Little changes sometimes morph into very big ones by stealth: you don’t see the big change coming until it has enveloped you. This is how ARPANET, an obscure Defense Department project started in 1966, came to infiltrate every aspect of civilized life as it expanded into the global wireless internet. More often, little changes fizzle out or have a gradual, evolutionary influence. Which path will the emergence of the cloud, the latest “new thing” in information technology, take?
I n The Cloud Revolution, the physicist and venture capitalist Mark Mills says that the cloud is “as different from the Internet as the [Internet] was different from telephony.” He argues that it has already started to spark an economic boom that will transform life more profoundly than the internet did. If he’s right, the implications for investors are remarkable: a continuation of the long bull market and spectacular returns for the most directly affected companies. If his forecasts are exaggerated, investors need to be more careful. What’s the cloud? Before exploring the merits and demerits of the cloud, it behooves us to ask: What is it? The internet,
parent of the cloud, was famously described as “everybody’s computers, connected”;1 actually, it’s that plus the infrastructure that allows them to be connected. There’s a physical Internet “backbone,” but the distinctive part of the infrastructure is a set of standards or protocols, such as TCP/IP, that make it possible for these computers to “understand” each other’s “languages.” The Internet fell together almost by accident, and it’s a remarkable piece of collective engineering.2
Unlike the internet, which is the combination of all these physical and ethereal parts, Mills writes, “The cloud is not an ethereal thing; it’s a physical infrastructure. By all measures – dollars, physical equipment, square feet of buildings – it’s the biggest infrastructure humanity has ever built. ” 3 A piece of this infrastructure, located in Las Vegas, is shown in exhibit 1. One square meter of a typical cloud data center has about a thousand times more compute horsepower than the whole world had in the early ’80s, and we’re building out data centers at … the rate of about 10 million square feet a year. And data centers, interestingly, cost about the same to build [in dollars per square foot] as a skyscraper like the Empire State Building or the World Trade Center.4
In other words, the cloud is very un cloud like in the ordinary sense of the world; it’s a thing. It is not the internet. It interfaces with and acts as part of the internet. It consists of data centers like the one shown above, in every part of the world, along with wired and wireless means of transmitting data from users to these centers and back again. The cloud is an energy and materials hog on a mammoth scale. Mills predicts that it will be the largest infrastructure project ever. Obviously, an infrastructure investment on this scale has profound implications for investors. On the construction "side" trillions of dollars will flow to the energy and materials sectors. (Cumulative costs have already passed $1 trillion.5) On the usage side, the cloud’s proponents argue that radically more abundant, faster, and cheaper information will have beneficial effects on almost everything. I’m not entirely sure, but it’s possible.
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