“The Cloud” is certainly the buzz-phrase du jour as the behemoth IT companies rush to offer remote storage “in the cloud” for everything from document files to home videos. You get the convenience of easy access to the stuff on a variety of devices in a variety of places. They get… well, it’s not certain what will they get, or how. But somewhere down the line, the “what” will have to include profits – which is the one troubling aspect of this Next Big Thing in information technology.
For all the hoopla, the cloud is a work in progress, with different companies offering variations in what they store, and how easy it is to access and share content. Cloud storage has been around for a while, in the form of online backup services like Carbonite and Dropbox. What’s new – and what’s changing the game – is the entry of major integrated IT/entertainment vendors including Microsoft, Google, Amazon, Facebook and now Apple.
So, what’s not to like? Once again, money is the root of all evil.
We kid, of course: Somebody has to cover the costs of all those petabytes of secure storage capacity in servers around the globe – not to mention all the computer power to manage the data efficiently. But the way the providers plan/hope to make money will certainly affect what economists think should matter most: the value to consumers.
All the new high-profile cloud storage services want to sell you something – or perhaps many things. Google is selling storage capacity beyond a free taste; Amazon offers a lot of free space, provided you buy some music; Microsoft is selling business software and entertainment hardware (Xboxes) to complement its storage.
Which brings us to the subject of Apple and the concept of the “walled garden”—the technology-driven barriers to moving off the platform. Apple wants you to play and work in its cloud using only hardware sold by Apple and (in a concession to commercial reality) PCs as long as they have Apple’s iTunes on board to sell entertainment. Oh, and did we mention, that Apple will allow only apps approved by Apple?
Walled gardens can have several advantages. They can improve user security and lower the costs of getting information, and they encourage firms to innovate by allowing them to keep more of the profits from innovation. Note, however, that walled gardens have downsides. In particular, they can affect the ease with which other companies can entice people – and, in the case of the cloud, people’s data — to move outside of the garden.
It’s tempting to give government a role in deciding what’s kosher within the garden and what’s not. We think the burden of proof should certainly be on those who want to regulate them. But there are gray areas – for example, when the garden owner attempts to foreclose options for competitors. Think of Apple not permitting apps on the iPhone that compete with Apple services, or a cable company barring access to specific VoIP services on the Internet. The test, in the end, ought to be whether the consumer benefits of a walled garden exceed the consumer costs.
If, for example, an Internet Service Provider keeps suspect web sites off the platform to enhance security or the general user experience, this may not be a bad thing. The same is true of applications on the iPhone. In this case, competition from other phone providers should keep the company honest.
Should we stop worrying and learn to love yet another neat (and ultimately, expensive) innovation from Apple? Yes, as long technological change and ferocious competition offer alternatives to Steve Jobs’ sometimes-smothering embrace.
(This post was also published on Forbes.com)
Another element of the ‘cloud’ relates to the distance the end user is from the location of the data and software. Cloud apps increasingly use http protocol, which exhibits decreasing returns in the dimensions of both the bandwidth available and the distance between the communicating parties. For small, remote economies such as NZ, the ‘cloud’ may also have productivity implications. It may be cost-effective in the development phase for some applications locally hosted in NZ to be replaced by apps on the cloud taking advantage of scale, but the use of them may be compromised by longer times taken to populate the pages relative to locally-stored data and apps. The problem is likely to be greatest where the owner of the app is not also the predominant user (e.g. Government filings, etc)as there is a real risk that an owner-centric CBA will not ‘internalise’ the additional usage costs that their cloud-sourcing decision imposes). This suggests that a different approach may need to be taken to decisions regarding cloud sourcing in these small distant economies (and indeed in respect to the costs of compliance for remote users even in large countries).
For a discussion of these issues see Obren, M & Howell, B. The Tyranny of Distance Prevails. http://www.iscr.org.nz/f609,17429/17429_The_Tyrant_Lives_v3_Nov21.pdf We show that for NZ, the return trip time (RTT) for communicating between http-enabled applications in NZ and the west coast of the US and eastern Asia is around 220ms, compared to a worldwide average of 120ms to reach a google server and 60-100ms to a google server based within the US. Faster local bandwidth does not help – indeed, increasing local bandwidth from 8mbps to 100mbps (in excess of 10-fold increase) increases page load times by 5% when communicating with the US (13% with Australia. The http protocol itself also has an effect – at 60ms return trip time, faster local bandwidth for http-enabled applications exhibits decreasing returns such that an increase from 5mbps to 10mbps decreases page load time by only 10% – beyond 10mbps, the increase in page load times is negligible. Thus, faster local access networks assist in the ‘cloud’ model in the ‘best case’ only to the extent that they allow more data to be communicated (i.e. all benefits are associated with the application costs not necessarily the operational ones). When distance is also added, they may lead to reduce productivity.