By the end of the century, the most successful computer companies will be buying computers rather than building them. Defining how computers are used, not how they are built, will create real value. Three new rules will guide the computer industry's strategic transformation: 1) compete on utility, not power; 2) monopolize the true sources of added value; and 3) maximize the sophistication of the value delivered, while minimizing the sophistication of the technology consumed.
To paraphrase David's analysis: Andy was right. In the 1980s the value was all in the hardware (Wang, DEC, IBM et al). In the 1990s it was in the software (Microsoft, SAP). In the noughties, David argues, the value is in the services delivered and, so, ironically the scalability of the data centre becomes a key competitive factor (eg, Google). Here is his conclusion:
In the era of the Softwareless Software Company, in which value is measured by utility, simplicity and reliability, the greatest asset may ultimately be the near infinitely scaling data center. It will certainly be important that the new computer company deliver great utility through its software-delivered service. But the most significant differentiator may ultimately prove to be the capacity to scale with massive demand. And those companies best situated to deliver that scale will be the winners. Thus, it is no surprise that just up and down the river from Microsoft's new datacenter in Quincy Washington, both Yahoo and Google are contemplating building their own gargantuan datacenters. The Softwareless Software Company may have come full circle from the Computerless Computer Company and be more about hardware and infrastructure than about software after all.
While I agree with David that data centre scalability is critical to delivering services on a large scale, I don't think this will ever be the key competitive edge for IT companies. The critical piece of intellectual property will be the design of the hosted services, just as in earlier eras it was the hardware design or the software design that provided vendors with a winning edge.
Google, Yahoo and Microsoft HAVE TO build infinitely scaleable data centres in order to compete in the online services market. But unless they are able to continually increase the utility of their services and to innovate new offerings, those data centres will lie idle. They may gain margin points for running their data centres more efficiently ("minimising the sophistication of the technology consumed"), but they won't win new customers because of it.