The Cloud Computing Phenomenon and the New Tech Bubble

Originally @ Stanford Progressive

Cloud computing is a relatively new data storage and processing concept that has all the top tech companies competing for cloud domination. Imagine the ability to access your files from any computer at any place on earth, coupled with the fastest processing speed available regardless of your operating system. This is the promise of cloud computing: an internet-based solution to the traditional problems of variable storage, accessibility, and speed of computers.

The core idea of cloud computing is that information is stored in the ‘cloud,’ which is a metaphor for the internet based on its depiction as a cloud in flow diagrams. People can access applications like Word or Excel online, then create files and store them ‘in the cloud’ as well, so that they can be accessed from any computer with Internet access on earth. The software and data are stored on centralized servers, all located in a facility owned by the cloud provider – say, Google or Yahoo! – which provide extraordinary computing power due to an economy of scale.

Many different networks already use this model of data storage. Facebook or LinkedIn, for instance, maintain all their user data on centralized servers, accessible from the internet anywhere. This is how peer-to-peer networks, social networks, and e-mail providers traditionally operate. Expanding this paradigm to all types of data – from business documents to music storage – would potentially free all personal computers of the cumbersome task of archiving every bit of a user’s information. Not only would this increase the ease of personally navigating, opening, and uploading files, but it would also imply dramatically lower capital costs for firms. Instead of having to purchase servers and software capable of being used by multiple employees simultaneously, a firm can subscribe to a cloud provider for a low cost, specify the computing capacity it requires, and capitalize on the provider’s economy of scale.

The low investment costs promised by cloud computing would dramatically alter the landscape for start-up firms especially. Without the need to invest heavily in computing equipment, the risk of creating a start-up firm would drop significantly, as would its requirement for outside resources and funding. As such, entrepreneurs would feel more secure in creating new firms with the knowledge that the sunk costs implied would be minimal compared to previous firm creation; the risk of failure, while still present, would not be nearly as significant with the drop in technology expenditures. In a period where the world is working to overcome one of the largest economic crises in recent memory, this technology revolution provides a promising opportunity for getting business – and economic investment – back on track.

It’s no wonder that the top software and tech firms are jumping at the opportunity to muscle out competitors in the provision of cloud computing systems. Giants such as Google and Microsoft already provide services like Gmail, App Engine, and Hotmail that foreshadow what will be available with cloud computing. Amazon.com has already built a system of web-based programs and processing power, called Elastic Compute Cloud, which has become a boon to start-ups. Other companies like Sun Microsystems and Yahoo! are also jockeying for position in the cloud war, all of them investing in cloud computing research and capacity.

The question now, as the tech giants begin battling for superiority, is whether one victor will emerge. The battle for cloud capacity could result in the dominant position of one company, like the position IBM established with mainframe computers and Microsoft established with PCs in the ‘90s. The fear is that market domination or monopolization of cloud computing could lead to higher service costs or less variability in services provided due to a lack of competition, and could even result in the same kind of governmental antitrust activity that aimed to split Microsoft in the ‘90s. Companies could also create technological lock-in, making their programs incompatible with other providers’ services.

The other alternative, which seems more probable, is that multiple firms remain in competition with each other. Due to the high amount of investment by both major and minor players in the tech world (from Apple to Salesforce.com), the companies with the most convenient and useful services, as well as the best marketing strategies, will probably emerge victorious, while less successful companies will die out or move on from cloud computing. With a variety of firms providing such services, the computer can probably expect product differentiation to take effect: each firm will provide a unique style of cloud computing that may be tuned to individual needs or preferences (like the way Alienware laptops were designed specifically for playing games) or which may offer different services (eg: storing your music in one cloud while working through your taxes in another.)

Cloud computing has some downsides and glitches that need to be worked through. For instance, owners of Sidekick mobile phones in October lost tons of personal data, from calendars to address books, which were being stored in a cloud by Danger, a firm related to Microsoft. However, with the amount of investment and research being poured into cloud computing, we should expect to see it become the new paradigm for data storage and processing.

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