What Cloud Means to Marketing Forecast

As Consumers Continue Using the Internet as Their Computers, Prepare for a Broader Media Upheaval

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In a closet in a spare bedroom of my house is a crate of PC-software programs on CD-ROMs and DVDs. There are dozens of them neatly wedged into their plastic cases -- financial programs, graphics programs, encyclopedias, games, business applications and hobby applications. And they all seem, suddenly, like strange artifacts from the past.

Sometime in the past few years, most of us began to change the way we use our personal computers. We stopped going out and buying new software programs and installing them on our hard drives. Instead, we started using the internet as our computer, tapping into the vast quantities of software and data flowing through the network. Our powerful desktop and laptop PCs have been turned inside out. Most of their value comes not from what's inside them but from the network they're hooked up to. They've become, essentially, terminals.

This rise of what geeks call "cloud computing" is not without precedent. What's been happening to computers in the early years of this century mirrors what happened to mechanical power at the start of the last century. At the end of the 1800s, if you wanted to run a machine in your factory or your home, you had no choice but to generate the power to run it. You had to build a waterwheel, install a steam engine or run your own private electric dynamo.

But as soon as the alternating-current electric grid was built, people and businesses stopped producing their own power. They just plugged their machines into the new network. Back then, it was electricity that turned into a utility served up from central plants. Today, it's computing that's turning into a centrally supplied utility.

Changing lives
Cheap, plentiful electricity changed society and culture, spurring the rise of mass media, mass consumerism and modern advertising. We can expect that cheap, plentiful computing will have similarly far-reaching consequences, once again overturning many of our assumptions about how we work and live.

One change that's already obvious is the blurring of the line between software and media. Consumer software, until recently sold like a package good, is becoming the next great media business. The success of a software program is coming to be judged not by unit sales but by the ability of the provider to attract an audience, hold that audience's attention with interesting data and tools, and deliver relevant ads to it.

We've seen this phenomenon with social-networking sites such as MySpace and Facebook, which have become the core applications that young people use to organize information and communicate with friends and colleagues. But the media-ization of software now is spreading to more traditional programs such as word processing, spreadsheets, e-mail, photo management, games, and even tax preparation. Applications such as these are being "broadcast" free over the net and supported by advertising.

The gorilla in this nascent market is Google. It has been spending billions of dollars to build huge data centers, or "server farms," around the world, enabling it to run all sorts of consumer software and store enormous quantities of personal data. Combine that processing muscle with the company's dominance of web searching and advertising, and you have a juggernaut capable of redefining the software business on the media model.

Catching up with Google
Traditional software companies are not sitting still. Microsoft, long the leader in packaged PC software, is following Google's lead in constructing server farms and has even begun delivering some of its programs free over the net. Most telling is the company's generous bid to buy Yahoo, one of the largest online-media and -advertising firms. Microsoft knows it needs to bolster its capabilities in advertising if it is to succeed in the software business of the future, and buying Yahoo would provide it with a shortcut to its goal.

But if the software business is beginning to look like a media business, the media business is also taking on characteristics of the software business. As the internet becomes not only our universal computer but also our universal medium, the ability to use software code to collect and filter content, tailor programming, analyze audiences and serve ads becomes central to media success.

In other words, those huge server farms are not only transforming the software industry. They pose big and growing competitive threats to many traditional publishing, broadcasting and advertising firms. The media business has already gone through wrenching changes thanks to the web, but the upheaval is just in its early stages.

There are dark sides to the blurring of media and software. As companies become more adept at tracking the activities and preferences of people, the temptation to monitor and even manipulate personal behavior will grow ever stronger.

Continued fragmentation
We are also likely to see a continuing fragmentation of media and audiences, as sophisticated software algorithms are used to create custom bundles of content geared to individual preferences. Google has said it wants to store "100% of a user's data" inside its data centers, enabling it to achieve what it calls "transparent personalization." At that point, the company would be able to automatically choose which information to show you, and which to withhold, without having to wait for you to ask.

Of course, the value of advertising would grow substantially in this scenario. But what would happen to the common culture that provides the glue for society? The mass media that emerged from the electric grid a century ago had plenty of flaws, but it did help to bring people together. Our new computing grid promises to reprogram not only advertising and marketing but also culture with the cold logic of software code. Everything will become more efficient, but we may find that we've sacrificed a little bit of our humanity in the process.

Cloud living coming sooner than you think

In the perpetually evolving digital space, new terms and concepts are seemingly born every day, which is why the term "cloud living" probably goes way over most people's heads. Don't feel too bad if you're one of those people -- the term is new, even in internet years.

It refers to the idea that functions, utilities and data will be hosted in a network -- the cloud -- rather than on personal devices. These devices, networked together via the internet, become terminals by which individuals can access all the data and functions stored in it.

Google's Tim Armstrong explained the topic at the recent 4A's Media Conference, using the example of online banking: A consumer enters his personal information, and -- even though he doesn't know where it goes -- trusts that it will be secure and stores it there. Mr. Armstrong predicts consumers will be increasingly driven to this type of service, and said that it's up to advertisers to reach them there.

It's also transforming the way companies operate and employees collaborate. Rather than e-mail a version of a document and get multiple copies back, all with different edits, the cloud enables all the employees to work collaboratively off the same document, which lives, of course, in the cloud.

The New York Times reports Google, unsurprsingly, is the leader in this technology but that IBM, Yahoo, Amazon and Microsoft have built internet consumer services that use cloud computing.
-- Michael Bush
Nicholas Carr is a former executive editor of the Harvard Business Review, and author of 'The Big Switch: Rewiring the World, from Edison to Google.'
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