To lay the foundation of this series, let’s go back. Way back, to a century ago when Edison first lit up his Pearl Street power plant in Manhattan in 1882 and changed the course of human innovation. He was the Steve Jobs of his day, as he demonstrated how technology would power the future. For the next twenty years, tens of thousands of companies would create their own version of his power plant. Electricity was the state-of-the-art technology that would revolutionize the global economy for the next century. And companies around the world wanted it.
For decades, electricity incubated in company-owned power plants. The technology giants of the day, General Electric (GE) and Westinghouse, supplied the dynamos, cables and motors that companies needed to build those plants and compete in the modern automation economy. But this model of isolated innovation could not be sustained. Increasing demand for electricity drove technology innovation to transform the electricity industry into the utility-based economy we see today.
By the turn of the century, electricity had become a global game-changer. Every company wanted it. Unfortunately, not every company could afford it. Even companies that could afford it wanted alternatives to such a massive investment. They wanted the capabilities that electricity could provide, but they didn’t want all of the infrastructure and expertise required to run it.
This new demand for electricity-as-a-service drove technology innovation. But there were fundamental problems that had to be solved so that regional utility providers could compete against on-site power plants. Brilliant engineers of the time set to work on meeting these three fundamental needs:
1. Central Production: Utility providers needed a way to generate large amounts of electricity in one location so they could serve the many customers that would demand it. In 1896, new high-powered turbines were famously introduced at Niagara Falls to generate and transmit enough current to power the city of Buffalo. As turbine technology improved and became more affordable, regional utility providers increasingly took on more of the demand for electricity.
2. Remote Distribution: Utility providers needed a way to transmit electricity over great distances to serve growing customer bases. In 1887, Nikola Tesla introduced alternating current (AC) as the solution to meet this need. His AC solution would be caught up in years of debate as it competed for market acceptance over DC (direct current) technology. But Tesla’s innovation would eventually prove to be the market winner, primarily because it provided the best option for distributing electricity far and wide, and that’s what the market wanted.
3. Pay-Per-Use: Finally, utility providers needed a way to measure how much electricity each customer was using so that they could charge them for it. In 1894, Oliver Shallenberger invented a meter for Westinghouse that could record these measurements. With his innovation and others like it, utility providers soon had the ability to scale their capacity, measure usage, and provide electricity on a pay-per-use basis. Electricity became an expense for customers and a revenue stream for utility providers.
Electricity-as-a-Service was born. The merging of these technology innovations made it possible for regional vendors to pop up all across the country and serve the growing demand. As more and more companies came to trust and depend on regional utility providers, the demand for privately-owned power plants slowly declined. The age of on-premise power production was coming to an end.
Nicholas Carr depicts in his book, The Big Switch, how this transformation occurred over the first few decades of the twentieth century. “There were 50,000 private electric plants in operation” at the turn of the century. “In 1907, utilities’ share of total US electricity production reached 40 percent. By 1920, it had jumped to 70 percent. In 1930, it hit 80 percent. Soon, it was over 90 percent. Only a handful of manufacturers, mainly those running big factories in remote locations, continued to produce their own current.”
Okay, that’s a lot of history. So, let’s close the textbooks and think about why this is important. What does it tell us about the transformation to “The Cloud” that we see happening today? Is there something we can learn from our predecessors about how to get through this transition better prepared? I think so. The more I learn about how we’ve innovated in the past, the more I learn how we should innovate for the future.
One important lesson is clear to me. The technology innovations of 100 years ago transformed our society and economy in much the same way technology innovations are doing today. During that transformation, tens of thousands of companies had to decide when to stop maintaining their own power plants and transition to electric utilities. New companies had to decide if they should trust utilities to power their business operations. And consumers were demanding electricity for all.
These challenges are very similar to the ones that companies face today when deciding how to invest in technology. In part two of this series, I will talk about how today’s technology innovations are changing the way we do business, and how Digital-as-a-Service will transform our economy.