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Cloud computing and the Jevons Paradox

How well does a 19th-century economic paradox describe your relationship to new cloud services? Better than you'd think.

Weekly cloud computing update

For anyone interested in cloud computing, it’s important to keep a realistic picture of what's actually transpiring in the cloud-based IT world. Yes, it’s a transformative new model. Yes, it can enable astounding business growth (see: Netflix). And yes, you need to understand it and its implications. But no, those in the enterprise aren’t doing much with it.

Why is that? First, the hype is sort of self-powered. The best, and first, use case for cloud computing is the gaudy, self-important and hyper-available world of Web-based businesses, social media and new media. Amazon Web Services is ideal for that vaporous world, and they’re letting us know all about it. Second, it’s demonstrably awesome: there’s not a single IT person out there who doesn’t look at how a successful cloud operates and think, "My life hurts compared to this."

But the most important thing to keep in mind about cloud is that it's not a massive wave of transformation; it's a way to squeeze more out of less. Cloud computing is really a phase in the normalization of technology into our lives. That brings us to the Jevons Paradox: Why are people doing more with technology online, yet the material footprint of cloud isn’t that great?

How cloud fits into this economic paradox
Andrew McAfee wrote a thoughtful piece wondering how much IT demand will continue to grow. He noted the apparently contradictory trends of an insatiable appetite for efficiency, consolidation and lower cost, and the growth of hardware and service sales. How can we demand to spend less and yet the market keeps growing?

Anyone that's saying cloud computing can save you money doesn’t know what they are talking about.

Carl Brooks

That is the Jevons Paradox; the cheaper you make something that people want, the more they use it, despite the thing becoming impossibly cheap. Sugar, corn, lumber, cotton, pork bellies and now, computing power. Sugar is so cheap that it makes more sense to ship it around the world than grow it in your backyard. That’s going to come with CPU cycles and data storage.

We’re seeing reflections of this truth in IT today. Cloud computing means getting more out of your money, not spending less money. If you’re in operations, cloud computing is not going to save you money. You’re just going to be asked to do more with the same amount of gear and cash. That’s essentially what the Jevons Paradox and cloud computing mean to the enterprise. Anyone that's saying cloud computing can save you money doesn’t know what they are talking about.

No one has ever said, "We’re so successful that we’re cutting down on operations!!" Instead, the IT department is going to be tasked with making hardware and software handle more and more business on increasingly tight budgets. That’s not a new trend (hello, outsourcing from 1999) but cloud is accelerating it.

The Jevons Paradox in effect
Anyone looking for a rudimentary gut check can look at the market, the walking definition of "stupid and reactionary." Some cloud stocks took a massive hit yesterday, with network gear maker F5 bleeding out 25% of its value and hoster and cloud provider Rackspace dropping 11%. That’s because, despite massive adoption, revenue is pretty small. Rackspace has 100,000 cloud customers but makes less than 25% of its money from cloud.

Companies associated with cloud that didn’t get the axe included Amazon and Netflix, because their business models (and sky-high stock market valuations) are founded on old-fashioned retail sales.

The good news for all you IT people out there: technology is keeping up. Cloud computing techniques are pretty neat, even if the very best of them are still half-baked; by the time your pointy-haired boss comes down and asks to do something absurd for no money, you might actually be able to do it. Thanks, Bill!

Carl Brooks is the Senior Technology Writer at Contact him at

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