Magazine article Newsweek

The U Word at Big Blue: Old Economy: IBM and Other Tech Firms Aim to Be 'Utilities,' Just like the Water Company, That Offer Full IT Service

Magazine article Newsweek

The U Word at Big Blue: Old Economy: IBM and Other Tech Firms Aim to Be 'Utilities,' Just like the Water Company, That Offer Full IT Service

Article excerpt

Byline: John Ness

Anyone familiar with the board game Monopoly knows that controlling utilities is a sucker's bet. Boardwalk and Park Place are game-winning buys, and no experienced player would build a strategy around the tiny returns of Water Works and the Electric Company. So it was at the peak of late-1990s enthusiasm for the New Economy, when the word "utility" described everything that high-flying tech companies did not want to be: safe, consistent and unspectacular. Today it's a whole new board game, and nothing symbolizes the shift more dramatically than the fact that IBM, Sun Microsystems, Electronic Data Systems (EDS) and Hewlett-Packard are racing to be the first computer company that can call itself a "true utility." None of them has embraced this transformation more aggressively than IBM, which now sends out sales reps with a PowerPoint presentation. One of the slides slide shows a light bulb, a water drop and the IBM logo, making plain the new vision of Big Blue's future.

The case for IT as a utility business is summed up in a single word: complexity. The theory goes like this. Customers are demanding faster service that's better tailored to their businesses. Various tech innovations (such as grid computing) are emerging that make that possible, but those innovations run through disparate systems, languages and networks. A company's IT department can't bring it together, but it can pay someone else to synthesize all that business IT into a commodity. True-utility status will be achieved when that commodity is as easy for customers to manage (and companies to bill for) as gas and electricity are today. Take the Water Works metaphor: When business is booming, you open your faucet and get powerful IT capabilities tailored to your enterprise, along with a fat bill. When activity is sluggish, you slow the flow and pay less. The utility handles growth, cutbacks and updates, and the customer minimizes his fixed costs. As of today, true-utility status is out of the reach of any company. "Everyone tells you whatever they're doing equals utility computing," says Jonathan Eunice of Illuminata, a consulting firm. "There is no real, one, single definition. It takes a couple of stiff drinks to get your arms around it sometimes."

In an October speech in New York City, IBM's CEO Sam Palmisano outlined his vision of the "on demand" era of business computing. He says the IT world is becoming so complex that there will be too few techies to monitor all the applications. So Palmisano plans to spend $10 billion to develop systems that are self-healing, to create "virtual" servers housed in IBM warehouses that will optimize efficiency by shifting capacity from New York to Tokyo to Paris as each hits peak hours, and to build a Utility Management Infrastructure that will organize, deliver and meter these services. It's a vision befitting IBM, your grandfather's tech company, where executives now often disparage the oversexed tech ideas of the '90s. IBM stock held steady through the 2000 crash, and it was in that year that the then CEO Lou Gerstner started using the U word. "In the past, the tech industry was just about inventing cool technology," says IBM VP Dev Mukherjee. "Now it's about the core value IT delivers, not which widget you have."

Skeptics say Palmisano didn't define the future so much as hammer home the fact that IBM has an R&D capacity that no other company can match. …

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