By Michael Entner-Gómez | Digital Transformation Officer | Entner Consulting Group, LLC.
To begin, I want to make it clear that my perspective on Amazon Web Services (AWS) is not rooted in any negative sentiment. AWS is undoubtedly an innovative powerhouse, and I take pride in my connections with many friends and colleagues working there. Their expertise in delivering cloud-based services is unparalleled, and I would never hesitate to consume their cloud offerings myself or recommend them to my clients. Yet, we must confront a critical question that looms large: For startups aiming to enter the cloud derivative market, is it really worth the effort? My straightforward response is no, with one significant caveat. If — and it's a substantial IF — your venture offers a truly unique and differentiated service, one that doesn't lean on the usual cloud offerings (the kind AWS can effortlessly provide, develop, or acquire), then you might stand a chance. Intrigued? Let's delve deeper.
Once Upon a Time…
In 2006, AWS began offering what I term as 'ticks' — essentially, you're billed for increments of resource usage in the cloud, including CPU, memory, storage, and network. These are the fundamental components for cloud-based operations, designed to enhance and globalize your applications. AWS initially launched with services like Elastic Compute Cloud (EC2) and Simple Storage Service (S3), quickly establishing them as core elements of cloud computing. Since then, AWS has broadened its spectrum of services, evolving into what I refer to as cloud derivatives — specialized functions built upon a robust cloud infrastructure. Today, AWS stands as a leading force in the cloud service domain. However, while there are niche players in the cloud arena such as Salesforce, Snowflake, and Atlassian, offering distinct products and services, their longevity faces challenges in the wake of AWS's overwhelming presence.
This expansion of AWS not only signifies a remarkable growth trajectory but also reflects a shift in the cloud computing paradigm. It showcases how cloud technology has evolved from a simple storage and computing platform to a comprehensive suite of services that cater to diverse needs, from data analytics to machine learning and beyond. For consumers and businesses, this means access to more advanced, integrated, and scalable solutions. However, for competitors, it represents an increasingly formidable barrier to entry. AWS's continuous innovation and expansion are setting new industry standards, compelling others to either specialize in niche areas or risk being overshadowed by this tech giant's expansive portfolio.
A LEGO Approach
Did you ever find yourself engrossed in building imaginative structures with Legos as a child? Picture AWS as an enormous Lego set, where its employees are the master builders. At AWS, they're given the freedom to construct virtually anything they can envision, with two key conditions: their ideas must be clearly articulated in a written document, and they need to demonstrate the potential to generate revenue in a relatively short time frame. It's like a creative competition, where builders vie for approval, developing parallel products with the most innovative and effective solution winning out. This innovative and entrepreneurial spirit is the driving force behind their new offerings, and it supports an accelerated product development model.
(Sorry, I’m a bit of a Lego geek, so indulge me here in my analogy.) As time progresses, this Lego set only expands, now including specialized pieces. Imagine the AWS Elastic Kubernetes Service (EKS) as a LEGO Technic Gearbox, enabling the construction of complex, scalable cloud systems. AWS Lambda, akin to a LEGO Power Functions Motor, brings dynamism to cloud computing, allowing for flexible and efficient serverless operations. Meanwhile, Amazon SageMaker parallels the advanced sensory capabilities of a LEGO Mindstorms EV3 Sensor, offering intelligent machine learning tools that adapt and learn. Together, these specialized pieces like scalable database solutions with DynamoDB, reflect the continuous addition of innovative services to AWS's arsenal.
Anything that can't be built swiftly or efficiently is strategically acquired through partnerships, biding time until AWS can either develop their own version or outright acquire the innovating company. This approach is not just about expansion; it’s a testament to AWS’s commitment to staying at the forefront of technology. It's a dynamic ecosystem where the most effective solutions thrive, ensuring AWS's adaptability and resilience in the ever-evolving landscape of cloud computing. This environment fosters a culture of innovation and agility, setting the stage for the next wave of cloud computing advancements.
If you're attempting to innovate using mere Legos, be prepared to face an uphill battle against these seasoned Lego champions, for whom building groundbreaking solutions in the cloud is not just a skill, but an art form mastered through years of pioneering and leading the industry
Now, as those familiar with the innovation space will appreciate, there are three principal types of innovation (as I see them) that drive progress forward.
Genesis Innovation: This is the creation of something entirely new, something that never existed before. It's characterized by groundbreaking ideas and pioneering developments, marking a leap forward in thinking or technology.
Synthesis Innovation: This type of innovation involves creating new elements from existing ones — akin to alchemy. It merges what's already there, often combining different ideas or technologies in novel ways to forge something unique or more than the sum of its parts (of higher intrinsic value).
Remix Innovation: This approach takes existing concepts, reassembles them, and infuses unique elements to address specific challenges. While doing so, it retains recognizable elements from its origins, creating a familiar yet evolved solution.
