Nicholas Carr: Why IT Will Change

By Edward Cone  |  Posted 01-09-2008

Nicholas Carr: Why IT Will Change

Nicholas Carr opens his new book with an example of high technology, circa 1850: the great water wheel built to power Henry Burden's ironworks in upstate New York. Just a few decades after it started turning, though, the giant wheel stood abandoned in favor of cheaper, easier-to-use energy from the new electric utilities.

In The Big Switch: Rewiring the World, from Edison to Google (W. W. Norton, 2008) Carr equates the mass electrification of the industrial world to what he sees as the coming age of the computing cloud, in which gigantic data centers and robust Internet connectivity will doom to obsolescence today's corporate information technology infrastructure. "In the end, the savings offered by utilities become too compelling to resist, even for the largest enterprises," he writes. "The grid wins."

In his previous book, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage, Carr argued that corporate IT is increasingly becoming a commodity. Well written and researched, The Big Switch (go.cioinsight.com/BigSwitch) is not any more encouraging than its predecessor for CIOs who want to preserve the status quo. Soon enough, says Carr, a former executive editor at the Harvard Business Review and author of the punchy Rough Type blog, the job of managing even commodified IT will disappear.

He writes in the book, "In the long run, the IT department is unlikely to survive, at least in its familiar form. It will have little left to do once the bulk of business computing shifts out of private data centers and into 'the cloud.' Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists." Meanwhile, the impact of this new information grid on business and society at large will be tremendous.

Carr discussed the subject with senior writer Edward Cone. An edited version of their conversation follows.

CIO Insight: For a guy who likes to deflate technohype, you make some pretty big claims in this book. Why do you think the changes afoot will be so massive?

Carr: I'm more confident today than when I started the book a couple of years ago. It comes down to economics. If you can get the information processing you need in a more economical way, then companies will naturally move in that direction, and that's what utility computing is starting to offer.

Ultimately, corporate decisions are economic decisions—and the advantages of utility computing are going to push companies in that direction.

The shift seems to be proceeding quickly. Companies are more open to using software-as-a-service offerings and other Web-based computing services than they were a year ago.

Smaller and midsize companies are leading the way. These organizations have the most to gain immediately from moving to the utility model because in many cases they just don't have the capital to build out IT infrastructures the way large companies do. It allows them to level the playing field without having to invest a lot of capital.

Over the last year or two, on the buyer side and the supplier side, we're seeing a fairly rapid evolution upmarket toward larger companies buying into the concept. You can see it in the shift in Salesforce.com's clientele, which started very much in the midsize company market and is moving up consistently to large companies, in some cases very large companies.

The biggest hurdle, particularly with large companies, is convincing them that they don't have to run everything themselves. That kind of shift in thinking can take many years, particularly given the fact that it's been their assumption for 40 or 50 years that they have to do all their own computing.

Page 2: The Hybrid Model

The Hybrid Model

How long will this transition to the utility model take?

Carr: For large companies, it's going to last for five or 10 years at least.

A large company—a GE, for example—has a huge amount of computing scale in supplying its own business. We'll see large companies use the technologies of utility supply—virtualization, multi-tenant systems and so forth—to build in essence in-house utilities that will serve their own business units.

We're seeing that happen with the consolidation wave in data centers and servers. Then they'll pull in utility services from the grid to complement what they're doing internally. That hybrid model is going to last for large companies quite a long time.

What is the impact of this shift on the software business?

Carr: The big suppliers are in a tricky position. All of them are preparing for a future in which more of what they used to sell as packaged components is sold as services over the Internet.

They're all investing in that supply model, but what isn't clear to them yet is whether they can replicate the enormous profits they have received selling software when they begin to sell it as a service. All of them are hedging their bets, they're building out the infrastructure and the code they need to supply products as services, but they are wary of pushing their buyers, particularly their large buyers, to this new model quickly, since the economics of it have yet to be clarified.

In the medium term, you'll see a lot of these companies building out their own data center networks. Over time, as a few, very large companies build out their grids, it will make more sense for software suppliers to get out of the hardware business, to get out of the infrastructure business and supply their services to third-party data center networks.

But it remains to be seen how much consolidation there will be in this business. Inevitably, the IBMs and HPs are going to play a big role here. As of yet, they are taking a fairly low profile in positioning themselves as leaders in the trend.

IBM is kind of a stealth company when it comes to utility computing. IBM runs these huge data centers for hosting, managed services and grid computing. The company is definitely building up its capabilities, and with its Blue Cloud initiative IBM is looking to become in essence a supplier of components and expertise to other companies that are building out these kinds of grids.

Page 3: Potential Barriers

Potential Barriers

What kind of constraints do you see on this movement? What needs to happen and what could keep it from happening?

Carr: There are a number of potential barriers. One is the capacity of the Internet. So far that hasn't been a problem—and it may be a while before it becomes a problem—but eventually you have to believe, particularly with the shift to video and multimedia, that current capacity will tap out. But I don't see the technology as being the big constraint. The technological advances—in the fiber optic network, virtualization, grid computing and parallel processing—are pushing this transition to the utility model.

The bigger constraints are probably related to data security, including regulatory constraints on what companies can do with their data. That is a very real issue for a lot of companies. It will ultimately resolve itself.

In many cases, it takes a while for governments and their regulatory frameworks to catch up with new technological capabilities. We're probably in one of those situations today. Ultimately the utility model will provide greater data security than we have in today's fragmented model. But companies are often nervous, and for good reason, about where their data is stored.

The issues about security are in one sense a little bit overblown. Companies get used to allowing third-party suppliers access to sensitive information all the time.

