Innovation in IT

The liquefaction of hardware

by Biodun Iginla, Tech Analyst for the BBC and the Economist

Nov 18th 2010 | From The Economist print edition

IMAGINE a personal computer that has two souls. One moment it is your work machine, complete with a set of corporate applications and tight security settings. Then it becomes an entertainment centre, allowing you to watch any video and download any program.

Thanks to a process called “virtualisation”, such computers are now being created. Ever more processing power and clever software are allowing devices of all kinds to separate from their hardware vessels and move to new homes. If this process continues as some expect, it will change computing radically. And more than one IT company will have to rethink how it does business.

Virtualisation dates back to the age of mainframe computers. To make better use of them they were sometimes split into smaller “virtual machines”, each of which could run its own operating system and application. But the approach took off only in recent years, when VMWare, a software firm, applied it to servers, the powerful computers that populate today’s corporate data centres. VMWare and its main rivals, Citrix and Microsoft, have since developed all kinds of software tools to manage virtual machines—moving them between data centres, for example.

The success of server virtualisation has inspired IT firms and their customers to do the same thing with other types of hardware, such as devices to store data. Software now pools their capacity and allocates “virtual disks” as needed. Going further, Dropbox, an online storage service, saves identical files only once. Even large files can take only seconds to upload if they already exist somewhere on one of these firms’ disks.

The virtualisation of PCs is now under way. Many company computers can already work with applications that run on a central server. But start-ups are pushing the concept further. Desktone offers virtual desktops as an online service. NComputing, a maker of computer terminals, virtualises PCs so they can be shared by up to 30 users. It has already sold more than 2.5m devices, mostly to developing countries and schools. And technology from MokaFive can send an entire virtual machine—complete with operating systems, applications and data—over the network and install it on any PC. Eventually people may no longer need to carry laptops at all. Virtual computers, including data and applications, will follow them everywhere.

In the long run, smartphones and other mobile devices may also become shells to be filled as needed. Open Kernel Labs, a start-up in which Citrix has a stake, already lets smartphones run applications, multimedia and radio functions on a single processor, cutting manufacturing costs. Software from Citrix turns the iPad, Apple’s tablet computer, into a terminal for applications that run in a corporate data centre.

How quickly will virtualisation advance? Gartner, a market-research firm, predicts that the overall market for virtualisation software will grow from $2.7 billion this year to $6.3 billion in 2014. There is certainly no lack of demand. Virtualisation lowers costs by enabling firms to make better use of their servers and buy fewer new ones. The technology also allows PCs to be maintained remotely, which is much cheaper. But improved reliability and security are even more of an attraction. Users of MokaFive, for instance, can relaunch their virtual machine should a computer virus infect it. And it can be shut down if a laptop is lost or stolen.

Yet the technology also has to overcome a few hurdles. The virtualisation of servers is well understood, but for PCs and mobile devices the technique has yet to mature. In the longer run institutional barriers will prove more of a problem, argues Simon Crosby, Citrix’s chief technology officer. Virtualising IT systems, he says, is only the first step to automating their management. This is seen as a threat to existing workers and makes many IT departments hesitant to embrace the technology.

Still, analysts believe virtualisation will win out. Its impact will be felt through the industry. The technology not only makes IT systems more flexible, but allows firms to switch vendors more easily—which will weigh on the vendors’ profits. Big software firms such as Microsoft and Oracle may be hit hardest. But many hardware-makers may suffer as well, since their wares will become even more of a commodity than they are today.

What’s up, BYOC?

Moreover, virtualisation makes it much easier to add new servers or storage devices. Alternatively, firms can simply rent extra capacity from operators of what are called “computing clouds”, such as Amazon Web Services. That outfit has built a network of data centres in which virtual machines and disks can be launched in seconds. As a result, IT systems will increasingly no longer be a capital expense, but an operational cost, like electricity.

Yet the most noticeable change for computer users will be that more employees will be allowed to bring their own PC or smartphone to work, says Brian Madden of TechTarget, a consultancy. Companies can install a secure virtual heart on private machines, doing away with the need for a separate corporate device. A “bring your own computer” or “BYOC” movement has already emerged in America. Companies such as Citrix and Kraft Foods pay their employees a stipend, which they can use to buy any PC they want—even an Apple Mac.

Such innovations may help to ease growing tensions between workers and IT departments. New privacy regulations and rampant cybercrime are pushing firms to tighten control of company PCs and smartphones. At the same time more and more “digital natives” enter the workforce. They have grown up with the freewheeling internet and do not suffer boring black corporate laptops gladly. Giving workers more freedom while helping firms keep control may prove to be the biggest benefit of virtualisation.

by Tamara Kachelmeier and Biodun Iginla, BBC News and The Economist 

Economic indicators from the web

Internet firms are becoming a valuable source of economic insights

Nov 11th 2010 | SAN FRANCISCO | From The Economist print edition

EACH November for the past three years PayPal, an online-payments service owned by eBay, has published data showing the volume of payments it handles on what retailers call “Black Friday”, or the first day after the Thanksgiving holiday. The idea is to assess the strength of consumer demand on the day that marks the start of the holiday shopping season. On Black Friday last year the total of payments made on PayPal’s system was 20% higher than on the same day in 2008, suggesting that consumer confidence in America was looking more robust. Retailers are hoping for a repeat performance this month.

PayPal is one of a growing band of online companies dipping into the data they gather in an effort to divine trends in the American economy. Last month Hal Varian, Google’s chief economist, revealed that the search-engine giant had developed a “Google Price Index”, based on web-shopping data it holds—though it has yet to decide whether to publish it. While Google flirts with inflation, Intuit monitors employment. The firm, which offers online payroll, tax and other services to small businesses, produces a monthly small-business employment index based on aggregated data from 59,000 of its customers.

Web firms see such indicators as something of a sideline. Tayloe Stansbury, Intuit’s chief technology officer, says that most of the firm’s data mining is geared to helping its customers. But some economic policymakers are paying attention to web firms’ statistics, for a couple of reasons.

The first is the speed with which the data are generated and crunched. Ceridian, which manages payments made by businesses via the web or with stored-value cards, tracks aggregate purchases of diesel fuel by truck drivers in real time. Together with the UCLA Anderson School of Management, it has used these data to create an index to gauge what is happening to shipments of goods by road in America. The latest instalment, published this week, showed the index had fallen by 0.6% in October compared with the previous month. Given that October is usually a busy time for the trucking industry the index’s creators say the decline “sounds an alarm” for growth in the fourth quarter.

Because web businesses gather data rapidly, their indicators can sometimes identify trends before official statistics. Take the case of Monster Worldwide, an online job service that publishes an index tracking jobs posted on its own and other sites. This fell sharply in 2007 before official numbers showed employment in America weakening (see chart). Google has said its search data may also provide useful early-warning signals: it is exploring whether searches for terms such as “unemployment insurance” are a good way to predict future increases in joblessness.

A second reason that web firms’ indicators are gaining popularity is the detailed data that underpin them. John Krainer, an economist at the Federal Reserve Bank of San Francisco, says he has drawn on statistics from Zillow, an online property site, in his research because of their “granularity”. The Zillow Home Value Index draws on the site’s individual valuations of 72m houses across America.

Some economists caution that web firms’ data have big handicaps. Many of the indices have only a short history, which means they are of little value to policymakers interested in long-term trends. And they often measure only online transactions, which limits their appeal. Both caveats carry some weight. But as more economic activity moves online, the notion of using bits and bytes to measure booms and busts will surely become more attractive.