Many other firms began to compete
with ADP, offering different services in
what became the biggest sector of the
“data processing services industry.” In
1961 the industry formed its own trade
association, ADAPSO—the Association
of Data Processing Services Organizations, the ancestor of today’s ITAA. By
1970 processing services accounted
for more than one-quarter of total U.S.
computing purchases. While firms have
come and gone, ADP seems to have
found the perfect niche—today it is still
the world’s biggest payroll processor,
preparing the paychecks for one-sixth
of the total U.S. work force.a
In the mid-1960s timesharing computers came on the scene. In these systems customers could access a mainframe computer remotely. Connected
to a mainframe computer via a regular
telephone line, users ran programs
using a clunky, 10-characters-per-sec-
ond, model ASR- 33 teletype. It made
for a noisy working environment, but
on-demand computing had real benefits. Salespeople for the timesharing
firms touted their systems using the
computer-utility argument: Firms did
not maintain their own electric plants,
it was argued, instead, they bought
power on-demand from an electric utility; likewise, firms should not maintain
mainframe computers, but instead get
computing power from a “computer
utility.” Several national computer utility companies had emerged by the end
of the 1960s. But then came the first
computer recession in 1970. The computer utility model turned out to be very
vulnerable to an economic downturn.
Similar to the way firms cut back on
discretionary travel during a recession,
they also reduced spending on computer services. There were many firm failures and bankruptcies. For example,
one of the most prominent firms, University Computing—which had computer centers in 30 states and a dozen
countries—saw its revenues hemorrhage, and its stock price dramatically
declined from a peak of $186 to $17.
The timesharing industry recovered, however. In the 1970s major
players included General Electric,
a For a history of ADP Inc. see: ADP Fiftieth Anniversary 1949–1999; http://www.investquest.
industry died a
second time around
1983–1984. this time
it was not a computer
recession that was
the cause, but the
Timeshare Inc., and CDC. They built
massive global computer centers that
serviced thousands of users. By then
those clunky teletypes had been replaced with visual display units, or
“glass teletypes” as they were sometimes known. They were silent and
relatively pleasant to use, giving an experience somewhat like using an early
personal computer. Increasingly firms
sought to differentiate their offerings
by providing exclusive software. For example, they devised financial analysis
programs that can now be seen as forerunners of spreadsheet software. They
implemented some of the first email
systems. They also hosted the products
of the independent software industry,
usually paying them on a royalty basis,
with typically 20% of revenues going to
the software provider.
The timesharing industry died a second time around 1983–1984. This time
it was not a computer recession that
was the cause, but the personal computer. Timesharing services cost $10 to
$20 per hour, with regular users billing
perhaps $300 a month. The PC completely destroyed the economic basis
of the timesharing industry. Compared
with a timesharing service, a PC would
pay for itself in well under a year, and
it had the further advantages of eliminating the telephone connection and
providing an instantaneous response.
Furthermore, a standalone PC was not
like a mainframe computer—it was a
fuss-free, virtually maintenance-free,
piece of office equipment. As the timesharing industry went into decline, a
few of the firms morphed into consumer networks, such as CompuServe and
GE’s Genie, but mostly they just faded
away with their vanishing revenues.
Today, the very things that killed the
timesharing industry in the 1980s have
been reversed. Despite falling hardware costs, computing infrastructure
has become increasingly complex and
expensive to maintain—for example,
having to deal with security issues and
frequent software upgrades. Conversely, communications costs have all but
disappeared compared with the 1980s.
No wonder remote computing is back
on the agenda.
Cloud computing has many parallels with the 20-year reign of timesharing systems. Timesharing thrived just
as long as its cost and convenience was
competitive with a mainframe computer installation. The arrival of the PC
changed everything. Today, cloud computing offers tremendous advantages
over the in-house alternative of maintaining a cluster of servers, application programs, and database software.
However, if the cost of maintaining this
infrastructure was to fall dramatically
(which is entirely possible in the next
few years) the economic advantage of
cloud computing could be reversed.
The other threat to cloud computing
is a major economic downturn. Now
that U.S. industry experiencing a recession, the demand for remote computing could decline, just like the demand
for electric power. Further, many on-line services are currently funded by
advertising revenues—take away the
demand for advertising and there will
be little to support these services.
Of course, none of the aforementioned items should be construed as
a forecast of the impending demise of
software as a service. Rather, this column is intended as a salutary reminder that nothing in IT lasts forever, and
that technological evolution and economic factors can rapidly alter the trajectory of the industry.
b For a history of the timesharing industry see:
M. Campbell-Kelly and D.D. Garcia-Swartz,
“Economic Perspectives on the History of
the Computer Timesharing Industry, 1965–
1985,” IEEE Annals of the History of Computing 30, 1 (Jan. 2008), 16–36.
Martin Campbell-Kelly ( m.Campbell-Kelly@warwick.
ac.uk) is a professor in the department of Computer
science at the university of Warwick, where he specializes
in the history of computing.
Copyright held by author.