An 1865 economic study of coal explains why bankers and financial firms will pay more for IT and resource companies will pay less

William Jevons, a British economist, was looking at his country's dwindling coal supplies in the mid-1800s and was asked if increased efficiency in burning coal would lead to longer mine life.

Jevons discovered increased efficiency had the opposite effect: increased efficiency of some processes does not result in lower usage, but rather new processes are invented to fill that usage. The insight became known as the Jevons paradox. Thus increased efficiency was going to cause Britain to run through its coal sooner.

Dave Roberts, writing for GigaOM, notes that the same forces at play in Britain over 150 years ago have ramifications on IT spending and resource companies:

Some enterprises are “IT intensive,” using IT as a primary input into the business process (think banking and financial services). Those firms will see the greatest effect from Jevons’ Paradox associated with cloud computing.

But there are other enterprises that are IT insensitive (think logging and mining, for instance). These firms need some information technology capabilities, but IT is not a primary driver of project-level business cases. Increasing IT efficiency is unlikely to allow them to pursue additional projects. Thus, any IT cost savings can drop more directly to the bottom line and IT spending in these firms will go down.


Image of William Jevons from Popular Science Monthly Volume 11