The Impending Cloud Reshuffle

&gt; What if cloud vendors focus on the lowest layer, and other (pure software) vendors on the layer above?<p>I&#x27;m at AWS re:Invent this week and I can tell you this absolutely <i>not</i> what Amazon is doing. Two themes really stand out in the keynotes and associated presentations:<p>1.) Becoming a home for data and ML services backed by hardware technologies like Graviton, Trainium, and stupid fast network connectivity. Amazon has dozens of value-added services from S3 to analytic databases. By my count they have at least 16 managed data services.<p>2.) Extend Amazon cloud wherever possible into non-cloud environments. Specifically: push to on-prem through technologies like AWS Outposts and Container Marketplace Anywhere as well as integrate with IoT.<p>#2 looks like a pump fake to defuse customer lock-in concerns. The real play is #1, which is to become the preferred home for data, taking the maximum possible share of revenue in the market. Taken as a whole, Amazon has the best data story of any company I know of.

Ahhh... maybe.<p>&gt; There&#x27;s some sort of folk wisdom that the lowest layer of cloud services is a pure commodity service.<p>&gt; Cloud vendors might be pretty happy making money just in the lowest layer. Margins aren&#x27;t so bad and vendor lock-in is still pretty high.<p>It may be folk wisdom, but big customers look at stuff like storage and CPU pricing when picking a vendor, because they need lots of storage and CPU. These services, in turn, are priced close to the actual cost of the underlying storage and CPU because of the high volume of storage and CPU involved.<p>I have worked at cloud vendors. Margins aren&#x27;t great. Cloud vendors are always asking questions like, &quot;How does vendor X sell this for so cheap? We can&#x27;t make a profit at that price! How can we make our costs for X lower?&quot; The lock-in is seen as a way to sell the higher-level services.<p>However, the high-level services, the stuff that start-ups compete with, also face competition with open-source projects. Things that used to be SaaS are now DIY with open-source projects running on IaaS. Ten years ago you had no Kubernetes, and you didn&#x27;t have columnar storage out of the box on PostgreSQL. Cassandra was immature. Nowadays, open-source software running on IaaS has killed the need for bigger segments of the SaaS market, assuming you have enough expertise in-house to run it.

I generally never understood the appeal of the cloud, and the particular way the 3 big vendors sold proprietary services as a means of vendor lock-in. I mean, I understand the appeal to them, seeing how they made ungodly amounts of money doing it, and given the choice you never want to be in a commodity market, but as user&#x2F;developers, the value proposition has always been unclear to me.<p>- The term &#x27;containerization&#x27; implies in theory (and somewhat in practice) that you package your software in such a way, that it can run on commodity hardware with enough resources.<p>- The huge success of open source means that for any given problem domain (KV stores, SQL, Web Server,LB, caches etc.). There exists a best-in-class solution that&#x27;s free as in speech. In fact, cloud providers&#x27; solutions use these libraries as well.<p>- The development of languages that combine productivity and performance (Go&#x2F;Java etc.) and with Moore&#x27;s law enabling ridiculous core counts&#x2F;RAM sizes etc. means that there&#x27;s less of an incentive to run a server farm when you can easily fit 128 peak-performance cores under your desk. Stackoverflow did this&#x2F;has been doing this model with quite some success.

This <i>might</i> happen, but Cloud vendors will fight tooth and nail to stop it from happening, because the lower layers are commodities and a race to the bottom pricewise. Also, many companies want a single neck to wring if anything goes wrong, and are thus unwilling to deal with a patchwork of third-party vendors.<p>That said, telcos used to mint money from overseas calls, SMS, ringtones etc, until the Internet came along and everything went &quot;over the top&quot; (over data and thus outside operator billing). They didn&#x27;t take that lying down, either (IIRC Skype was still banned in the UAE until COVID finally whacked some sense into them), but in the end telcos were still reduced to dumb pipes they are today.

