Carlos Olin Montalvo III

Excerpts and photos via The Economist

There is nothing the computer industry likes better than a big new idea—followed by a big fight, as different firms compete to exploit it. “Cloud computing” is the latest example, and companies large and small are already joining the fray.

The idea is that computing will increasingly be delivered as a service, over the internet, from vast warehouses of shared machines. Documents, e-mails and other data will be stored online, or “in the cloud”, making them accessible from any PC or mobile device. Many things work this way already, from e-mail and photo albums to calendars and shared documents.

Technological developments have hitherto pushed computing power away from central hubs: first from mainframes to minicomputers, and then to PCs. Now a combination of ever cheaper and more powerful processors, and ever fast and more ubiquitous networks, is pushing power back to the centre in some respects, and and even further away in others. The cloud's data centres are, in effect, outsize public mainframes. At the same time, the PC is being pushed aside by a host of smaller, often wireless devices, such as smart-phones, netbooks (small laptops) and, perhaps soon, tablets (touch-screen computers the size of books).

Despite the growing similarities among the three (Google, Microsoft, Apple), each is a unique beats, says Michael Cusumano, a processor at Massacusetts Institute of Technology's Sloan School of Management. They can be classified according to how they approach the cloud, how they make money and how openly they approach the development of intellectual property.

How will this three-way contest play out? The last similar war was in the 1980's and early 1990's, when Apple, IBM, and Microsoft fought for mastery of the PC. After much fire and smoke, Microsoft was victorious. Thanks to what economists call strong network effects, which allow winners to take almost all, Windows relegated its rival operating systems to mere slideshows, securing fat profits for its owner.

Such a lopsided result is unlikely this time. One reason is that the economics of the cloud may be different from those of the PC. Network effects are unlikely to be as strong. Much of the cloud is based on open standards, which should make it easier to switch providers.

...all three will have ample resources to spend in the main area of the fight: data centres, cloud services and the periphery...Just as much of hardware has become a commodity, knowing how to build huge data centres may not be a competitive advantage for long. And data centres can get only so big before scale ceases to be an advantage.

Only one thing seems sure about the future of the digital skies: the company or companies that dominate it will be American. European or Asian firms have yet to make much of an appearance in cloud computing.

Government outside America may harbour ambitious plans for state-funded clouds. They would do better simply to let their citizens make the most of the competition among the American colossi.