This is a story about putting your money where your mouth is.
Last month, on Earth Day, Google pledged to run all of its data centers on carbon-free electricity by 2030. CEO Sundar Pichai said: “Within a decade, we aim for every Google data center, cloud region, and office campus to run on clean electricity every hour of every day.”
Google is in good company when it comes to big tech climate initiatives. Facebook achieved net-zero emissions for operations last year. Apple is now completely powered by renewable energy. Amazon is promising net-zero emissions by 2040. And Microsoft is actually planning to be carbon negative by 2030, meaning it will remove more carbon dioxide from the air than it produces.
While all these companies should be lauded for their sustainability efforts, there’s a very important structural reason for why cloud service companies prioritize efficiency and sustainability: because the manufacturers own the assets, not the consumer. When companies turn from product vendors into service providers, all sorts of innovation starts happening with regards to efficiency and waste.
Data centers, for example, are the Godzillas of electricity consumption. The combined power usage of the Big Five tech companies is roughly the same as New Zealand. Google’s own electricity consumption nearly tripled between 2013 and 2018. Today the IT sector contributes roughly the same amount of greenhouse emissions as the aviation industry (and don’t get me started on Bitcoin mining).
Data center power efficiency is measured through a metric called PUE, which represents the ratio of total energy used divided by energy used specifically for information technology activities. The ideal PUE is 1, where 100% of a data center’s electricity consumption goes toward actual computation as opposed to overhead like transformers and cooling systems.
As you can see below, Google has made significant progress on its PUE ratio since it started handing out public figures in 2008:
Just imagine a scenario where we didn’t have the cloud, and all our current
computing power was spread across hundreds of thousands (or millions) of data centers around the world. What would a global PUE improvement chart look like in that case? Probably up and to the right! Without the centralization of assets, there wouldn’t be enough incentive to drive all this efficiency at scale.
Running a more energy-efficient data center operation is important for fiscal reasons as well. Data centers are expensive to build, and are usually financed through debt and equity. Institutional investors are increasingly prioritizing sustainable funds that meet ESG criteria (environmental, social and governance). Blackrock, which manages over $8 trillion dollars in assets, recently dedicated itself to sustainable investing.
“As more and more investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further,” said Larry Fink, the CEO of Blackrock, in a recent investor letter to CEOs. “And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company’s stock.”
Clearly, sustainability initiatives aren’t just about “good corporate citizenship” anymore. These days they are practically mandatory. And that’s a good thing. But guess what? I think it’s safe to say that when Google started concentrating on data center efficiency at the turn of the century, they weren’t thinking about the environment. They were thinking about money.
Again, this is what happens when the manufacturer owns the asset. This phenomenon is nothing new — right now there’s a lightbulb in a fire department in Livermore, California that has been lit since 1901. Why? Because electricity companies used to own the lightbulbs in homes and buildings, not us!
“When products are turned into services, no one has an interest in things with a short life span,” says Ida Auken, a member of the Danish Parliament. “Everything is designed for durability, repairability and recyclability. The materials are flowing more quickly in our economy, and can be transformed to new products pretty easily.”
The same general dynamics behind the shift to the cloud — access over ownership, pay-as-you-go consumption — are happening in every industry. Here’s what the former head of sustainability at IKEA said at a Guardian conference: “If we look on a global basis, in the West we have probably hit peak stuff. We talk about peak oil. I’d say we’ve hit peak red meat, peak sugar, peak stuff … peak home furnishings.”
That’s why IKEA and several other startups are launching new furniture subscription programs. Because when it comes to things like couches, appliances, electronics, and clothing, we are currently living in that non-cloud scenario. We aren’t in a circular economy, where products are designed to be reused and repurposed. We’re still living in the landfill economy.
The good news is that thousands of subscription companies want to change that. A company called Grover lets you subscribe to personal electronics in order to help reduce e-waste. Rent the Runway lets you share and subscribe to clothing in order to minimize clothing waste. Joymode, whose motto is “Do More. Own Less,” offers access to low-utilization items like camping gear and karaoke machines.
Today if a company wants to succeed (and get funding from places like Blackrock), they’re going to need to put their money where their mouth is when it comes to sustainable consumption and responsible repurposing. Peak Stuff (and its partner-in-crime, planned obsolescence!) is coming to an end. That’s why A World Subscribed is a more sustainable world.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.