The Next IT Revolution

By Nicholas Carr  |  Posted 05-23-2005

Two years ago, my article "IT Doesn't Matter" appeared. Since then, I've spoken to a lot of CIOs and IT professionals about my contention that IT has lost its power to provide competitive advantages. Some think I'm dead wrong, some think I'm dead-on and most fall somewhere in between.

But virtually everyone agrees that at least 70 percent of companies' IT spending is devoted to infrastructure—to keeping the lights on. Global IT expenditures are about $1 trillion annually. Thus, companies are dumping some $700 billion into basic, undifferentiated hardware and software every year.

Much of that sum is wasted: It's inefficient for each company to create its own computing infrastructure. It leads to massively redundant investments and results in extraordinarily low levels of asset utilization. Consider: A recent Hewlett-Packard study found most corporate servers use just 10 to 35 percent of their processing power. IBM estimates average desktop-capacity-utilization rates of just 5 percent. Gartner estimates that 50 to 60 percent of a typical company's network storage capacity is wasted.

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Further, because applications can serve additional users at no incremental cost, installations of the same programs at thousands of sites create acute diseconomies in upfront costs and ongoing fees. The replication of IT departments with similar technical skills represents an overinvestment in labor as well. These inefficiencies are similar to the way electricity was supplied a century ago. Then, every manufacturer built its own generator beside its plant, assembling it with parts bought from various vendors and maintaining it with a dedicated staff. Utilization rates were low; costs were high.

But between 1905 and 1930, when it became possible to centralize power generation in big utilities and distribute current over a network, a revolution took place. Many manufacturers resisted, but lower costs, freed-up capital, enhanced flexibility and fewer headaches made even the largest companies switch. Similarly, advances in networking, hardware virtualization, grid computing and Web services are making IT utilities possible, in which IT will go from being a complex corporate asset to being a simple variable expense. Utility computing today merely hints at coming changes.

The change will take years, but smart enterprises are benefiting now. The chemical company Bayer recently merged its 42 U.S. data centers into two, saving $100 million, and telecommunications giant Deutsche Telekom built a common infrastructure for which its units pay a use fee. Last year, the airline Qantas began closing its data center, moving hardware to a utility facility.

Consolidate. Standardize. Prune. Those are the key imperatives as we begin the journey to a new world of business computing.

Nicholas G. Carr is the author of the book "Does IT Matter?" He blogs at roughtype.com. Free Spectrum is a forum for the IT community and welcomes contributions. Send submissions to free_spectrum@ziffdavis.com.