Cloudonomics: The Business Value of Cloud Computing, + Website

CHAPTER 15

Peak Performance

One reason that financial advisors recommend diversification is that while a single stock may be a dog or a single industry may have issues, it is less likely that all the stocks in your portfolio will simultaneously collapse if you have diversified across companies and across industry sectors. Of course, the same effect works in reverse: You may have been better off solely holding Apple, or Google, or Microsoft during certain periods than a basket of stocks. In other words, diversification drives higher lows but also lower highs. This smoothing effect has nothing to do with stocks per se; it is a mathematical characteristic of the sum of independent random variables. Cloud service providers can use this statistical effect to generate a real, compelling, economic customer value proposition.

Of course, often the movements of individual stocks are highly correlated: It is a rare stock that can swim upstream during a market crash, and, often, a rising tide lifts all boats, even if some of the boats are dogs, to use an awful mixed metaphor. Demand for computer services has similar characteristics. There is some degree of correlation: Increasing Internet access via increased broadband wireline and wireless penetration across a growing global population is certainly driving a healthy increase in Web usage, and the decreasing price of hardware, the increased availability of open source software, and advancing technology in areas ranging across search algorithms, ...