This is a fascinating vision for the world of computing.  Its a vision that includes Banks, and that will have enormous implications in the future.  Its a world where computing power is a utility, like water or electricity.  Its available as required.

Sound far-fetched?  Perhaps, but if the computer guru’s can pull it off, then why not?  One thing that we do know is that today Banks have similar computing systems, doing similar things, and when you get right down to it, how much strategic difference occurs at the computing level.  differentiation occurs in how you use the system, and the methods for use of data, but how it is hosted is more tied to privacy, security, regulatory and competitive information concerns.  So lets suspend reality on those last points and look at this vision.

The world needs only five computers,” Papadopoulos said on his blog. He then listed seven – Google, eBay, Amazon.com, Microsoft, Yahoo, Salesforce.com, and what he called the Great Computer of China – but let’s not split hairs. He was trying to make the point that “there will be, more or less, five hyperscale, pan-global broadband computing services giants”.

Source: Sun: ‘The world needs only five computers’ – ZDNet UK

First, definition of a computer in this vision:

What’s your definition of a computer? Most people think of a computer as a PC or maybe a server, but I think few people think of a computer as what eBay runs on — 8,000 computers or whatever.

What I’m saying is a computer — Google runs a computer. It happens to have hundreds of thousands of processors in it, and millions of disk drives, but it’s a computer. The important distinction is there is a point of control that determines what software is going to run, and then the systems work collectively to provide some service.

Next examples to make the basic point – a dentist business.

…. the corner dentist office as an example — these people, they end up being a tenant or a client who taps into one of these large systems?

Exactly. It’s called software as a service. It really is the running of what we think of as IT through the network. You don’t buy software, you buy the consequence of the software. That starts with the small and medium enterprises. eBay, in my mind, is the leading example of small businesses being absorbed by services. Anybody who clicks their store on eBay is in fact consuming a service. They are contributing to a larger-scale eBay rather than them buying some server and sticking it on their desk.

Does that mean that Amazon is going to become some generic computing infrastructure that gets tailored for all kinds of different things? That seems like a very different incarnation of eBay or Amazon than what they have today.

Amazon, I think, sees a bit of this direction. Their Elastic Computing Cloud is at least an experiment in the area. You’ll get people specialising in particular kinds of businesses and caring for those businesses. If you are a small business today, or you’re a start-up, mostly you’ll get services from service providers. You’ll get your email somewhere, you’ll get your sales and customer relationship service from somewhere else, you’ll do a storefront somewhere else. There will be people who will consolidate that for you in the future.

At some level, this vision is something like a gigantic ASP (Application Service Provider) or hosted computing.  This paragraph is obscure as only abstract thinkers can be, but I read it that the vision says American Express would remain in charge of their customer experience, computing would be hosted on say, Amazon, and new intermediaries would evolve to take Amex requirements and implement on Amazons hosted system.

So you envision the big guys like Amazon becoming generic infrastructure, and then you have a whole bunch of middlemen packaging that up, and tailoring it to the needs of the actual clients?

Yeah, initially. I don’t know whether the intermediaries will survive or they ultimately get absorbed. For example, you see what American Express is doing with small businesses, and you could certainly imagine them filling out their repertoire of things that they offer. I just wonder whether the intermediaries get in front of them, and they broker those folks as wholesale services, or if ultimately (the intermediaries) get absorbed into them. I would doubt that the intermediaries will ultimately get absorbed simply because knowing the customer and controlling the customer is so important.

The payoff is in cost reduction.  Apparently there is close to $ 3 trillion spent on computing worldwide, but that is mostly spent on people and software and a lot of services.  That resonates with us … how much of a technology project is spent on people effort vs, actually doing things? This will shift in the new world to focus on effectiveness.

This new world is brutally efficient, and most of the dollars that get invested are going into actually getting work done instead of paying for organisations or people. In terms of (spending on) computing stuff, we’ll see the crossover before the end of this decade.

Do you think this situation fosters monopolies?

I don’t know whether we’re going to go repeat the same mistakes that we made in IT, which is allowing people to come in and establish control points inside our IT architectures. It is in the power of all of us not to do that again. (The reason) why are we so vocal and progressive around open source and communities is that it’s really all about getting the switching cost down, so we don’t end up back in that same situation where the whole economies of IT get distorted because of these very high switching costs.

Relevance to Bankwatch:

I picked out three elements out of this for Banks’ to watch for here:

1. shifts with intermediaries:  watch the IBM’s, big consulting groups, and their moves in this direction – also perhaps one Bank industry leader making a shift with an application or line of business.
2. open source & (developer) communities:  shifts towards more open systems and applications.  Bank systems today are tightly controlled, and highly proprietary in their implementation
3. shift to web based applications:  while not stated, its implicit this new world would have a greater reliance on a web based infrastructure, and network based applications