When I think about the impact of the iPhone, I often marvel at how many products I no longer need. This elegant handheld computer is already my primary watch, camera, music player, map, compass, alarm clock, dictionary, notepad, calendar, calculator, tape recorder, address book, tide chart, ebook reference library and, increasingly, my main internet access device (almost). Tomorrow, it may well be my TV, radio, wallet, ID card, health monitor, location-aware guide, and who knows what else as well. Smart phones are literally absorbing one commodity market sector after another. What can we learn from this?

People often suggest that smart phones are the modern equivalent of the Swiss Army knife, but this understates their impact. When you add more functions to the knife – spoons, scissors, corkscrews – it becomes bulkier and less appealing. In contrast, the more functions that are bundled into a smart phone, the more attractive it becomes. More importantly, the various Swiss Army knife functions are almost always inferior to the real things. No one stops buying screwdrivers or forks because their knife has one. In contrast, smart phones are now the preferred device for most of the functions listed above. In other words, virtual, software-based applications are becoming the norm, and specialized physical products the niche exception.

Are large organizations and Enterprise IT headed in a similar direction? It would seem so. We already have virtual networks, desktops, servers and storage, all supporting virtual employees, teams, communities, meeting rooms, companies and even virtual realities. Long ago, the virtual bank inside the computer became far more real and important than the increasingly vestigial bank branch. Similarly, many office buildings are now embarrassingly empty even as the firm’s virtual office hums with activity. Most recently, the recession has exposed the potentially vast overcapacity of today’s physical retail stores, even as Amazon’s virtual mall continues to thrive.

Many of our clients believe that a high level of reliance on virtual resources is the only way that they can deliver the global efficiency, agility and speed that their businesses require. This is why there is so much interest in cloud computing: the cloud is what makes the widespread virtualization of large enterprises possible. Just as smart phones are absorbing one consumer product space after another, so will cyberspace replace many of the physical functions of the firm with superior virtual alternatives. As physical space and physical activities move to the cloud, they become less expensive and more standardized, ideally just another callable, commodity resource. The long-term economic changes will likely be far more dramatic than those triggered by today’s smart phones.