In the Cloud Era, All Plumbing is Commoditized

The idea of what we now call cloud computing is not new, with the concepts dating back more than a half century. But it was largely an idea, back then. Over the past 20 years we have moved faster, though.

Remember “application service providers?” Those turn-of-the-century efforts to supply remote versions of enterprise shrink-wrapped software mostly failed. Salesforce was the successful model. Amazon Web Services was the modern precursor, launched in 2002. So the cloud era--as a commercial reality--is less than two decades old.

Most consumers use cloud computing without knowing it, every time they use an Internet-delivered app. That is a key point: use of software and “applications” now is something users invoke from remote servers, not a bit of software locally resident on their appliances.

In parallel fashion, the move of computing resources “into the cloud” has had key implications for use of computing infrastructure by enterprises, government, schools, hospitals, smaller business and and consumers.

Less hardware is needed “on the premises.” More money is spent on services and access. Local area networks no longer are primarily about structured cabling and local servers, but Wi-Fi, for example.

To a large extent, that has meant hardware is commoditized. Local area networks now simply involve ensuring that Wi-Fi is available. “Computing” or “application access” now increasingly means enough bandwidth to reach the cloud-based app sources. All that means less capital is spent on local hardware and software; more on cloud-based replacements purchased as services.

In the telecommunications business, the implications have been vast, as well. Applications once created and sold by service providers have become--in large part--applications consumers or businesses can consume as cloud apps (Skype displaces voice; OTT messaging displaces SMS; Netflix replaces HBO or increasingly, linear video).

Cloud computing means more demand for bigger pipes. But the retail cost declines, either on a cost-per-bit basis or in absolute terms.

In other words, most computing infrastructure and communications has been, and will keep being, commoditized.

The fortunes of firms and the fate of industries will be shaped by that fundamental reality.