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.

Gone were the days when profit was the outcome of arbitrage opportunity. The notion that a profit could only be made when you bought something for less than what the market was offering was – well too boring. There was nothing exciting about a slow and methodical process by which one would identify, analyze and invest in arbitrage opportunities. Who cared about value when you could buy something hot today and flip it tomorrow when it would be even hotter?

Today the buzzword is real estate, but the problem remains the same. This time however the experts have been replaced with shows like ‘Flip This House’ and ‘Buy Me’. Now every Jack and Jill in America is convinced that they can play the real estate game and win big.  Notice I said win big; this is because many actually believe that they will win regardless of the outcome. To make matters worse, many more Americans foolishly decided to use their personal homes as ATMs; squandering whatever equity they had to ˜upgrade” their lives.

We are beginning to see the effects of this widespread imprudence, and there is more to come for sure. The worst part of this situation is not that home prices across the nation and on average may be at inflated levels, but that their exists a precarious yet logical step towards a reconciliation or market correction i.e. losing money, lots of money.  It is estimated that America will lose about 1% of its GDP to the current real estate situation and a 20% failure rate is anticipated among sub prime lenders. Unemployment, which is around 4.4% could rise by as a much as 1%.

Overall we could see higher unemployment, slower economic growth, many Americans facing financial distress and or ruin from higher mortgage payments, and a sad reversal of home ownership across America. This is yet another example of the ˜madness of crowds’ and how this irrational behavior can and usually does lead to widespread failure.  My recommendation is that we should focus our attention now to those who are weathering this storm and perhaps even profiting from it.  The game of money is a classic zero sum game – “ someone else’s ruin is another’s success.

This is yet another example of human stupidity asking for protection against itself. There was a time when something called common sense prevailed. A time when most people would have laughed at this guy and said, ˜that’s what you get for turning up the volume so high”.  But these days, a lack of intelligence or a complete absence of common sense can earn you special privileges – like doing something very stupid and getting someone else to foot the bill for the consequences.

Increasingly, I am noticing a worrisome trend in our culture and society. We are continuously protecting people from making less than intelligent decisions and passing the cost of those bad decisions on those who should not be bearing it.

A few years ago, I remember a teenager made a killing after he talked up a stock in an internet chat room. The federal government stepped in later, after those poor little investors complained, and prosecuted the teenager. When I heard that story, I was appalled! I was appalled that the government was actually stepping in to make the teenager return the money!

I more than agree that it was wrong what the teenager did, but that does not give a group of investors a free pass into stupidland for a day to buy stocks that they probably did no due diligence on and consequently lost their shirts. That teenager should have been allowed to keep the money and those investors should have bucked up to a stupid decision and walked away from the experience saying, I’ll never do that again!”  Instead stupidity prevailed.

Here is the problem I have with this trend, if we continue to protect people from making very poor decisions then they will only make increasingly more poor decisions. When you remove the cost of making a bad decision, you take away the “ouch” effect. I see it everyday now, people making bad decisions because they do not actually feel the consequences.