Extraordinary Innovation platforms: The IT Cloud and chip foundries

The rise of the Cloud mirrors the rise of chip foundries 30 years ago, which enabled an explosion of innovation. The Cloud will do the same.
Written by Tom Foremski, Contributor

The rise of the IT Cloud has many similarities with the chip industry 30 years ago and the start of an explosive wave of innovation that delivered high performance technologies into the hands of consumers for insanely low prices.

Chip companies used to have to build their own chip foundry to make their chips. As the cost of chip fabs grew ever more expensive -- they cost more than $3 billion each today -- several chip companies would pool together to build a chip fab.

Then in 1987 there was a major breakthrough: Morris Chang, a 25-year Texas Instruments senior VP, founded Taiwan Semiconductor Manufacturing Company (TSMC) - the first large scale chip foundry. Now, five chip designers in a room could simply modem their design over to TSMC and get finished chips returned in 90 days.

You now didn't need to raise hundreds of millions of dollars to build a chip fab just to be in the chip business. The rise of chip foundries created thousands of successful fabless chip companies. Huge chip companies such as Qualcomm, Nvidia, Broadcom never owned a chip fab.

The rise of chip foundries unleashed a tremendous amount of innovation. It is the reason our smartphones are as powerful as supercomputers once were -- yet cost so little. Chip foundries have made it possible to produce a huge range of electronic products and create massive new industries and markets.

The chip industry doesn't get the credit it deserves for being this incredible innovation platform.

Software Foundries...

Tech companies used to have to build their own data centers. Joe Krausz, a co-founder of Excite -- one of the hottest tech companies of the 1990s -- told me, "When we founded Excite we had to raise $5 million just to build the data center we needed." The capital costs meant fewer startups could be funded and many innovative ideas could not be tested.

Amazon Web Services is very much like TSMC and the chip foundry model. Amazon Web Services and the other IT Cloud vendors offer far more than shared servers they offer entire stacks of software and hardware, enabling customers to architect their IT anyway they want. Similar to how chip foundries offer libraries of chip modules that can be easily combined into unique products. They are software foundries, offering highly scalable technologies that can match those of Google, Facebook and other giants.

AWS is the visible tip of a huge are enabling a wave of innovation because many small startup teams can now be funded by VCs without needing to build and maintain IT infrastructure. Small teams can now design software applications and online services without large capital requirements. More innovative ideas can be funded and tested in the marketplace.

The rise of the Cloud will undoubtably be seen as a tremendous boost to innovation on a scale comparable with chip foundries in the semiconductor industry.

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