Nicholas Carr pronounces information technology strategically irrelevant to businesses and recommends adoption of the following policies: Cut IT budgets; do not invest in information technology innovations; invest only after others have succeeded (follow, do not lead); delay IT investments because prices are dropping and everything will be less expensive later; refocus from seeking opportunities to managing vul- nerabilities and risks; disregard innova- tive offerings because vendors are seek- ing added revenues and are therefore suspect; and delay innovation as the pre- ferred way for cutting IT costs. These recommendations are a departure from policies that have been pursued for the past 50 years. Therefore, each of the as- sertions Carr makes to support them warrants a commentary.
Assertion: IT has lost its strategic value. Carr argues that IT is no longer strategic because it has ceased to be a scarce good, and he contends that profit margins on IT-related innovations will consequently disappear. He does not support this argument with research findings (except for a reference to my own research and a misunderstood ex- ample from the Alinean Corporation). He bases his conclusions entirely on his reasoning, by analogy, that IT must fol- low the patterns that arose as businesses adopted steam engines, railroads, tele- phones, electric generators, and inter- nal combustion motors. But any proof that rests entirely on analogies is flawed. This technique was used to uphold me- dieval dogma, and it delayed the ad- vancement of science by centuries.
Carr’s logic is defective because his examples deal exclusively with capital- intensive goods. Capital investments in machinery do indeed exhibit diminish- ing returns as markets saturate and the difference between marginal costs and marginal revenues disappears, but in-
formation goods are not subject to such effects. The marginal cost of information goods – especially of software, which now accounts for the dominant share of information technology costs – does not rise with increased scale. It drops as- ymptotically toward zero. Therefore, any firm that can steadily reduce marginal costs by deploying IT can make infor- mation technology investments enor- mously profitable and can generate a rising strategic value.
Assertion: IT is a commodity that does not offer a competitive distinc- tion and therefore does not provide a competitive advantage. It is true that Microsoft desktops running on Intel processors have become widespread, but they account for less than 12% of IT budgets, and that number is declining. Most IT products are diverse – they cer- tainly are not commodities. And while many business processes do rely on stan- dardized desktops, are those processes therefore doomed to uniformity? In other words, does partial standardiza- tion wipe out opportunities for gaining competitive advantage? The evidence does not support such a conclusion.
Competitive advantage is not the re- sult of personal computers. It is the result of effective management by skilled and highly motivated people. Since 1982 I have shown (in numerous publications) that firms using identical information technologies and spending comparable amounts on IT display an enormous variability in profitability. My research, now confirmed by other investigators, has demonstrated that profitability and IT spending are unrelated, even if iden- tical technologies are used.
Assertion: Because IT is an infra- structural technology that is easily ac- quired and copied, it cannot offer a competitive advantage. Easy availabil- ity of information technology makes it increasingly valuable. E-mail, fax, and
cell phones gain in utility as they be- come more widely used, because they can be acquired on attractive terms. I have spent 40 years of my career imple- menting information technologies; for the first 30 years, that was a great pain. The technology was expensive, faulty, insecure, hard to manage, and unstable. I finally see the advent of an era in which low-cost ownership of informa- tion technologies is possible. This will be accomplished through services in which the vendors assume most of the risks of failure while increasing ease of use for billions of people.
Carr’s advice to back off from infor- mation technologies just as they emerge from a long gestation period is mistimed and abortive. Information technology must be easily acquired and made avail- able to everyone so that the global com- munity can increase the standard of liv- ing through easier communications and lower-cost business transactions. Wide- spread availability creates new business opportunities.
Assertion: The influence of IT will henceforth be macroeconomic and not a means for competitive differen- tiation. The proposition that IT benefits will flow to consumers and not to firms is a contradiction. Sustainable profits materialize when benefits accrue to cus- tomers. There are as yet enormous gains in value to be delivered in health, edu- cation, entertainment, business services, and especially government. Extending the benefits of the global division of labor and the inclusion of billions of new consumers into the global market- place will generate trillions of dollars of new revenues. Enabling the global mar- ketplace to function effectively will re- quire enormous new IT investments by individual firms. Surely there will be millions of enterprises that will be able to take advantage of such opportuni- ties. The lower entry costs for using the