outside suppliers.
A series of technical advances set the stage for this shift. First,
massive thermal turbines were developed, offering the potential
for much greater economies of scale. Second, the introduction of
alternating current allowed power to be transmitted over great
distances, expanding the sets of customers that central plants
could serve. Third, converters were created that enabled utilities
to switch between different forms of current, allowing old equipment to be incorporated into the new system. Finally, electric
motors capable of operating on alternating current were
invented, enabling factories to tap into the emerging electric grid
to run their machines. As early as 1900, all the technological
pieces were in place to centralize the supply of power to manufacturers and render obsolete their isolated power plants.5
Technical progress was not enough, however. To overturn the
status quo, a business visionary was needed, someone able to see
So Long, PC
If there’s a perfect symbol of corporate
IT today, it’s the personal computer.
Not only is the PC ubiquitous in modern
companies, dominating the desks of
most office workers, it is also a microcosm of the overall state of computing
resources at the typical corporation:
fragmented, redundant and increasingly
underutilized.
The invention of the PC was a great
advance, one of the most important in
recent business history. It dispersed the
power of computing to individuals,
spurred ingenuity, increased personal
productivity and undoubtedly sped the
development of networks, including the
Internet and World Wide Web. But the
rise of robust, high-capacity networks
has also made the desktop PC less
essential; computing resources can
increasingly be provisioned to users
from afar. And while the capacity of PCs
has exploded, the needs of users have
failed to keep pace. Few workers employ
more than a tiny fraction of the computing horsepower at their disposal, and
the multigigabyte hard drives of modern PCs tend to be either empty or filled
with nonessential files.
Some have argued that PCs are now
so cheap that it doesn’t matter that
they’re largely wasted. But that doesn’t
account for the considerable costs of
maintaining and updating huge fleets
of PCs and their associated software.
It also overlooks the fact that PCs often
represent the biggest security hole in
today’s companies, a gateway for hackers and a repository of ready evidence
for the litigious.
how the combination of technological, market and economic
trends could lead to an entirely new model of utility supply. That
person arrived in the form of a bespectacled English bookkeeper
named Samuel Insull. Infatuated by electricity, Insull emigrated
to New York in 1880 and soon became Thomas Edison’s most
trusted advisor, helping the famous inventor expand his business
empire. But Insull’s greatest achievement came after he left Edison’s employ in 1892 and moved to Chicago, where he assumed
the presidency of a small, independent power producer with
three central stations and just 5,000 customers. In less than
25 years, he would turn that little company into one of the country’s largest enterprises, a giant monopolistic utility named Commonwealth Edison.
Insull was the first to realize that, by capitalizing on new technologies to consolidate generating capacity, centralized utilities
could fulfill the power demands of even the largest factories.
Moreover, utilities’ superior economies of scale, combined with
their ability to spread demand across many users and thus
achieve higher capacity-utilization rates, would enable them to
provide much cheaper electricity than manufacturers could
achieve with their private, subscale dynamos. Insull acted aggressively on his insight, buying up small utilities throughout
Chicago and installing mammoth 5,000-kilowatt generators in
his own plants. Equally important, he pioneered electricity
metering and variable pricing, which enabled him to slash the
rates charged to big users and further smooth demand. Finally, he
launched an elaborate marketing campaign to convince manu-
In the late 1990s, Oracle CEO Larry
Ellison was roundly criticized for predicting that the PC, which he called “a
ridiculous device,” would be supplanted
by so-called thin clients — terminals
and other stripped-down devices connected to centralized computers.i If
Ellison’s timing was off, however, his
assessment was not. The case for keeping desktop computers in companies
will steadily weaken as utility computing becomes widespread. Unlike in
the home, where the PC is the engine
of computing, in business it is just a
cog, and an increasingly unnecessary
one at that.
i. K. Girard, “Ellison Resurrects Network Computer,” Nov. 16, 1999, http://news.com.com/
Ellison+resurrects+network+computer/2100-1001_
3-233137.html.
facturers that they would be better off shutting down their generators and buying electricity from his utility.6
As Chicago manufacturers flocked to his company, Insull’s
vision became reality. In 1908, a reporter for Electrical World and
Engineer noted, “although isolated plants are still numerous in
Chicago, they were never so hard pressed by central station service as now. … The Commonwealth Edison Company has among
its customers establishments formerly run by some of the largest
isolated plants in the city.”7 The tipping point had arrived.