Among these, 'genesis' innovation is the most lucrative, especially in a market dominated by players like AWS. Genesis innovation's value lies in its novelty and groundbreaking nature. However, its true potential is realized only through rapid monetization. In the fast-paced world of technology, it's crucial to quickly transform these novel ideas into profitable ventures. This is paramount because, in a scenario where AWS can replicate or adapt existing innovations, the unique value of genesis innovations becomes highly time-sensitive. The ability to swiftly commercialize these ideas is crucial to maintain their competitive edge and prevent them from being absorbed into the repertoire of a tech giant like AWS.
While synthesis and remix innovations have their place, their impact often pales in comparison to genesis innovations, particularly when facing AWS’s vast resources and technological prowess. AWS can easily engage in synthesis and remix, diminishing the unique value and competitive advantage of these types. Consequently, for those competing with AWS, focusing on genesis innovation represents the most viable strategy for maintaining a distinct position in the technology landscape.
A Real-World Example from Wind River
To illustrate some of these points, allow me to share a real-world example from my time at Wind River. We developed a specialized software-defined vehicle (SDV) offering, targeting the CI/CD (Continuous Integration/Continuous Deployment) aspect within the automotive industry. This product was unique and offered a differentiated solution, providing automotive customers with a development environment specifically tailored to their needs. Intriguingly, we deployed this technology using the AWS cloud, inadvertently funding future competition — but I digress.
This innovation caught the attention of Aptiv, a major player in the automotive industry. The acquisition of Wind River by Aptiv was a testament to the successful extreme monetization of our product, a result of innovative thinking in the realm of Remix Innovation. At the time of our product's launch, it was unrivaled in the market. We found ourselves in direct competition with industry giants like AWS, pitching to major automotive companies such as Stellantis, Ford, GM, Tata Motors, among others. We even attended meetings with AWS, where our ideas were subtly gleaned for insights. Competing against the vast resources of AWS was a daunting prospect.
After I moved on from the company, AWS introduced a competing product that had been in development for the past year: the Virtual Engineering Workbench. This product directly challenged the unique space we had carved out, presenting a significant challenge to the new Aptiv/Wind River offering. This development dramatically underscored the difficulty of maintaining a competitive edge in a market where AWS doesn’t just provide the platform but can also emerge as a direct competitor. The rapidity and effectiveness with which AWS could match and potentially surpass unique solutions like ours was a stark reminder of the relentless nature of competition in cloud-based technologies. Reflecting on this experience now, it highlights the rapid pace of innovation required to stay ahead in this ever-evolving landscape.
Big Problems for Specialized Cloud Service Providers
In an earlier point, I touched upon the precarious future I envision for companies like Salesforce, Snowflake, Atlassian, Twilio, Shopify, and Databricks. It's not that I see these companies vanishing instantly, but rather, they're on the radar of a formidable competitor: AWS. And why wouldn't they be? These companies occupy lucrative market spaces with substantial spending power, making them prime targets for AWS’s expansive ambitions.
The concern here isn't just about competition; it's about AWS's ability to leverage its vast array of assets to create more compelling and integrated offerings. Consider this as a macro-level Lego build. Imagine integrating AWS's contact center solutions into a new CRM system, infusing it with AI-driven analytics akin to Snowflake, and connecting it to AWS's marketplace and supply chain capabilities. This could enable a level of adaptive marketing, sales, and production that specialized cloud providers might struggle to match.
The potential permutations here are staggering and could significantly disrupt these specialized cloud service providers. Many of them are already leveraging AWS's infrastructure for their services. This reliance poses a strategic dilemma: Can their expertise and niche focus alone save them from being overshadowed by AWS's broader, more integrated solutions? Or is it only a matter of time before AWS replicates their offerings, perhaps even attracting their top talent to its ranks? This looming challenge is more than just a competitive battle; it's a fundamental shift in the cloud services landscape, one that we're just beginning to see unfold.
Clash of the Titans: The Battle of Hyperscalers
Remember the movie where gods vie for supremacy? A similar saga unfolds in the world of cloud computing, with hyperscalers like GCP (Google), Azure (Microsoft), and AWS (Amazon) jostling for dominance. However, in this celestial struggle, AWS seems to hold the upper hand, despite the formidable presence of its rivals.
Let's delve into why. Take Microsoft, for instance. Despite its technological prowess, the company's siloed organizational structure often hampers the seamless integration and assimilation of new products. Consider the recent acquisition of Nuance and the ongoing speculation about its integration into Microsoft Dynamics. While Microsoft navigates these complexities, AWS strides confidently with its battle-proven offerings like the AWS Contact Center, showcasing its operational efficiency and customer-centric approach.
Then there's Google. Ah, Google! I fondly recall a conversation years ago, standing in a computer shop, discussing web crawlers and a new search engine named Google. Since then, they've made remarkable strides but still seem to lag in extending their cloud prowess to the edge, closer to the end-users and their daily technological interactions (yes, I know, Android — but what’s next?). Google has the potential to be a powerhouse in sectors like automotive, yet, in my opinion, they seem confined to roles like infotainment. In the realm of product development, Google's less competitive nature compared to Amazon's aggressive approach might seem safer, but it doesn't change the fact that AWS is a step ahead in the game.
