"The economics of cloud computing are driving down the cost structure of business so far and so fast that it’s scary", Google CIO Ben Fried says.
Steve Rosenbush, Deputy Editor
“It deeply disturbed me … in 2006, 2007 consumer companies were forcing efficiencies on a scale never seen before,” Fried said Thursday during remarks at the Bloomberg Link Enterprise Technology Summit in New York.
At the time, Fried was working in the technology group at investment bank Morgan Stanley, where he was a managing director of application infrastructure, in charge of software development, electronic commerce and knowledge worker productivity. In 2008, he left the bank and headed to Google, which was at the heart of the disruption that was emanating from the consumer market and beginning to spread through the business world. Workers, accustomed to using free and simple tools such as Google Apps, Skype, Flickr and iTunes for their personal affairs, now wanted to use those cloud-based software tools at work. And CIOs and other technology executives were beginning to let them, and to experiment themselves with those services.
At the same time, enterprise-focused cloud services such as Amazon Web Services were making it possible for startups and other companies to run their businesses at much lower cost. Now, just four years later, cloud-based computing is fast approaching a tipping point that will make it the standard for IT, says Fried. “Here’s where I think it is going. The macroeconomic tides — you can’t fight them forever — will force companies to adapt. We’re probably close to that point now,” he says.
The economics of the cloud do more than lower costs. They change the structure of businesses and markets, especially at Google itself, according to Fried. He said Google can afford to offer free, ad-supported services to millions of people because it has taken costs out of its own business. That requires owning many of the elements of its supply chain, because few other companies have the scale to run them as cheaply as it can. Hence, Google builds its own data centers, locating them to take advantage of the lowest-cost source of power — including one right near a fully depreciated hydroelectric dam, Fried said.
The economics of the cloud have led, he said, “to a level of vertical integration never seen before.”
The cloud is also forcing companies, and CIOs in particular, to reassess what their core business truly is, and where they want to invest their capital. The big difference between an enterprise product and a consumer product is that consumer products aren’t customized. “We don’t offer a special version of gmail for financial services firms,” Fried said. “You have to give up that control with consumer technologies. As a CIO, you have to figure out what is really important to you. Do you really want to worry about customizing email and word processing? You give up a little, but you can get back a lot.”
The ripple effects of cloud computing are far from over. Until now, cloud computing has been mostly about the distribution of applications. “The next wave” of cloud computing will enable the sharing of the environment to run those applications, Fried said. “You will be able to take advantage of what we had to build in order to create those applications,” Fried said.