The End of Corporate Computing?

Nicholas Carr, the author of 'Does IT Matter' fame, recently wrote this piece - The End of Corporate Computing. He talks about how on-demand technologies are set to ring in the demise of in-house corporate computing. Here's an excerpt -

"...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...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."

Here too are excerpts of interesting responses from writers around the web -

- "a utility model for IT supply seems "natural and necessary," (but) "it will take decades to kill the way corporate computing is practiced today."..."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."

- "(the reality) is a lot more complicated..."..specially "managing all that data as it traverses its way along a multitude of cyberpathways through potentially millions of unknown sources and destinations."

- "..(he) illuminates (the on-demand trend) with a plausible historical parallel...",.."(he is) overselling the general economic upheaval, however."

- "run the numbers on utility computing or 'renting' applications...offload as many capital costs, operating costs and upgrade costs as possible",..."(but) the smart CEO will still keep his corporation computing...how you embody your strategic thinking in code...will be the source of competitive advantage for decades to come."

- "'CEOs and managers in general want to think hard about the information. They don't care about the machinery."

- "(he) missed ...the one fundamental point, that the concept of utility is predicated upon common platform multi-tenancy."

In general, I like Carr's provocative presentation, although I agree more with most of the commentators who say he's half-right, BUT...not quite so. Firslty, he tripped up in saying 'corporate'...which to a lot of people signifies large companies. He'd be more on the mark if he contends that his thesis is a fair degree more applicable to the large numbers of small and midsized businesses than it is to large companies.

A variety of reasons, some relatively more quantifiable and some not, lead large companies to often make Own (Buy or Build) decisions versus Rent decisions for particular corporate assets or functions. It depends on how important it is to their long term competitiveness, sustainability, profitability and/or shareholder interests. When they do work the numbers, asset ownership can often turn out to be cheaper and less complicated than renting. The equation may veer more towards rent (outsourcing) for non-critical corporate functions, because that would factor in softer issues and people-related costs as well (eg. morale costs in scenarios of corporate restructuring, skill depreciation costs vs. learning curve gains due to experience).

In the case of IT assets, the more standardized, simplified and commodity-like they become, the more one could argue for ownership. The more economies of scale IT investments allow, or conversely the more they present high investment barriers, the more utility like they would become. Depends on how one views commoditization - is it about the technology or its usage. In fact, Mr. Carr may actually prove to be right and IT will look as utility-like as phone services or electricity if IT becomes highly specialized and capital intensive, not if it becomes more commoditized. One can't simply hire Joe Mechanic after all to run 1200 megawatt electricity turbines or 250,000 line telephone switches, no matter how commodity-like electricity and dial tones may be ;)

So said, one can also find plenty common examples of large enterprises owning non-core assets and/or functions -

- they may own their office buildings rather than renting, and may have their own facilities maintenance staff and/or exercise various flavors of outsourcing options for asset maintenance...
- they often own their own executive aircraft, why of all things! And get a load of this..Google just bought a souped up Boeing 747 for its executives...apparently their numbers worked in favor of buying it.
- one example I like - big companies own their own PBX equipment even though Centrex services with comparable features have been around from phone companies for atleast a couple of decades.
- large companies do continue to hire their own plain Jane and John employees (commodity?), Business Process Outsourcing notwithstanding.

So there...I could go on. Would rather end saying that its interesting to read Mr. Carr's stuff, but important to stay realistic about it as well.