Cloudy with a Chance of Technological Breakthrough

Will the cloud drive massive increases in productivity and wealth – as the internet did before it? That is the central question asked by Mark Mills in his stunning new book, The Cloud Revolution.

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 new thing” in information technology, take?

In 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.

Exhibit 1
Switch Inc. data center in Las Vegas

Mills continues,

One square meter of a typical cloud data center has about a thousand times more comput[ing] 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