Amazon’s lawsuit over the JEDI federal cloud contract won by Microsoft is just a taste of what is to come in the on-going cloud wars. At stake is the dominant platform that the world’s servers run on, which will allow the victor to extract a toll on all other IT services that want to use it allowing the winner to pocket tidy profits for years to come.
While late to the party, Microsoft shouldn’t be ruled out from becoming the next juggernaut in the space. In fact, the company has pushed into the cloud industry recently and has a reputation for going the distance. Microsoft’s dominance and deep ties in sectors like federal, local, and state governments as well as the Fortune 2000 makes them a formidable foe. Microsoft also has claims to software like Windows Server and Microsoft SQL Server which power many enterprise data center applications today. Microsoft is already up to its old tricks like bundling via its Azure Hybrid Benefit, which coaxes Microsoft customers onto Microsoft’s cloud.
Plus, Microsoft has been able to cater to whole sectors like retail that are in direct competition with Amazon’s core business. Walmart snapped up e-commerce mover and shaker jet and placed its leadership in charge of Walmart’s online efforts. Soon thereafter, Walmart announced a deal to work with Microsoft for its online push — not Amazon, as that would have been a no-go when factoring in the e-commerce pressure Amazon has put on Walmart. Similar stories abound with retailers pairing up with Microsoft, looking to align themselves with an IT team that isn’t trying to steal their lunch. But why stop at retail? Content providers (who compete with Amazon’s Prime) like Disney, and database providers like tech darlings MongoDB and Elastic are more likely to push customers to clouds that don’t offer a lower-cost but barebones alternative to their core products (like Amazon does).
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At the same time, Amazon has something special, which is acceptable ROI of zero. While AWS boasts great margins today, Amazon’s mantra is to sacrifice margin to get long-term market share that Microsoft’s dividend hungry investors can’t tolerate. Amazon could make this a drawn out war of attrition, knowing Microsoft can’t sustain meager margins forever. AWS also leads in the space, and in some ways is so far ahead and that even competitors like Netflix (which competes with Amazon Prime) uses AWS technology likely because there are no plausible alternatives today for companies that are pushing to grow fast and global.
Also in the ring are Google, which recently announced a $9 billion run rate for its cloud services division. Oracle also is ramping up and deploying infrastructure globally to cater to the shift from packaged software to software as service (SaaS) delivered in the cloud.
Perhaps more interesting than the current tech titans are, potentially, the new tech titans: Nvidia with super chips for AI and machine learning; AMD with processors that are speeding past the current batch of chips from Intel; and new IPOs like Cloudflare, Fastly and Zoom, which solve specific problems that the bigger guys aren’t focused on. It’s possible that these newer providers could commoditise the larger players and be king makers themselves. Most interestingly is the newer batches of SaaS infrastructure are growing from the ground up, penetrating the low end first while growing their larger MRR (monthly recurring revenue) customers the fastest. It’s special because it’s called product market fit, and they have it with new technology in a new space.
While cloud providers are running to get their technology globally deployed, new markets for cloud – like edge computing – are starting to take hold. Fanned by the flames of faster 5G mobile networks, edge computing moves deployments from massive data centres to ‘edge’ locations such as cell-towers, or regional locations that allow lower delay and faster response for a new breed of apps that have yet to take off, laying the infrastructure for the next Facebook to be born. Datacenter giant Equinix recently snapped up Packet, an edge provider with plans to accelerate deployments across Equinix’s global footprint. Signal Hill Data Centre has recently launched a facility that caters to edge providers in Orlando, Florida. Similarly, EdgeMicro and Vapor are building out alternative edge locations for the next swarm of Internet applications, IoT devices and sensors to power self-driving vehicles and to handle the tidal wave of low latency traffic they will bring with them.
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Another factor that could turn the tables on a potential victor is new legislation that seems to be coming at a blistering pace. With security and compliance a top concern, providers that can check all the boxes can win workloads. California recently passed CCPA, Europe passed GDPR, and more regulatory frameworks are coming – SOX, PCI, HIPAA are only getting more and more complex and harder to do. It’s not just that new applications have to work. They must also be compliant and secure, which gives legs to a whole new set of entrants who are growing fast but have yet to see much notoriety such as compliance companies focused on the cloud.
With the speed at which things are changing, we don’t yet know who’s going to dominate the next phase of the cloud wars. While it could be the above mentioned tech titans, it could also be the chipmakers, the SaaS vendors, or even a new company invented on the technology being rolled out that may dominate a future we don’t know yet, doing things we haven’t even imagined. How this all plays out and who ends up sitting on the throne and winning the JEDI arms race will be fascinating. Grab some popcorn and watch as it all unfolds. The race is on.
