They don’t mention any details as to how the ’smart routing algorithim’ works but my guess is that they are using decision tree learning with a heuristic algorithm like ID3 or C4.5.  Their model would probably need some way to factor in arbitrage opportunities within the electricity markets on a real time basis while simultaneously tracking data-center loads.  One of the problems they mention that holds this technology back is that most data-centers today lack the ability to throttle power usage with loads – in other words, the servers need to be able to consume a fraction of their full load power when idle.

What are some potential implications for the future?

New market opportunities for those firms that can offer the hardware solutions to make servers ‘energy elastic’.

This could be a boon for the software cloud, as network computing could take advantage of these routing systems to find the least costly resource.  Remember back in college when you had to use one of the computer labs?  It was basically a room full of computer stations made available for everything from creating presentations to developing software applications.  Now imagine if each of the computers in that room costs a different amount to use.  The ideal thing to do would be to walk around the room to find the cheapest one – of course making sure that it has the needed capabilities.  I can imagine a situation where cloud software would locate the least costly computing resource for a given task anywhere around the country or world just as I would walk around that computer lab searching for the cheapest available station.

I’m speculating here but could this lead to a normalization of electricity prices across the country as data centers compete for locating and using lower cost centers?  I was only able to find one 2005 article mentioning that data centers consumer about 1.5% of all U.S. electricity.  I think it would be a fair guess that today’s number might be closer to 2% or higher.  If so then how would that impact states that currently have lower electricity rates?  Lots of potential externalities here to contemplate.

The article also mentions that energy companies could negotiate with large internet firms in advance of expected peak loads to mitigate potential outages or problems.  Energy companies could essentially ’shape’ their loads to prevent failures or outages.

A problem I see with this technology is that if it is used extensively in a decentralized manner then most of the cost savings could evaporate quickly.  I know what you are thinking here, “but that is to be expected.  Its simple supply and demand here – increase the use of product x over product y until the marginal cost reaches marginal benefit”. 

Here is my problem:
If every party acted independently and outside of a central market or clearinghouse then the anticipated savings would be lost to transactions costs.  These transactions costs being those associated with moving data from one place to another and doing so with incomplete information. Take for example if an underutilized data center pops up on the radar of ten or so Internet companies.  They each, independently and unbeknownst to the others, make the move to the new data center.  This surge in load may lead to an increase in costs and therefore mute any cost savings.  There could even be a potential for some Internet companies to have to move yet again - further increasing the cost of the move.

I think that a centralized market or clearinghouse for this type of transaction would facilitate this form of intelligent routing.  Of course, I am no expert in data center economics or how or if some of these problems or opportunities are realistic.  But with my limited knowledge they would be questions I would ask.

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It has always been my opinion that GM is the embodiment of poor management, lack of vision and a stubborn proclivity to rely on excuses in the face of adversity.  The public apprehension towards bailing out the Big 3 seems to be a manifestation of the same sentiment.

What I find unfortunate is that Ford, while equally responsible for its current situation, has been more responsive to the realities of the marketplace and yet seems to be getting dragged down with GM’s bad reputation.  Ford has brought in a new CEO, it has been in the process of painful but necessary steps to restructure and it has quickly begun to adapt.  If any of these firms should be bailed out it should be Ford.  GM should be forced to restructure under Chapter 11.

What many do not seem to understand is that allowing GM to fail could be a blessing in disguise.  With the anticipated growth of the alternative energy industry (wind, solar, etc…) we will need workers to man these jobs.  Where will they come from???  Look at the unemployment rate as it stands in the midst of a considerable economic  downturn – 6.5%.

Let’s look past the trees for a moment and see the forest.  The next decade will see baby boomers leaving the job market en masse – creating an industry that caters to them in the process.  Energy will be an ever increasingly important industry that will require imagination, talent and huge amounts of capital.  There is opportunity on the horizon, but we need to recognize it and prepare ourselves for it.  Americans have always shown their ability to take a bad situation and thrive on it.  Let’s keep that tradition alive.

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So What Do I Get? My question is, do you think that it will make much of a difference? Will it let you keep more of that spending money in your wallet? Well, it depends on how you look at it. Off the bat any reasonably intelligent person can surmise that lower gas prices will leave more money in their pocket – this is true.

BUT, we are all still paying more for goods and services today than we were, say, last year because of higher oil prices. The reason for this is that many businesses have already increased prices. I’m not saying that EVERY business has, but many have. So if you factor in the higher costs for things like movie tickets, groceries, and other goods and services, then the drop in gas prices is a drop in the bucket relative to the total amount more we are paying.

Of course, companies that have more elastic prices – that is the amount of their goods and services demanded is VERY sensitive to changes in price – will react much faster to lower gas prices than the price of a movie ticket. I don’t have the data but I would probably expect that most goods and services that are considered a necessity would have a more inelastic price.

Fine Print There is one more caution that should be noted. Studies have found a pretty strong relationship between the demand for oil and economic growth. The problem with that relationship is that it is positive. Thus, lower overall demand for oil can be an indication of lower economic growth.

Why am I throwing this caution out there? Well, because oil prices have to come down for a reason, and consequently, the recent price reductions at the pump are reflecting lowering demand for oil. One reason can be that the summer season has come to and end. Another could be that people are driving less or perhaps dumping their gas guzzlers for gas sippers. Who knows, but the fact is that a relationship has been established. It is something worth noting.

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