Can the cloud revive manufacturing?
April 3, 2012
Cloud computing could help usher in the next wave of technological innovation and, with it, provide a new engine for economic growth, say the authors of a forthcoming study on the emerging cloud computing ecosystem.
John Zysman, coauthor of the cloud study and co-director of the Berkeley Roundtable on the International Economy here, argues that “cloud-enhanced services” promise to take up much of the economic slack caused by the steady shift over the last several decades from manufacturing to services. Despite the loss of those U.S. manufacturing jobs, “direct linkages” persist between high value-added services and manufacturing. Zysman and coauthor Stephen Cohen argued in their book, “Manufacturing Matters: The Myth of the Post-Industrial Economy,” that manufacturing remains fundamental to economic growth and that service sector jobs only complement rather than replace critical manufacturing employment…
Zysman and his coauthors update the competitive landscape in the new survey, stressing the enormous economic potential of cloud computing, particularly for network providers seeking to add value to the services they deliver via the cloud. Adding value in the production process or in the Brave New World of delivering “cloud-enhanced services” is seen as a major competitive advantage for western economies as they compete with Asian manufacturing powerhouses like China.
“We contend that cloud computing is historically unique by simultaneously being an innovation ecosystem, production platform and global marketplace,” concludes the study, compiled by UC-Berkeley professor Zysman, Kenji Kushida of Stanford University and Jonathan Murray, a former Microsoft executive now with Warner Music Group. “Manufacturing is a piece of production,” Zysman said in an interview. “Google services are produced.”
(The authors’ enthusiasm for cloud computing may be tempered by the fact that their study was funded in part by networking giant Cisco Systems and Microsoft, two companies with enormous stakes in the success of cloud computing.)
Government agencies also seeking to leverage the economic benefits of an offshoot from cloud networks called “big data”. The National Science Foundation (NSF) announced a $200 million research initiative on March 29 to study the economic impact of “big data,” an extension of what has been dubbed the Internet of Things.
The construct called “big data” refers to the flood of data generated not only by the Web but by embedded sensors, video and social networking. While it differs from cloud services, both are being driven the ubiquity of data delivered by mobile devices and sensors linked to the emerging cloud ecosystem.
The authors of the Berkeley study stressed that the phrase “cloud computing” is overused and has been drained of meaning by marketers. The researchers define it as a platform for delivering “computing services – data storage, computation and networking – to users at the time, to the location and in the quantity they wish to consume, with costs based only on the resources used.”
All that is needed to tap into cloud computing is an Internet connection. For companies, cloud services “transform computing from a capital expense to an operating expense,” the study found.
By contrast, the numerous data centers created by cloud services providers like Amazon, Google and Microsoft cost more than $500 million each, the authors noted. Hence, these providers are increasingly likened to utilities operating a critical new national infrastructure.
The disruptive power of the cloud infrastructure rests with “the dynamic allocation of resources and the ‘illusion’ of infinite scale,” the study found. Indeed, it is the value delivered by cloud services that has prompted researchers to tout it as the next big engine of economic growth. “Cloud providers are competing on value-based differentiation on attributes such as service level and functionality,” the Berkeley study concludes.
So what does all this mean for reviving U.S. manufacturing and economic competitiveness?
In the foundry era, what can be designed and what can be manufactured has emerged as a critical question for chip makers. “The answer is not constant,” Zysman said. “It changes with who the competitors are, what the tools are that can be made available.”
Hence, tech companies are being forced to decide whether they are producing a “strategic asset or a vulnerable commodity,” Zysman said. For example, Ericsson brought its semiconductor design for smartphones in-house because the design itself became the product.
In a forthcoming book with Georgia Tech researcher Dan Breznitz, Zysman will argue that “we’re watching competition increasingly by phases of production rather by sectors.” For instance, product design often remains in Silicon Valley, then Apple scales production at places like its iPhone and iPad manufacturing lines at China’s Foxconn. “So the old notion of clusters takes on a different meaning,” Zysman said. “It’s not clusters around sectors, it’s [about] clusters around phases of production.”
Despite longstanding concerns over the decline of western manufacturing, Zysman stressed that not all is lost. When determining where the real value, or intellectual property, resides in products like the iPhone, “the value is in the West,” he stressed. Retaining IP doesn’t translate into more value-added manufacturing jobs, however. “That’s an [income distribution] issue because that [value] doesn’t go to the workforce. That goes to the stock value of Apple,” Zysman noted. “It doesn’t change the income distribution issues for workers.”