A hundred years ago, a new network - the electric grid - allowed people to abandon their private waterwheels and steam engines. In short order, electrical power turned into a utility. Now, thanks to the broadband internet, it's computing that's becoming a utility.

Over the past 10 years, the nature of computing has changed. While most of us continue to depend on personal computers, we're using them in a very different way than we used to.

Instead of relying on software installed on our hard drives, we increasingly tap into software that streams through the internet, supplied by large data centres run by companies like Google, Facebook and Intuit. Our PCs are no longer self- contained devices. They're terminals that draw most of their usefulness not from what's inside them but from the network they're hooked up to.

Vital role

By making power cheap and plentiful, the electric grid changed society, spurring the expansion of the middle class and the spread of mass culture. Given the vital role that software plays in our lives today, we can expect the computing grid to bring equally large changes. We already see the early signs in the shift of control over media from institutions to individuals in people's growing sense of affiliation with virtual communities rather than physical ones, and in debates over privacy.

Nowhere, though, are the stakes as high as in employment and the distribution of wealth. Over the past few decades, we've seen a growing concentration of riches in a small slice of the population. In coming years, the skewing of income promises to accelerate as the new computing grid allows companies to achieve far higher levels of automation.

For a preview, you need only look at YouTube. When Google acquired the company for $1.65bn (£830m) in 2006, YouTube had just 60 employees. Yet the minuscule staff was able to run one of the most popular and fastest-growing websites. Every day, people watched more than 100m YouTube clips and uploaded some 65,000 new videos to the site.

What made it possible for YouTube to build a very large business very quickly with so few people? The internet's abundance of cheap processing power, storage capacity and communication bandwidth. And YouTube's experience is far from unique. Many companies are using the utility computing grid to create expansive enterprises with hardly any employees.

A year before Google bought YouTube, another internet giant, eBay, purchased the internet telephone company Skype for $2.1bn. Founded just two years earlier by a pair of Scandinavian entrepreneurs, Skype had signed up 53 million customers - more than twice the number of phone customers served by venerable British Telecom - and was attracting 150,000 new subscribers every day. Yet Skype employed just 200 people.

Even more remarkable is PlentyOfFish, an online dating service. Launched in Canada in 2003, the site experienced explosive growth. By late 2006, some 300,000 people were logging on to the service every day, and they were looking at about 600m pages a month. How many people did this booming business employ? Precisely one: its founder, Markus Frind.

Companies like YouTube, Skype and PlentyOfFish are constructed almost entirely of software. Their products are virtual, flying across the internet as strings of digits. The cost of distributing their goods or services to a new customer anywhere in the world is essentially zero, so they can expand vastly without hiring additional employees.

By relying on the internet as their distribution channel, they can also avoid making capital investments. YouTube doesn't have to build production studios. Skype doesn't have to string miles of cable between telephone poles. PlentyOfFish doesn't have to open offices.

The economics of doing business online can be a boon to consumers. What used to be expensive - everything from international phone calls to video transmissions - can now be had for free. But there's another side to the robotic efficiency enjoyed by the new internet companies. They compete, after all, with old-line businesses that have long employed many people.

Given the economic advantages of online businesses - advantages that will grow as utility computing drives the costs of data processing and communication even lower - traditional companies may have no choice but to refashion their own businesses along similar lines, firing workers in the process.

Shrinking workforce

We already see signs of the thinning of the workforce in some information industries. Early last year, the US Department of Labor released a revealing set of statistics on the publishing and broadcasting business. Employment in the industry had fallen by 13% in the six years since 2001, with nearly 150,000 jobs lost. These were years when many media companies had been shifting from physical media to online. Yet the report revealed that there had been no growth in internet publishing and broadcasting jobs. In fact, online employment had actually dropped 29%.

The displacement of workers by machines is nothing new. But whereas industrialisation created far more jobs than it destroyed, computerisation is taking a very different course. It is extending the replacement of workers by machines from the blue-collar to the white-collar world, but it shows no sign of creating broad new categories of employment. The electric utility was instrumental in spreading wealth among a large and prosperous middle class. The computer utility may funnel society's riches to a small digital elite.

· Nicholas Carr is the author of The Big Switch: Rewiring the world, from Edison to Google, from which this article is adapted