April 02, 2001, 9:41 AM — We have seen the future of business computing and it belongs to Thomas Alva Edison. Just about everywhere you turn these days, vendors are in the early stages of crafting business strategies around computing as a service that customers can tap into over the Web. Much of the reasoning behind this computing-as-utility model is drawn from the early days of the electricity industry.
In the 1930s, most major industrial businesses owned their own electric generators. It later became more efficient to contract out electricity as a service delivered by utility companies because their power plants could deliver power at a much cheaper rate.
The modern equivalent of the power plant is the data center, which is the crucial center of all information-processing activity for any modern company. The problem is that data centers are expensive to build and maintain. In fact, any start-up company that wants to enter a business segment has to figure out how to overcome this barrier to entry.
Fortunately for venture capitalists and investors alike, a bevy of companies such as Exodus and Global Center have emerged to serve as data centers for a vast array of start-up companies. These start-ups are using Web technologies to challenge traditional brick-and-mortar companies that have invested billions of dollars in data centers.
And although it's unproven that this approach to computing as a service will be profitable for companies such as Exodus, the industry as a whole is starting to gravitate toward this model. For example, start-ups such as Smart Pipes are offering IP networking services, whereas Hewlett-Packard is gearing up an always-on computing model based on its E-Services strategy. Microsoft, meanwhile, has launched its ambitious Microsoft.NET strategy that envisions the creation of software services accessible via the Web. And even IBM, the paragon of data center computing, is in the process of either building or partnering with other companies to create a global network of more than 50 data centers.
All of these efforts assume that the current move toward ASPs (application service providers) will hold up over the long term. Of course, given the state of affairs in the ASP space, this is a rather big assumption.
The world is not beating a path to the ASP business model because companies in this space are doing a fine job of giving the utility model for business computing a bad name.
ASPs have yet to figure out how to be attractive business partners for the long haul. No single ASP seems able to cost-effectively offer the range of applications that a company of any real size is going to require. Most ASPs stress their ability to get you up and running quickly, as opposed to delivering a substantially less-expensive computing model.