“The cloud” is the phrase on everyone’s lips this year, but not all new ideas stick with us—Segways, zip drives, and HD-DVD were all the hot new tech at one point, and they’ve all gone the way of the dinosaur. Will cloud computing wind up on the scrap heap of tech history? We don’t think so, and neither do many economists. Here’s why:
1. Cloud computing massively lowers fixed costs
Drumming up initial investment is one of the biggest hurdles that small businesses face. The larger fixed costs are, the harder it is to get started—and the more likely entrepreneurs are to get stuck in an exploitative contract with investors. All startups endure a zero-profit phase while they build customer base and pay down their fixed costs, and the longer that period is, the more likely a business is to fail. Cloud innovations like virtual desktops, storage, and money management lower the need for startup cash, shortening the window of zero-profit, and allowing more good ideas to turn into successful businesses.
2. Global cloud networks spur investment in developing countries
Until quite recently, people in developing countries had very few opportunities to connect with the world of global business; if you couldn’t afford to go to college overseas, you were stuck. Now, cloud networks connect hospitals in Europe with x-ray technicians in Bangalore, and American corporations consult with engineers in Nigeria; the human capital of the entire planet is increasingly connected in an efficient, wealth-generating network that is far more than a passing fad.
3. Cloud services give small firms access to economies of scale
Most production processes get cheaper as they get larger, and in the past, that fact has strangled small businesses who attempted to compete with the bigger players in their industries. A mom-and-pop grocery store simply can’t match the massive, fine-tuned supply chain of a global supermarket franchise. For services like data storage, web hosting, and accounting, the cloud has given small firms the same “bulk discount” that big companies receive—which makes markets susceptible to disruption and innovation on an unprecedented scale.
4. Comparative advantage is everything
Comparative advantage is the first principle of economics: it states that economies run better when everyone concentrates on their strengths, instead of trying to do everything themselves. Until recently, most entrepreneurs would have to serve as accountant, lawyer, analyst, customer service, and IT, all at once—a very inefficient and exhausting way to do business. Today, cloud services allow entrepreneurs to focus on idea-creation and execution where they have expertise, and use cloud services to store their data, track financial goals, and hire customer service and tech support at minimal cost.
5. Cloud networks broaden the labor market
Only fifteen years ago, companies were limited to the workers they could hire in-town, or persuade to move. Now, about three-fourths of businesses in the US hire part or full-time telecommuters, meaning they can select the best employees from all over the world to meet their company’s needs. Cloud file structures like Dropbox and Google Docs allow firms to collaborate seamlessly across the world. Not only does this allow for firms to save money and run more efficiently, but it also allows workers to find employment without the massive cost and commitment of moving across the country or the world.
Tara Wagner is a staff writer for TechBreach. She has worked from home for over a decade, and loves sharing news and advice with fellow telecommuting moms and dads. She’s fascinated by new tech and new ideas; and when she finds time to unplug, she enjoys long hikes in the mountains near her home. She lives in Denver.
