workers inside Amazon's biosphere in Seattle
Seattle is in the midst of a second gold rush. But this time the main commodity isn't gold, it's cloud computing PHOTO: Seattle City Council

Seattle was the scene of a gold rush in the late 1890s, when gold was discovered in the Klondike River in Yukon Territory. Now, just a little over 100 years later, Seattle is in the midst of another gold rush — though this one is based on silicon and its chief commodity is cloud computing.

What is a gold rush? Wikipedia defines the term as “a new discovery of gold — sometimes accompanied by other precious metals and rare earth minerals — that brings an onrush of miners seeking their fortune .... While gold mining itself was unprofitable for most diggers and mine owners, some people made large fortunes, and the merchants and transportation facilities made large profits.”

The Pick-and-Shovel Business

As Wikipedia's definition makes clear, in a gold rush environment, the smart money is on the businesses that provide goods and services to the miners and the mining companies. They were generally the ones to see their fortunes improve, while more often than not the miners struggled. As Mark Twain reportedly said, “During the gold rush, it’s a good time to be in the pick-and-shovel business.”

During Seattle's first gold rush, gold was brought to Seattle from the Klondike River aboard the steamship Portland. Seattle businesses prospered greatly by selling supplies to the miners, with an interesting side note being that a man named John Nordstrom used his earnings from a Klondike River claim to open a shoe store that eventually evolved into the Nordstrom chain of luxury department stores.

The current gold rush in Seattle is actually taking place in the greater Seattle area, rather than 1,500 miles away in the Yukon. And the impact this time is global rather than regional.

As was the case during the Klondike Gold Rush, many Seattle companies are again in the “pick-and-shovel” business, but it’s readily apparent why Seattle is at the center of this: The top two cloud vendors, Amazon Web Services (AWS) and Microsoft, are both headquartered in the Seattle metro area, and the rest of the top five — IBM, Google and Alibaba — each have a significant presence in the area. And given the fact that AWS is larger than its next five competitors combined, it’s hard to see the locus of this industry ever migrating away from Seattle.

Breaking Down the Cloud

Here’s a quick roundup of definitions of the various sectors within the cloud computing industry.

  • Infrastructure as a service (IaaS): a form of cloud computing that provides virtualized computing resources over the internet. This is the sector in which AWS has a significant lead, and it is expected to be the fastest growing segment of the cloud market over the next several years.
  • Platform as a service (PaaS): delivers hardware and software tools, usually those needed in application development, to customers over the internet. Amazon and Microsoft are considered the leaders here.
  • Software as a service (SaaS): is a software distribution model in which a third-party provider hosts applications and makes them available for use by its customers over the internet.  Here both Microsoft and Salesforce are currently the strongest players.

With revenues that were expected to reach about $260 billion at the end of 2017, it’s clear that cloud computing has a tremendous amount of momentum. And it would appear that the good times are likely to keep rolling for the foreseeable future, with forecasts calling for global cloud revenue of more than $410 billion by the end of 2020.

Roll On, Columbia

Besides the benefits bestowed on Seattle’s economy by the fact that the top five cloud computing companies are either headquartered in the Seattle area or have significant operations there, another advantage benefiting the city is the abundance of inexpensive hydro-electric power that is generated by the Columbia River, which runs through Idaho, Washington and Oregon. That is one of the key drivers behind the development of data centers that support the cloud operations in Seattle.

While the proliferation of data centers is a global event, nowhere is its impact being felt more strongly than along the Columbia River in small towns like Quincy, Washington (population under 10,000), which now has numerous data centers built for the likes of Microsoft, Dell, Intuit, Oath (formerly Yahoo), etc. Amazon has three data centers along the Columbia in Oregon, and Google established its first data center in The Dalles, Oregon, near the mouth of the Columbia back in 2006. The transmission network that distributes the power is currently run by the Bonneville Power Administration, which is a government entity, but the Trump administration has proposed privatizing the network

Whatever happens, given the resources the technology titans have at their disposal, there is no question their cloud computing interests will be front and center if a deal emerges.

Rush Hour

While the Klondike Gold Rush helped spur the initial settlement and development of Seattle, the cloud computing gold rush is having a significantly greater impact on the city. One measure of the rate of growth in a particular area is the number of construction cranes in use. According to that metric, Seattle is the top city in the country, with 58 cranes. Much of the construction activity is to support the number of people moving to Seattle, which is the fastest growing city in the United States. But the growth has also resulted in Seattle distinguishing itself in a less desirable way: Navigation and mapping company TomTom ranked Seattle as No. 4 on a list of U.S. cities with the worst traffic congestion.

While there is no doubt this silicon gold rush will change the face of Seattle, the ultimate nature of that change has yet to be determined.