Software Companies Competing On Construction Skills

from the building-developers dept

Nick Carr has been making the point for some time that IT is increasingly becoming a commoditized utility that will one day be piped in to a company, just like electricity or water. While some aspects of his argument are up for debate, he's correctly identified certain important trends. The business model of many software companies, both open source and proprietary, is becoming less about selling high-margin software and more about selling low-margin services. Confirming Carr's point, companies like Google and Microsoft are investing enormous amounts in new data centers to host on-demand software, which in many respects resemble power plants. In his latest column on the subject, Carr again talks about the emergence of IT power plants, while framing it in a slightly different, but useful, manner. Essentially, for the first time, these companies are being forced to compete on their ability to build out tangible, physical goods. When Google develops a way to string servers together in a way that makes them faster or less power hungry, it gains a competitive edge. The same goes for anyone else doing a similar thing. It's no wonder that there's been so much attention paid towards data center innovation these days. The whole thing underlines the broader point that the information economy is not about selling information, but about selling tangible goods made more valuable through information.

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  1. identicon
    Benefacio, 28 Jun 2007 @ 5:08pm

    I don't see it is about goods

    I disagree that the Information Economy is about, or has to include tangible goods. Like the sales of compressed air and bottled water are not about selling air and water, the sale of information is about the distribution and/or the manipulation of information.

    I know Jefferson's archaic prose can be hard to understand sometimes but the quote Mike uses here so often clearly shows the money is in the distribution of an idea, not in the idea itself. That is to say, money can made moving an idea from scarce to abundant. The tangible goods like books, cd, dvd, etc. are methods of distribution. Their intrinsic value is negligible and does not significantly contribute to the cost of a music cd or movie dvd.

    The money from the data centers is not made from the physical aspect of the power plant but from the non-tangible efficiencies of distributed access, low cost of that access and distributed cost of site maintenance. In this instance, it is the tangible goods being used to enhance the non-tangible goods. In the same vane, the value of electricity from a public utility is not the electricity or the fact that the electricity is distributed from any given power plant. The value derives from the fact that I do not have to build, purchase or maintain my own power plant to obtain electricity.

    It is the value of the distribution, not the value of any given tangible good that drives and defines information economy.

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