Although many manufacturers would continue to produce their
own electricity for years to come, the transition from private to
utility power was under way. Between 1907 and 1920, utilities’
share of total U.S. electricity production jumped from 40% to
70%; by 1930, it had reached 80%.8
By changing their view of electricity from a complex asset to a
routine variable expense, manufacturers reduced their fixed costs
and freed up capital for more productive purposes. At the same
time, they were able to trim their corporate staffs, temper the risk
of technology obsolescence and malfunction and relieve their
managers of a major source of distraction. Once unimaginable,
the broad adoption of utility power had become inevitable. The
private power plant was obsolete.
IT’s Transformation Begins
Of course, all historical analogies have their limits, and information technology differs from electricity in many important ways.
IT, for instance, incorporates software, which is a product of
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69
human creativity that is protected
by intellectual property rights.
But there are deep similarities as
well — similarities that are easy
for modern-day observers to
overlook. Today, people see electricity as a “simple” utility, a
standardized and unremarkable
current that comes safely and predictably through sockets in walls.
The innumerable applications of
electric power, from table lamps
in homes to machine tools on
assembly lines, have become so
commonplace that we no longer
consider them to be elements of
the underlying technology —
they’ve taken on separate, familiar
lives of their own. But it wasn’t
always so.
When electrification began, it
was a complex, unpredictable
and largely untamed force that
changed almost everything it
touched. Its application layer, to
borrow a modern term, was as
much a part of the technology as the dynamos, the power lines
and the current itself. All companies had to figure out how to
apply electricity to their own businesses, often making sweeping
changes to long-standing practices, work flows and organizational structures. As the technology advanced, they had to struggle with old and often incompatible equipment — the “legacy
systems” that can impede progress.
As a business resource, or input, information technology
today certainly looks a lot like electric power did at the start of
the last century. Companies go to vendors to purchase various
components, such as 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 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 on the broader economy.9 It has led to the overbuilding of IT assets, resulting in extraordinarily low levels of
The creation of
myriad independent data centers,
all using virtually
the same hardware and similar
software, has
imposed severe
penalties on
individual firms.
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SPRING 2005
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.10 Desktop computers fare
even worse, with IBM Corp. estimating average capacity utilization
rates of just 5%.11 (See “So Long, PC,” p. 69.) Gartner Inc., the
research consultancy based in Stamford, Connecticut, suggests that
between 50% and 60% of a typical company’s data storage capacity is wasted.12 And overcapacity is by no means limited to hardware. Because software applications are highly scalable — in other
words, able to serve additional users at little or no incremental cost
— installations of identical or similar programs at thousands of
different sites 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.13
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. Rudimentary forms of utility computing are
proliferating, and many companies are moving quickly to capitalize on them. Some are using the vast data centers maintained
by vendors like IBM, Hewlett-Packard and Electronic Data Systems to supplement or provide an emergency backup to their
own hardware. Others are tapping into applications that run on
the computers of distant software suppliers. Such hosted programs, which include systems for procurement, transportation
management, financial accounting, customer service, sales-force
management and many other functions, demonstrate that even
very complex applications can be supplied as utility services over
the Internet. (See “The Pathbreakers.”)
What these early efforts don’t show is the full extent and
power of a true utility model. Today’s piecemeal utility services
exist as inputs into traditional data centers; individual companies
still must connect them with their old hardware and software.
Indeed, firms often forgo otherwise attractive utility services or
run into problems with outsourcing arrangements because the
required integration with their legacy systems is so difficult. True
utility computing will have arrived only when an outside supplier
takes responsibility for delivering all of a company’s IT requirements, from data processing to storage to applications. The utility model requires that ownership of the assets that have
traditionally resided inside widely dispersed data centers be consolidated and transferred to utilities.
That process will take years to unfold, but the technological
building blocks are already moving into place. Three advances —
virtualization, grid computing and Web services — are of particular importance, although their significance has often been
obscured by the arcane terminology used to describe them. In
different ways, these three technologies play a role similar to that
of the early current converters: They enable a large, tightly integrated system to be constructed out of heterogeneous and previously incompatible components. Virtualization erases the
differences between proprietary computing platforms, enabling
applications designed to run on one operating system to be
deployed elsewhere. Grid computing allows large numbers of
hardware components, such as servers or disk drives, to effectively act as a single device, pooling their capacity and allocating
it automatically to different jobs. Web services standardize the
interfaces between applications, turning them into modules that
can be assembled and disassembled easily.
Individually all these technologies are interesting, but combined they become truly revolutionary. Together with highcapacity, fiber-optic communication networks, they can turn a
fragmented, unwieldy set of hardware and software components
into a single, flexible infrastructure that numerous companies
can share, each deploying it in a different way. And as the num-
ber of users served by a system goes up, its demand load becomes
more balanced, its capacity utilization rate rises and its
economies of scale expand. Given that these technologies will
evolve and advance while new and related ones emerge, the ability to provide IT as a utility — and the economic incentives for
doing so — will only continue to grow.
