More than a year ago in the US, the financial crisis, along with a sudden spike in gas prices the summer before, led many consumers to stop buying cars. The recession that started then, in addition to increasing public awareness that excessive fossil fuel consumption is leading to global warming, has led many drivers to stop driving and to seek alternative transportation, such as car pools. Gas guzzling SUVs are being replaced, or simply not driven any more. Public awareness on climate change is leading to major changes in the business environment. In this blog, I will argue that in the not so distant future, these changes will also have a major impact on the IT industry, in particular on server computer and server application vendors.
In the US, GM and Chrysler, have in the past fifteen months gone through a period of drastic reductions in sales and enormous losses. Earlier this year these two companies filed for bankruptcy, and now they are using government funds to reinvent themselves. This year these makers have started sales of hybrid cars and are planning to launch electric cars in the near future. Some consumers are responding well to the hybrid offerings but many are waiting for the electric cars. Hybrid vehicles may turn out to be a transitional solution on the way to electric vehicles which are much more efficient with a much smaller carbon footprint. As the car industry remakes itself to produce electric cars, it is unclear whether the present players will make the transition. Some will succeed, others will not.
In many cities in the US private cars are the only way to commute to work. By comparison, transit systems such as the JR train system in Japan are utility systems shared by tens of millions of users each day in all major cities. Each user only pays a fee for the distance traveled. When comparing the amount of CO2 generated per passenger when commuting to work, the train achieves much higher efficiency than the private car, resulting in a much smaller carbon footprint. However, when private cars are used for the “The Last Mile” to access the train system or in the country side where the train system may be unavailable, they become part of the transit system and the overall carbon foot print is small by comparison.
Worldwide services like Google, SalesForce.com and Amazon.com are also systems shared by hundreds of million of users non-stop each day. They are based on massive infrastructures with fees based on actual usage. They are the equivalent of the JR Transit System. Because of their massive scale they can be called IT utility clouds. The IT industry is also about to be affected in a major way by the new business environment that is being brought about by climate change. In the comparison below I will argue that the rising cost of electricity, as well as public awareness of the environment, are going to result in a major switch by corporations to the utility clouds.
Public awareness of the risks of climate change is increasing worldwide, and this month’s United Nations Copenhagen conference (COP15), or perhaps later agreements, will most likely create a cap on the amount of CO2 emitted per country, per industry and eventually per corporation. Those companies exceeding their quota will have to pay a tax or buy credits from companies that haven’t reached their emissions cap. Electric utilities create electricity by burning coal and are major CO2 polluters, thus they will face steeply increasing costs as cap and trade schemes kick in. Because of COP15 or later measures, the price of electricity is bound to rise steeply. In the US, this is expected to bring a price increase of up to 30% in the not so distant future. Higher electricity prices will drive corporations to reduce electricity consumption by eliminating unnecessary use.
High on the list of electricity guzzlers are corporate IT servers which must run non-stop 24 hours a day, even though they are in use only a fraction of the time. Corporate IT servers are obvious targets for replacement. A fundamental problem with corporate IT servers is that they run only one application in single tenant mode and thus IT corporate servers leave a large carbon footprint when compared with cloud utilities. However, as with private cars, when corporate IT servers are used to access utility clouds or to run applications that are not available yet on the cloud they become part of the cloud and the overall carbon footprint is small by comparison.
As companies stop buying or using IT servers, the makers of these servers are going through the same wrenching process that car makers have been experiencing since last year. With looming high electricity prices on the horizon, some of these makers have been trying to reinvent themselves as virtualization service providers. Virtualization software enables server hardware to be operated in multi-tenant mode, vastly increasing efficiency. Still, these so called private clouds continue to operate legacy software are used only a fraction of the time. In public clouds, the sharing of the applications increase as multiple corporations share the server. However, in either case, virtualization clouds are much less efficient than utility clouds because they use legacy software. Virtualization clouds are in a sense transitional solutions as enterprise applications are moved or remade into utility clouds. As with corporate IT servers, when virtualization clouds are used to access utility clouds they become part of the cloud utility and the efficiency of virtualization clouds greatly increases by comparison.
The new business environment will have also a major impact on the makers of corporate IT server software. Microsoft and other legacy software makers are about to go through same changes as users stop buying and deploying the IT server software that brings in annual revenues in excess of tens of billion dollars. Hardware makers are trying to transform themselves into virtualization cloud providers, so what about legacy software makers? Microsoft is trying to become a cloud utility provider. Next year, Microsoft will start its new BPOS cloud service. Can a company that has for fifteen years developed and licensed package software remake itself as a cloud provider? Can a car maker remake itself as a transit utility?
After fifteen years of client-server computing and the proliferation of hundreds of millions of energy inefficient IT servers, the advent of Cloud computing is a welcome development for our planet. The companies that made enormous profits from client-server computing must reinvent themselves. Some of the major players will survive, others will not.