This is not to undermine the potential shifts that could occur tomorrow. The tech landscape is nothing if not dynamic. But for now, AWS leads the charge. There's an African proverb that goes, “When elephants fight, it is the grass that suffers.” In this tech titan clash, small players and startups might find themselves akin to ants in the path of dancing elephants — vulnerable and overwhelmed. AWS's dominance isn't just a testament to its strength; it's a reminder of the challenges faced by emerging players in the industry.
The Next Battlefront: Edge
So, there's one frontier where AWS hasn't fully established dominance yet: the edge. While they've made inroads with offerings like Wavelength and Outpost, and Amazon has ventured into various consumer products like Echo, Kindle, and now with its satellite venture, Project Kuiper, their efforts are still extensions of their cloud-centric core. Consider Kuiper's potential; its greatest strength will likely be a tie back into the cloud for AWS services. If you have any doubts, just wait and see. All of these initiatives aim to position their cloud closer to enterprise action, yet fundamentally, they remain tethered to their cloud infrastructure. This tether, while a source of strength, also limits their agility in an environment where immediacy and local processing are paramount.
Returning to my original hypothesis: competing with AWS might seem like a daunting prospect, but it's at the edge where the zest for life and innovation is found. This space, which effectively bridges the cloud to the edge, or what I call the 'skinny edge,' is the real battleground. In biotech terms, it's akin to 'wetware' where data is generated and leveraged instantaneously, often aided by AI. In this context, the cloud, while still essential as a foundational backbone, starts to resemble a slower, older, bigger brother. The 'skinny edge' emerges as a subcloud, capable of autonomous operation, mirroring the big cloud's capabilities on a more immediate and localized scale.
Will AWS venture into this territory next? It seems almost certain, and it's just a matter of time. The edge computing landscape presents a set of challenges and opportunities that demand a departure from traditional cloud computing models. This is an exciting domain, ripe for innovation and competition, and I'm eager to witness its evolution. The edge is all about decentralizing computing power, bringing it closer to where data is generated and used. It's about speed, responsiveness, and local autonomy. In environments like autonomous vehicles or smart cities, where split-second decisions are crucial, even minimal cloud latency becomes a significant barrier.
Breakup on the Horizon?
The possibility of Amazon being broken up, either voluntarily or by government mandate, has been a topic of significant discussion. The U.S. government has launched a comprehensive antitrust lawsuit against Amazon, which is a major step in the Biden administration's efforts to curb the power of large tech companies. The Federal Trade Commission (FTC), under the leadership of Lina Khan, has specifically called for breaking up Amazon and filed a lawsuit that could lead to a court-ordered restructuring of Amazon's $1.3 trillion empire (The government’s new attack on Amazon could completely restructure the giant).
The FTC's investigation into Amazon began in 2019 and has accelerated since Khan took over, focusing on various business practices by Amazon that are seen as anti-competitive. Khan has noted that Amazon's tactics have been aimed at depriving rivals of the scale needed to compete, which has led to a "stunted landscape" in its wake.
It's important to note that while the FTC and other government bodies have increased their focus on big tech companies, including Amazon, the outcome of these efforts, including any potential breakup, remains uncertain. For instance, the FTC has faced setbacks in other cases against big tech companies, underscoring the challenges in these legal battles.
Regarding the impact on smaller companies, a potential breakup of Amazon could indeed create more space for smaller competitors to thrive, as it might reduce Amazon's overwhelming market presence. However, the situation is dynamic and subject to legal and market forces, making the future uncertain for both Amazon and its potential competitors.
Where Does this Leave Us?
As we traverse the intricate landscape of cloud computing, dominated by giants like AWS, we face a paradox. On one hand, AWS’s unparalleled innovation and expansive offerings have reshaped the industry, setting new benchmarks for efficiency, scalability, and versatility. On the other hand, their dominance poses significant challenges for new entrants and specialized service providers, potentially stifling competition and innovation.
The potential regulatory actions, including a breakup of Amazon, introduce a new dimension to this landscape. Such actions could redefine the rules of engagement in the cloud computing market, offering a glimmer of hope for smaller players seeking to carve out their niches. However, the outcomes of these legal battles remain uncertain, and their implications, both immediate and long-term, are a matter of intense speculation.
Meanwhile, the 'skinny edge' emerges as a new frontier, promising a battleground where agility, local processing, and immediacy are the keys to success. This evolving domain might offer an avenue for startups and smaller companies to innovate and compete, albeit in a market segment where AWS is already eyeing expansion.
In this ever-shifting terrain, one thing remains clear: the cloud computing industry is at a pivotal juncture. The decisions made by regulatory bodies, the strategic moves of companies like AWS, and the innovative breakthroughs at the edge will shape the future of this vital technology sector. For startups, incumbents, and giants alike, the stakes are high, and the opportunities vast. Yet, in the grand scheme of the cloud computing universe, where AWS's colossal presence looms large, the stark reality for any challenger becomes increasingly clear: attempting to compete head-on with AWS, without a distinct and revolutionary approach, is akin to walking into an arena of titans — a venture that, for many, might indeed be tantamount to corporate suicide. The dance of the elephants continues, and all players, big and small, must stay nimble to thrive in the clouds and beyond.