Last Updated Nov 17, 2009 10:55 AM EST
But what we're seeing is more than moving CPU cycles or storage to some location managed by another party or even than saving money. What we're seeing is a fundamental shift in the nature of computing and all the information that uses it. We're moving from a world of Newtonian mechanics to one of atomic-level forces.
Up until now, one characteristic of all computing and media has been that you had to buy far more than you might want because of packaging. Need to perform some periodic calculations for business analysis? Get a server to provide a bounty of unharvested CPU cycles for the few that you'll actually need. Want a bit more storage? Double your current available amount with a new drive. Want to read an article? Buy the entire magazine. Want to edit a document? Get a word processor that will provide five to ten times the features that you might actually use. Things were bundled in mass, and picking up the economy size was your only choice.
That enforced bulk purchasing was the foundation of income for media and high tech companies. Because they sold only bundles of capacity or information, like enforced combination meals at a fast food emporium, these vendors were effectively artificially pumping up their revenues because customers had no other choice but to pay for more than they needed. Another result was that the vendors, feeling comfortable with their income streams, built corporate infrastructures to match.
Then came the atomic collider known as the Internet and, with it, the possibility of getting content and computing piecemeal. Suddenly you could pull down individual pieces of content, separated from a larger context of a book, magazine, or television program. Cloud computing, and its variously named antecedents, showed that you could get all sorts of computational and storage work done paying for only what you consume. Both computing and media have been blasted by the online particle beam and are being dispersed into constituent atoms that aren't likely to coalesce into a semblance of their old form.
Such shattering of business models is driving the trend for technology and content to approach near free prices. Working in this new world is going to be extremely tricky, and probably beyond the experience and understanding of most managers. That's why it's so intriguing to watch companies like Amazon and AT&T.
Amazon has succeeded as a discount retailer, which means it has the operational discipline to sell low, buy lower, and thrive on the differential income. And AT&T, as is true for all carriers, must know how to make money on incremental transactions. Most companies in tech and media are like record labels, which at one time sold 45s with two songs each. Then they learned to sell albums, fitting more capacity into a disc and charging accordingly more. But they've forgotten the days of the singles and don't know how to scale back their operations to deal with media consumption. And unfortunately, many of these companies will fade as 45s eventually did, becoming only relics.