The biggest impediment to utility computing will not be
technological but attitudinal. As in the shift to centralized electrical power, the prime obstacle will be entrenched management
assumptions and the traditional practices and past investments
on which they are founded. Large companies will pull the plug
on their data centers only after the reliability, stability and benefits of IT utilities have been clearly established. For that to occur,
a modern-day Samuel Insull needs to arrive with a clear vision
of how the IT utility business will operate, as well as with the
imagination and wherewithal to make it happen. Like his predecessor, this visionary will build highly efficient, large-scale IT
plants, weave together sophisticated metering and pricing systems and offer attractive and flexible sets of services tailored to
diverse clients.14 And he will make a compelling marketing case
to corporate executives, demonstrating that centralizing the
management of previously dispersed resources not only cuts
The Pathbreakers
When businesses began to turn to utilities for their electricity supply, smaller
organizations led the way. Lacking the
cash to build their own power plants,
they had little choice but to buy power
from outside suppliers. The most
aggressive early adopters of utility computing also have tended to be capitalconstrained organizations: small and
medium-sized businesses, government
agencies and nonprofits.
The Commonwealth of Pennsylvania,
for instance, began to move toward
utility computing nearly a decade ago.
After several years of planning, the state
began closing down the data centers
operated by 17 government agencies
in the fall of 1999, consolidating their
hardware and software in a new facility
that is now run by a consortium of suppliers led by Unisys. Similarly, Lincoln
Center for the Performing Arts Inc. in
New York City has adopted a utility
model. It no longer maintains the application and database servers required
to sell tickets and perform related functions, instead paying a simple monthly
fee to use hardware owned and maintained by IBM.
However, some big corporations are
also beginning to embrace utility computing on a large scale. The Australian
firm Qantas Airways Ltd., for example,
began disassembling its data center in
2004, moving hundreds of servers and
mainframe computers to a supplier’s
facility. It will now pay a variable fee
based on its actual usage of computing
capacity. The airline has even outsourced its reservation and ticketing
system, the very nexus of its operations,
to Amadeus Global Travel Distribution
SA, a technology provider headquartered in Madrid, Spain. According to
Qantas CIO Fiona Balfour, the percentage of the airline’s data-center budget
that is allocated to fixed costs has been
cut from 70% to 30% as a result of this
shift to utility supply.i
Many other large companies are set-
ting up their own internal “utilities” to
supply computing resources throughout
their organizations. They are consolidating previously dispersed computing, storage and networking hardware, imposing
stricter software standards and using
new technologies like virtualization and
Web services to provide business units
and corporate departments with services
tailored to their particular needs. DHL,
the shipping company, recently consolidated its eight North American data centers into a single facility in Arizona. The
U.S. arm of Bayer AG, the chemical and
drug company, centralized its IT operations by combining 42 data centers into
two facilities and halving the number of
its servers. The resulting savings: approximately $100 million. Such moves represent a first step toward a broader
consolidation of IT resources as largescale utilities emerge.
i. M. Levinson, “Host With the Most,” CIO, July 12,
2004, http://cio.idg.com.au/index.php?taxid=14&
id=661732037.
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costs and frees up capital but also improves security, enhances
flexibility and reduces risk. He will, in short, invent an industry.
The Shape of a New Industry
Exactly what that industry will look like remains to be seen, but
it’s possible to envision its contours. It will likely have three major
components. At the center will be the IT utilities themselves —
big companies that will maintain core computing resources in
central plants and distribute them to end users. Serving the utilities will be a diverse array of component suppliers — the makers
of computers, storage units, networking gear, operating and utility software, and applications. Finally, large network operators will
maintain the ultra-high-capacity data communication lines
needed for the system to work. Some companies no doubt will try
to operate simultaneously in more than one of these categories.
What’s particularly striking about this model is that it reveals
the unique characteristics that make IT especially well suited to
becoming a utility service. With electricity, only the basic generation function can be centralized; because the applications are
delivered physically through motors, light bulbs and various electronic devices, they have to be provisioned locally, at the user’s
site. With IT, the immediate applications take the form of software, which can be run remotely by a utility or one of its suppliers. Even applications customized for a single customer can be
housed at a supplier’s site. The end user needs to maintain only
various input and output devices, such as monitors, printers, keyboards, scanners, portable devices, sensors and the like, that are
necessary to receive, transmit and manipulate data and, as necessary, to reconfigure the package of services received.15 Although
some customers may well choose to run certain applications
locally, utilities will be able to own and operate the bulk of the
hardware and software, further magnifying their scale advantages.
