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In 2011, Facebook (FB) was besieged by surging data-management costs. It was growing too fast. So it decided to change the way it did data centers.
That change was radical. Jonathan Heiliger, then Facebook’s infrastructure leader, thought it would be a cool idea to open-source what the social networking giant was doing with its own data center hardware. He called it the Open Compute Project (OCP).
This was not a mainstream idea. Most companies, even big technology ones like Facebook, bought their gear from the likes of Hewlett-Packard (HPQ), Dell and Cisco Systems (CSCO). They linked together servers, switches and cables, and then they prayed the combination would be enough to meet their growing demands. It was kind of a crapshoot. Heiliger’s idea set that on its head.
In theory it made sense. Open-source Linux already revolutionized enterprise software development and Android was doing the same for mobile. The idea was to bring the same level of innovation to data center hardware, where products had become costly and oddly, energy inefficient. Plus, because Facebook didn’t compete in hardware, it wasn’t really giving away competitive advantages.
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Facebook’s initial efforts were met with skepticism. In addition to getting pushback from the legacy hardware makers, FB found leading cloud-computing firms – like Amazon Web Services (AMZN), Microsoft (MSFT) and Alphabet (GOOGL) – were less than supportive. After all, they were trying to discourage Fortune 500 companies from building their own data centers in favor of the public cloud.
Yet, one by one, the pieces began to fall into place for OCP. Early on, it developed an alliance with Intel (INTC), a key player in the development of Linux. Standardizing chip design ensured modularity and made it possible for companies to share. Working with Frank Frankovsky, an ex-Dell hardware designer, and Don Duet of Goldman Sachs (GS), they set up the hardware building blocks and provided OCP an inside track with financial firms. After that, it became a movement.
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| A Foxconn factory – thanks to OCP, the Japanese company partners with Hewlett-Packard |
And big companies followed. Apple (AAPL) and Microsoft have committed to OCP. Even Hewlett-Packard is involved, working with Foxconn (FXCOF) to build OCP boxes that are being shipped to data centers all over the globe. Financial-services firms have been the most fervent early adopters. Goldman Sachs has committed to 80% of all new servers being OCP and Fidelity Investments recently revealed how open-source hardware is driving significant cost savings. In a sector that spends almost $200 billion annually on technology and data management, this is a powerful motivator.
OCP is not likely to change the movement to cloud computing. AWS, Microsoft, Alphabet and smaller private-label data centers are building big businesses in the cloud with substantial cost advantages. If anything, OCP helps that effort by standardizing and reducing the costs of hardware. The losers are legacy computer hardware firms like Dell and especially Cisco. The days of bespoke equipment, lavish sales conferences and high margins are over.
Open-source is popular with engineers because it’s the foundation of science. Although it’s not great for profit margins (especially if you’re selling) it’s a boon for innovation. Facebook is the investment winner here.
Best wishes,
Jon Markman
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Well I see the Fed Gods are having their gathering again and they are holding one and all spellbound as usual. Gold is moving sideways to slightly up. In defense of their paper printing predation they must again stir the kettle to try and find a new way to defend their monetary machinations/manipulations. The flat lining stock market must be given another push down Wall street with their actions and gold must be demonized lest it become a real threat against their paper empire. Mores the pity that people have not caught on to the fact that these gods are much like the mythological ones. They should only meet once a year and that is on Halloween so they can trick or treat us.
Sounds like we will soon have ONE large (world) data center that will manage everything. Scary.
Keep me abreast
IBM another company employing the “See no evil” defense. Yes the money in the bank increased but it was borrowed money. They spent the most ever on aquisitions and of course the accounting elves ran rampant with their fancy finger work. It is shocking that the SEC allows this type of reporting.
Gordon, regarding the work of the accounting elves, here’s a factor I see on IBM’s balance sheet that concerns me. The same condition exists on balance sheets of other Fortune 500 firms, and to date hasn’t seemed to hinder progress … but I am puzzled regarding how this condition is sustainable.
The focus is on the “Goodwill” line. Goodwill, in my experience, has two definitions – the first applying under conservative business management, and the second applicable when companies go a bit wild with M&A activity:
1. The value of an acquired company’s intangible, but valuable assets: its
trademarks, copyrights, patents, and intellectual property, for instance.
2. The excess value an acquiring firm pays for other companies it buys.
IBM’s goodwill at the end of 2015 was $32 billion. Its stockholder’s equity, in contrast, was $14 billion. Now, you cannot sell goodwill; it has no street value similar to accounts receivable, inventory, plant and equipment, or cash. So, I like to see what happens to a balance sheet if goodwill is deducted from a company’s assets. If you do that with IBM, it’s stockholder’s equity (net worth) drops to a negative $18 billion. To me, that more closely approximates a company’s liquidation value than the currently-accepted measure of stockholder’s equity, and when it’s negative I worry a bit about the firm’s real health.
Full disclosure: I am an accounting elf, heh.
To be sure Facebook uses great software. It filters out postings which citizens are not supposed to know or believe daily. Like the non drug cures for alzheimers which are food based that it won’t allow saying there is no cure for alzheimers. One must only take medicines prescribed by the “approved” medical establishment. Heaven forbid people become autonomous and think clearly. Facebook is a great investment unless you think a day will come when those at the top will no longer care to watch those at the bottom.
Could this be why a certain talk show host calls it Fakebook ?
With all the censorship that comes with the new politically correct
crowd, who will be brave enough to post anything that is even the least bit
judgmental…? You can’t call anyone FAT, ugly, poor, or the wrong gender without
being ridiculed for your insensitivity…
Heck, even the government is unable to call a terrorist what they are, even after they
willingly tell us what they are.
You just need a good Thesaurus and find alternative words to tell the true words. Stop this nonsense with the word terrorist…it actually connotes political legitamacy; hence, my words…MURDEROUS THUGS!