CRM is one of the leading software-as-a-service offerings. That means putting very sensitive account information into somebody else's database. Companies have been doing that with payroll for many years. Recently a bank CIO mentioned that his company and a lot of others use outside suppliers to print up their statements. They supply all the information of accounts to these third parties.

We'll see technological solutions, whether encryption or other focused advances, that will alleviate these concerns. As big companies like Google, Salesforce.com and SAP move into this arena, they will invest a lot of time, money and technological expertise to make sure companies can be confident that data will be safe and secure and isn't going to leak through to other companies' hands. It's going to take time. It comes down to a matter of building trust between supplier and buyer.

What about user and customer experience?

Carr: Moving to a Web model will have benefits for companies beyond cost. IT has been organized as an isolated asset. Every company builds its own systems [and its own] networks, even if it uses the same components as its competitors. It's based on an assumption of isolation of systems and isolation of data.

As we move to a Web model, we move to a model based on communal assets and easily sharable data. With the isolated model, sharing information, whether between business units or between partners, can be a big hassle. Sharing information becomes much easier as we move toward more multi-tenant systems or shared systems.

Ultimately, corporate systems will look more like the Web 2.0 systems people use at home or in their dorm rooms, built with the ability to customize the way an application works so it fits your particular needs, to share information with people and organizations you choose to share it with. It's a much more flexible, much more personalized, much easier-to-use model.

Page 4: Not All-or-Nothing

Not All

-or-Nothing">

What happens to proprietary systems that provide competitive advantage?

Carr: There's nothing in the utility model that says all software has to go to the shared utility model. We can see in the early stage with something like Amazon Web services the ability to write your own code but use utility suppliers to run it and to store it. Companies will continue to have the ability to write proprietary code and to run it as a service to get the efficiencies and the flexibility it provides.

One of the great advantages of IT is its modularity. Companies should not think of this as some all-or-nothing choice. You can tailor your systems and your use of utility suppliers to do anything you need to do with IT. You shouldn't think your choices are going to be constrained through this transformation; it's going to give companies more choices in the end.

What becomes of the corporate IT function in the age of the grid?

Carr: The corporate IT department has had a dual nature until now. One really important function has been the kind of technical expertise that keeps the computing machines running.

Over the next five or 10 years, the technical aspect of the IT department will become less important. It will slowly evaporate as more of those experts go outside onto the grid. But the information management and information strategy elements will become, if anything, more important. The ways companies take advantage of digitized information will become more important, not less.

The big question in the long run is, do those types of skills—information management and thinking—remain in a separate IT department or do they naturally flow into business units and other traditional parts of the business? My guess is that over time, they'll begin to flow into the business itself and that will be accelerated as individual workers and business units get more control over the way they are able to organize and manipulate their own information. I would be surprised if maybe 20 years from now there are still IT departments in corporations.

That doesn't mean that the skills in those departments are going away. The more technical skills will probably move out into the supplier community and the strategic thinking, or tactical thinking about information, will flow out into the business itself.

When I wrote Does IT Matter?, I focused on the noun in "information technology." But information has always been a critical strategic element of business and probably will be even more so tomorrow. It's important to underline that the ability to think strategically, to think in business terms about information—whether it's information about your business or the transformation of your products into pure information—those skills will be critically important to companies, probably increasingly important, in the years ahead.

Page 5: Seismic Shifts

Seismic Shifts

In The Big Switch you write about the wall socket as a clear demarcation point between the utility and the user, noting that such a point is lacking in the computing world. What's the relevance of that socket to IT management?

Carr: An important question is, how do CIOs and IT people help their companies make a successful transition from the world of the private computing operation to the utility age?

Think about the electrical socket. We always knew precisely where it would go: between the generating capacities of the utilities and the application of the current. The application of the current always had to occur locally; it wouldn't do you any good to run a vacuum cleaner in your electric utility.

With IT, it's a very different matter; even the applications can be served up as the utility service. That tells us that companies can put the equivalent of the electrical socket, the data socket, anywhere they want. They can begin to get certain elements of their IT requirements—whether it's raw computing power, data storage or various applications—over the network as utility services. But they also can supply any or all of those things locally from their own data centers.

One of the big challenges for IT departments is to figure out which elements they want to supply locally, which they want to get from the grid and how that mix will change over time as the utility offerings mature, proliferate and become cheaper. Determining where you put the data socket, and where you move it over time, is going to have a big affect on how efficiently and effectively companies are going to use IT into the future.

Do you foresee changes in society of the magnitude caused by the electric grid?

Carr: Whenever you change the supply model for a resource, a product or a service that is crucial to society, you change a lot of the trade-offs that determine how people work, live and entertain themselves and shop and connect with other people.

We're going to see that, just as the electric grid dramatically expanded the availability and reduced the cost of mechanical power, and that led to all sorts of knock-on effects: the way society is organized, the way we think about education, the way we think about consumerism. We'll see similar effects as we're all essentially hooked up to this one huge worldwide computer, this Internet-based supercomputer that all of us share.

We're seeing the early signs of the changes when you look at the disruptions in the media business. It makes sense that would be an early indicator of the seismic shifts going on, since the products are pure information.

Whether you look at record companies, or newspapers, or increasingly at movie studios and television studios, you see what happens when all of this stuff gets very, very cheap. They're compet ing against free products, sometimes, often products produced by amateurs or volunteers.

Employment will be affected as computer automation expands into new areas. One reason we've seen an increasing concentration of wealth over the past 20 years is because of computer automation, and that trend will only accelerate.

An area I don't think people—especially politicians—have particularly thought through is what happens when a lot of the data and equipment crucial to your economy can be suddenly moved anywhere in the world. In my book I refer to the possibility of Cold War 2.0, as countries struggle with the political and national security implications of this vast computing grid.We're a long way from knowing how the economic and political consequences of this new machinery will play out.