I’ve written more than once about the surprising capital intensity of offering SaaS on a large scale.
In last week’s eWeek, Eric Lundquist wrote
The route to SaaS could be bumpy highlighting the capital appetite of many of the internet’s big
players. In my earlier post on lessons from Google in SaaS economics I discussed what a typical SaaS provider could afford to pay for infrastructure per month on a server basis. Eric goes a step further, though, and brings up the fact that in previous capital intensive businesses it wasn’t the initial investement that crippled companies but their innability to reinvest. As he puts it:

“Technology executives will have to learn what steel mill executives discovered long ago: Capital investment is not a one-time event. That server farm you built last year will soon require another big round of investment to stay current and efficient.”

Of course, if you’re reading my posts you probably know I believe there is another way.
And, in a strange coincidence, Google’s datacenter in The Dalles hints at that solution. You see, Google chose The Dalles because nearby aluminum manufacturers had shuttered their plants. Those plants, in turn, had been drawn to the area in an earlier technology revolution by an abundance of cheap electricity.

Just as the steel mills didn’t build their own power plants, SaaS providers starting today don’t need to build their own datacenters. It was technology advancements in giant turbines and damn construction that provided abundant cheap power so manufacturers could stop building their own power stations a century ago. SaaS and Web 2.0 providers now have access to grid technology that enables utility computing meaning they can stop building their own datacenters. After all, there are providers who specialize in building infrastructure and they are brutally efficient at it.