Which companies will emerge as the new IT utilities? At least
four possibilities exist. First are the big traditional makers of enterprise computing hardware that have deep experience in setting up
and running complex business systems — companies like IBM,
Hewlett-Packard and Sun Microsystems, all of which, not surprisingly, have already been aggressively positioning themselves as suppliers of utility services. Sun, in fact, not only rents processing and
storage capacity for a fixed per-unit fee but is also setting up an
online auction to sell excess computing power. Second are various
specialized hosting operations, like VeriCenter Inc., based in Houston, Texas, or Virginia-based MCI’s Digex service, that even today
are running the entire data centers of some small and midsized
companies. These specialized firms, which struggled to survive
after the dot-com collapse, are beginning to resemble the operators
of the original central stations during the early stages of electrification. Third are Internet innovators like Google and Amazon.com
Inc. that are building extensive, sophisticated computing networks
that theoretically could be adapted to much broader uses.16 Finally
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are the as-yet-unknown startups
that could emerge with ingenious
new strategies. Because the utility
industry will be scale driven and
capital intensive, size and focus
will be critical to success. Any company will find it difficult to dominate while also pursuing other
business goals.
To date, utility computing
seems to be following the pattern
of disruptive innovation defined
by Clayton Christensen of the
Harvard Business School: initially
gaining traction at the low end
of the market before ultimately
emerging as the dominant supply
model.17 As such, it may pose a
grave threat to some of today’s
most successful component suppliers, particularly companies like
Microsoft, Dell, Oracle and SAP
that have thrived by selling
directly to corporations. The utility model promises to isolate
these vendors from the end users
and force them to sell their products and services to or through
big, centralized utilities, which will have significantly greater bargaining power. Most of the broadly used components, from computers to operating systems to complex “enterprise applications”
that automate common business processes, will likely be purchased as cheap, generic commodities.18
Of course, today’s leading component suppliers have considerable market power and management savvy, and they have time
to adapt their strategies as the utility model evolves. Some may
end up trying to forward-integrate into the utility business itself,
a move that has good precedent. When manufacturers began to
purchase electricity from utilities, the two largest vendors of generators and associated components, General Electric and Westinghouse, expanded aggressively into that business, buying
ownership stakes in many electric utilities. As early as 1895, GE
had investments totaling more than $59 million in utilities across
the United States and Europe.19
But that precedent also reveals the dangers of such consolidation moves for buyers and sellers alike. As the U.S. electricity
business became increasingly concentrated in the hands of a few
companies, the government, fearful of private monopoly control
over such a critical resource, stepped in to impose greater restrictions on the industry. The components of IT are more diverse,
but the possibility remains that a few companies will seize exces-
Which companies
will emerge
as the new IT
utilities? Among
the candidates
are the traditional
suppliers of
enterprise computing like IBM,
HP and Sun.
sive control over the infrastructure. Not only would monopolization lead to higher costs for end users, it might also retard the
pace of innovation, to the detriment of many. Clearly, maintaining a strong degree of competition among both utilities and component suppliers will be essential to a healthy and productive IT
sector in the coming years.
The View From the Future
Any prediction about the future, particularly one involving the
pace and direction of technological progress, is speculative, and
the scenario laid out here is no exception. But if technological
advances are often unforeseeable, the economic and market
forces that guide the evolution of business generally play out in
logical and consistent ways. The history of commerce has repeatedly shown that redundant investment and fragmented capacity
provide strong incentives for centralizing supply. And advances
in computing and networking have allowed information technology to operate in an increasingly “virtual” fashion, with ever
greater distances between the site of the underlying technological
assets and the point at which people access, interpret and manipulate the information. Given this trend, radical changes in corporate IT appear all but inevitable.
Sometimes, the biggest business transformations seem inconceivable even as they are occurring. Today when people look back
at the supply of power in business, they see an evolution that
unfolded with a clear and inevitable logic. It’s easy to discern that
the practice of individual companies building and maintaining
proprietary power plants was a transitory phenomenon, an artifact of necessity that never made much sense economically. From
the viewpoint of the present, electricity had to become a utility.
But what seems obvious now must have seemed far-fetched, even
ludicrous, to the factory owners and managers that had for
decades maintained their own sources of power.
