The Plot to Take Away Wholesalers' Computers
Watch out, major computer manufacturers are planning to take away the computers used by wholesalers. Not steal them, but replacing individual computers with computers shared by many companies and located in independent data processing centers. If this seems like the "time sharing" of the 1960s and '70s, it basically is. But, modern technology could make 21st century time sharing much more cost-effective than it was in the stone age of computing.
And, though no computer manufacturer has mentioned it, the step beyond sharing hardware is sharing software as well. That arrangement would transform hardware manufacturers and others into Application Service Providers (ASP) - companies that rent the use of hardware and software, as many time-sharing companies did. The ASP concept didn't catch on when the dot-com boom was at its peak, but advances in technology have overcome the limitations that kept ASPs from flourishing.
This Isn't Your Father's Time Sharing
Don't look for the term "time sharing" in other articles, and you won't hear it when someone calls to pitch replacing the company's computer. Time sharing implies old technology that could never provide the data processing capabilities available today. Some hardware manufacturers call today's arrangement "shared computing," others call it "resources on demand," and still others use the term "resource sharing." I like that best, so let's call it "resource sharing." But no matter what it's called, the idea is that wholesalers would give up their individual computers, and store and process their data on special computers that are shared by numerous businesses. The personal computers that are used as terminals and connected to a distributor's computer would instead be connected via a high-speed full-time data connection to the shared computer. Same for printers. But a distributor's software license would still belong to the distributorship; when a distributorship prepares for resource sharing, its business software would be moved to the shared computer.
The move toward resource sharing is so strategic that IBM has budgeted over $1 billion (yes, with a "b") to develop the new kinds of hardware, software and connections that will be needed. And IBM's first customer for resource sharing will be -- IBM. Furthermore, Hewlett-Packard and Sun Microsystems are frantically racing with IBM and developing their own hardware and software for resource sharing; and Microsoft is designing new software to work under this arrangement.
Pay For What You Use
Why would a distributor want to replace the company's computer with a resource sharing arrangement? To save big money. Instead of investing money in computer hardware that, hopefully, has lots of excess capacity to handle peak conditions and growth, a distributor would pay only for the "resources" used. The distributor would receive a monthly bill for the average amount of disk space used during the month, and for the number of transactions processed (which includes inquiries and reports as well as data entries). Even the data connection circuit (that connects the shared computer to the distributor's terminals and printers) could be shared with other companies, with the charge based on usage, not a fixed monthly charge. Wholesalers with many more transactions during a busy season than off-season would benefit much more than those without pronounced seasonality. Distributors who experience peaking at month end or on a particular day of each week would also benefit.
Another benefit from resource sharing is that a distributor would have fewer MIS people on payroll, if any. The company providing the shared computer would also provide people that handle some daily functions (e.g., verifying that last night's back-up worked), along with hardware or data communications-line problems. This savings could easily exceed savings from not having a maintenance contract and not having an annual depreciation charge for hardware.
Distributors who have seen their computer run out of disk space, or experience permanent slow terminal response time, know that it can take a few days to add a disk drive or a processor - if another processor can be added. Resource sharing eliminates all concerns about running out of disk space and suffering from an overworked computer processor. First, each computer in a data center is much, much larger in every way than the computer owned by a typical distributor. When extra capacity is needed on a machine (such as on a peak day), special software instantly turns on any spare disk drives or processors in that machine; no one adds drives or processors because that takes too long. Second, all the computers in a data center are physically cabled together, and two or more of them can function as one giant machine. Special software instantly detects when a machine is using too much of its capacity, and then links that machine with another machine that has enough excess capacity. In a similar way, special hardware and software in the data center can instantly provide more capacity on data communications lines (that connect terminals and printers to the center).
How Will The Hardware Makers Stay In Business?
At first you might think that these computer manufacturers are crazy to stop selling thousands of computers every year, and instead sell only a few hundred machines, if that many. Of course, each of those few hundred computers would be quite large, and would sell for a lot more than almost any machine bought by even a large distributor. But the increase in unit price would not be enough to make up for the revenue lost from not selling as many individual computers. And, the revenue that manufacturers get from hardware maintenance contracts would also plummet.
Why would IBM and HP want to do this? Because they aren't making a large enough return on their investment, and realized that the current low level of hardware sales is likely to remain low for a few years or more. In searching for sources of better ROI, one of these companies came up with the idea of shared resources (probably when reviewing the unhappy fate of ASPs), and others are copying it. Those who make the hardware and special software are, in a sense, no longer in the business of selling hardware; they are in the business of selling resources. If the shared resources strategy is as successful as the ink jet printer strategy, there will be no need for a tag day for computer manufacturers. (The ink jet strategy is to sell a printer at or below cost, but make lots of money on the ink cartridges).
Application Service Providers (ASP)
As this author stated at the beginning, the logical step beyond sharing hardware is sharing software too, for the same reasons as sharing hardware - distributors get to cut costs, and manufacturers or data center operators get a new and ongoing revenue stream. The ins and outs of the ASP concept we addressed in a previous issue, so only a refresher summary is given here. Under the ASP arrangement, a distributor does not own a license for the business software being used, but instead is licensed (along with other sub-licensees) by the ASP to use the business software that the ASP licensed from the software author. The distributor pays a monthly fee for the sub-license, with the fee based on the number of software modules licensed and the number of users who can simultaneously use the software.
If the ASP idea is so great, why didn't it take hold in the late '90s when it was first offered? One of the reasons was that data communication circuits were not as reliable or as cheap as they are today. The glut of data communication circuits has led to the huge decrease in cost (as well as the bankruptcy of some telecom companies), and just as important, provides redundancy against any one circuit failing or being overloaded. Another technical reason is that the ability to instantly provide extra disk space and processing power (the shared resources arrangement) didn't exist then. There were stories of ASP users frequently experiencing slow response time and interruptions of service due to data communication line problems. (Another reason for a lack of success could be that the economy started tanking just when ASPs started marketing the arrangement, so few distributors were in the mood to replace their okay computers with an unproven arrangement.)
There are still some reasons that ASPs might not make a comeback, including concerns about the security of data residing on someone else's machine, and whether ASP personnel will know enough about the business software they are sub-licensing to train first-time users and support users - another weakness of the pioneer ASPs. And, as with any "outsourcing" arrangement, there is the question of how the subscribing distributors will get data processing done if the ASP suddenly goes out of business -- which happened several times after the dot-bomb.