The Dominance of IT as a UTILITY, History Part 2

Updated: Feb 19, 2020

Has anyone heard of a guy named Charles S Bradley? He filed a patent in 1888 for the rotary converter that basically lead to the creation of a Hybrid Cloud and ultimately the dominance of a Public Cloud in formation of the Electrical UTILITY business.

You are probably asking, what does this have to do with the IT Cloud (aka IT as a UTILITY)? Well, its an example of how a Network Technology (Economics term not IT Term) accelerated the Economies of Centralized Supply in my GENESIS post from March 7th.

Hang in there, this is cool and worth considering even if its a bit esoteric and ‘historical.’ We can learn a lot about where the IT Cloud UTILITY is going from studying the Electrical UTILITY story.

Punchline, we can use the history of the Network Technology of the rotary converter to accurately predict both the role of the private cloud in driving the public cloud and the decline of the private cloud (and in-house data centers). If someone can get this story right, imagine how much opportunity can be created for the right prognosticators!

So, on with the story. What follows is gleaned from a 40 page Economics Study of Network Technologies by two Stanford Professors. Don’t buy this paper unless you have a couple of days to study it :), we did.

To keep track of things, let’s just say that there were two standards for generating electricity at the turn of the 20th century, Direct Current (DC), which can be analogized to Private Cloud in IT, and was dominant, and Alternating Current, which would become the de facto standard, but was still in its infancy back then. AC can be analogized to be the Public Cloud.

DC was dominant but had problems:

  1. It required that plants be located near the end user of the electricity; in fact 60% of all electrical usage in the US at this time was generated inside of manufacturing factories run by the staff (Electrical Engineers) that worked for these companies. Exactly analogous to Private Clouds (aka in-house data centers) run by IT shops that drive almost all of Enterprise IT spend today.

  2. DC plants therefore needed to be smaller making it hard for them to generate Economies of Centralized Supply. In our industry compare the size of the largest private cloud to the largest (and emerging) public clouds and you get the idea. Private clouds serve a smaller number of ‘in-house’ users and therefore suffer from acute diseconomies.

  3. Most DC plants were run by corporations (like Private Clouds are) and therefore required up-front capital commitments and were continuously suffering from the inefficiencies of over or under capacity.

Nevertheless, AC wasn’t mature enough to offer a ‘forklift and replace’ alternative to DC, so this is where Charles Bradley comes to play. He introduced a rotary converter which could allow a DC plant (private cloud) to interconnect with AC transmission lines (public cloud). The converter permitted the less costly AC transmission lines to become complementary to existing DC generating stations.  Bradley created the Electrical UTILITY equivalent of the Hybrid Cloud.

What came next? Once the advantages of AC became clear a few things happened:

  1. Manufacturers of motors and lighting (devices that used the currents) began to standardize on AC.

  2. Power plants (utilities) gradually converted all of their capacity to AC.

  3. End Customers turned off their in-house DC plants and started renting AC as a UTILITY from utility companies.

How long did this take? In America the fraction of central station generating capacity from AC rose from ~ 10% in 1890 to almost 43% in 1897, 69% in 1902, and reached 95% by 1917. So in short, Bradley’s hybrid solution (an example of Network Technology) allowed the electrical industry to introduce a more efficient technology (AC) on the back of an incumbent technology (DC) and in about 20 years, DC was gone.

Fast forward 100 years and we see the same thing happening in IT. Hybrid cloud is now the buzzword. We see companies like VMware with elegant solutions to create a private cloud and bridge seamlessly to the public cloud (vSphere, vCenter, vCloud Director, vCloud Connector, and programs like the VSPP around the vCloud). This technology really works, but it also speaks to the need to ‘be ready’ as the switch from Private to Public will inevitably accelerate. Do things more a ‘little bit faster’ these days than they did in 1900? Will it take Public Cloud 3 years, maybe 5 years to fully dominate if we start the clock in 2012?

Where does that leave the channel if we are stuck in our equivalent of DC (selling perpetual licenses and HW solutions to in-house data centers)? In our next Digital Bridge Partners post we’ll talk about the Virtual Private Cloud as the best current example of how the ‘Networking Technology’ of the Private Cloud with its ‘bridging features’ will be the trend to watch in rapidly accelerating the movement to the IT UTILITY model.

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