Now imagine what future generations will see when they look
back at the current time a hundred years hence. Won’t the private
data center seem just as transitory a phenomenon — just as
much a stop-gap measure — as the private dynamo? Won’t the
rise of IT utilities seem both natural and necessary? And won’t
the way corporate computing is practiced today appear fundamentally illogical — and inherently doomed?
REFERENCES
3. A. Friedlander, “Power and Light: Electricity in the U.S. Energy
Infrastructure, 1870-1940” (Reston, Virginia: Corporation for National
Research Initiatives, 1996), 51.
4. D.E. Nye, “Electrifying America: Social Meanings of a New Technology” (Cambridge, Massachusetts: MIT Press, 1990), 236.
5. T.P. Hughes, “Networks of Power: Electrification in Western Society,
1880-1930” (Baltimore, Maryland: Johns Hopkins University Press,
1983), 106-139; and R.B. DuBoff, “Electric Power in American Manufacturing, 1889-1958” (New York: Arno Press, 1979), 42-45.
6. For more on Insull’s career and accomplishments, see Hughes,
“Networks,” 201-226; and H. Evans, “They Made America: From the
Steam Engine to the Search Engine: Two Centuries of Innovators”
(New York: Little, Brown, 2004), 318-333.
7. “The Systems and Operating Practice of the Commonwealth Edison
Company of Chicago,” Electrical World and Engineer 51 (1908): 1023,
as quoted in Hughes, “Networks,” 223.
8. DuBoff, “Electric Power,” 40.
9. For a discussion of the homogenization of information technology in
business, see N.G. Carr, “Does IT Matter? Information Technology and
the Corrosion of Competitive Advantage” (Boston: Harvard Business
School Press, 2004).
10. A. Andrzejak, M. Arlitt and J. Rolia, “Bounding the Resource
Savings of Utility Computing Models,” working paper HPL-2002-339,
Hewlett-Packard Laboratories, Palo Alto, California, Nov. 27, 2002.
11. V. Berstis, “Fundamentals of Grid Computing,” IBM Redbooks
Paper, Austin, Texas, Nov. 11, 2002; www.redbooks.ibm.com/
redpapers/pdfs/redp3613.pdf.
12. C. Hildebrand, “Why Squirrels Manage Storage Better Than You
Do,” Darwin, April 2002, www.darwinmag.com/read/040102/squirrels.
html.
13. B. Gomolski, “Gartner 2003 IT Spending and Staffing Survey
Results” (Gartner Research, Stamford, Connecticut, Oct. 2, 2003).
14. Effective and standardized metering systems will be as crucial
to the formation of large-scale IT utilities as they were to electric utilities, and work in this area is progressing rapidly. See, for example, V.
Albaugh and H. Madduri, “The Utility Metering Service of the Universal
Management Infrastructure,” IBM Systems Journal 43, no. 1 (2004):
179-189.
15. Although the shift to utility supply will reduce the need for inhouse IT staff, companies will likely maintain groups of professionals
with both technical and business skills to ensure that the purchased
IT services are properly configured to support in-house processes
and vice versa.
16. Google and Amazon.com already provide utility IT services.
Companies draw on Google’s data centers and software to distribute
advertisements over the Internet and add search functions to their corporate Web sites. Amazon, in addition to running its own online store,
rents its sophisticated retailing platform to other merchants such as
Target, JCPenney and Borders.
17. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Boston: Harvard Business
School Press, 1997).
1. There are notable exceptions. See, for example, M.A. Rappa,
“The Utility Business Model and the Future of Computing Services,”
IBM Systems Journal 43, no. 1 (2004): 32-42; and L. Siegele, “At Your
Service,” Economist, May 8, 2003 (a survey of the IT industry).
18. It’s telling that today’s vendors of utility IT services such as hosted
applications and remote data centers have been among the most
aggressive adopters of open-source software and other commodity
components.
2. The term was introduced in a 1992 paper by T.F. Bresnahan and
M. Trajtenberg, later published as “General Purpose Technologies:
‘Engines of Growth’?” Journal of Econometrics 65, no. 1 (1995): 83108. See also E. Helpman, ed., “General Purpose Technologies and
Economic Growth” (Cambridge, Massachusetts: MIT Press, 1998).
19. Nye, “Electrifying America,” 170-174.
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Review Questions for Chapter 7: Telecommunications, the Internet, and Wireless Technology
1. Describe the features of a simple network and the network infrastructure for a large company.
2. Name and describe the principal technologies and trends that have shaped contemporary
telecommunications systems.
3. Compare Web 2.0 and Web 3.0.
4. Define Bluetooth, Wi-Fi, WiMax, 3G, and 4G networks.
5. Define RFID, explain how it works, and describe how it provides value to business.
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