Saturday, April 02, 2005

Gmail and Fractional Reserve Banking

Google increasing Gmail's storage capacity has an interesting parallel with fractional reserve banking.

Fractional reserve banking refers to the phenomenon wherein banks are required to maintain only a fraction of the depositors' funds with them; the rest is lent out or invested so that the bank earns some money out of the deposits. The underlying assumption is that this fraction is enough to service the all depositors' withdrawal requests at any point in time; not all depositors are expected to turn up at once and demand their money (if this happens, a run starts on that bank; it's not very easy, even for a financially sound bank, to stave this off).

In the case of Gmail, though each user is right now presented with two gigs of storage, most of the users are unlikely to have used up more than a small fraction (I am currently at 8% myself, BTW). So it's not even required that Google should have two gigs of hard disk space reserved for each user; they can very well claim to provide this without doing so and still not come to grief (what would constitute a 'run' in this case? All the users suddenly deciding to store their porn in Gmail?)