This analysis ignores the reality that most teams do not want to spend time optimizing each component in their stacks. As a CTO&#x2F;CIO, you have to pick your battles, and the &quot;more future vendors&quot; box in the stack made my hair stand on end. Nobody wants their vendor stack to keep growing!<p>I need a managed PostgreSQL database; my needs would have to be relatively exotic for e.g. RDS to not be a good solve. AWS has deployment options for the big stacks. Tools like Vercel do not yet address the solid majority of Web developers who primarily write code for .NET or Java, and thus are not even in the conversation at most organizations (and nobody really wants 2+ PaaS vendors).<p>This is not to say the point solution vendors will not be able to build solid businesses. MongoDB is doing well alongside platform solutions like DynamoDB. But the gravity is clearly with the platforms, and nothing Mongo can do (short of becoming a hyperscaler cloud provider with lots of offerings) will change that.<p>Snowflake is a special snowflake; it&#x27;s entirely possible that the lessons of Snowflake apply only to Snowflake.

I always assumed AWS had the same model as the Amazon store, if they see something gaining in popularity on their platform (or off it), copy it and do it themselves.<p>It’s inevitable that things like Vercel, Netlify, Fly, and Render are copied by Amazon. It’s what they do, they want the full stack top to bottom fully integrated.<p>The thing they will never compete in though is developer UX, that’s where the smaller vendors (like those mentioned above) will always shine. AWS is now about 100x to big to have a good developer UX, there is just to much there.<p>The company that is really shaking things up is CloudFlare, they don’t seem to be afraid of playing with the business model to undercut AWS.

There are a few factors involved but the biggest ones we aren&#x27;t discussing are demographic shifts and fashion. We&#x27;ve got an entire new generation of developers entering into the marketplace that have no idea what life was like _before_ cloud computing was a thing, and their priorities are different than simply avoiding some capex and some graybeard sysadmins.<p>In terms of strategy, AWS is completely and totally unapologetic about copying companies built on top of their platform if it helps them in the future. The author suggest that there haven&#x27;t been this many companies aimed at the vendors before but that&#x27;s a lack of insight into the history of how they came about in the first place. When AWS was first launched there were dozens and dozens of vendors competing with, building on top of, and partnering with cloud vendors. Almost none of them exist today.<p>Snowflake is an incredible exception but not a rule. The reason they succeeded (and the reason I personally believe fly will succeed) is because they&#x27;re building hard to implement underlying technology and focusing on DX. That&#x27;s basically it. If you&#x27;re going to compete on economics you&#x27;re absolutely hooped.

In the bigger companies, the effort of bringing in new vendor is substantial. There are contracts that need to be approved by legal, security assessments from IT, billing arrangements from finance, user database integration, and so on. If the company already using AWS, then any product offered by AWS has a huge advantage.<p>I am sure that even if independent services are more loved by programmers, there will still be substantial amount of companies using AWS versions. And since the bigger companies would prefer them, I would not be surprised to know that AWS earns more money from them than startups do.

I couldn&#x27;t really follow this thesis. This observation popped out to me:<p>&gt; <i>[Redshift] was a brilliant move by AWS, because it immediately lowered the bar for a small company to start doing analytics.</i><p>Every sales organization I&#x27;ve ever seen collected too much data. What the kids today call &quot;analytics&quot;.<p>And these orgs don&#x27;t know what to do with it all. So much so that they delude themselves. Convincing themselves they&#x27;re divining wisdom from noise. I have no idea what this phenomenon is called.<p>In fact, most recently, my last gig had decades of data hosted on Teradata, was migrating to Redshift. I worked on the Recommendations team, which was trying to evolve into Personalization.<p>Teams of data scientists. So much data. A cultural legacy of batch processing hidden behind ML pipelines. So much effort.<p>It took me a while to figure out most of the &quot;work&quot; my team did was completely fictional. Our most effective recommender algorithm was just showing people what they&#x27;d already looked at in the last 6 months. But this simple truth was hidden behind a massive rube goldberg machine.<p>So. What was true of CRM and ERP systems in the 90s remains true today. Collecting data without purpose, without a working hypothesis, without experiments validating the effort, is just wasted effort.<p>In my time, I&#x27;ve worked with two very smart marketing people. Knew how to design a survey, how to crunch the numbers, validated their own work. Once you see how a pro does it, you realize most everyone is just faking it, fooling themselves along with every one else.<p>Pretty much just like every other discipline.<p>--<p>Oh. How does my cynicism relate to the OC&#x27;s prediction about a cloud shuffle?<p>For the users of cloud stuff, making data collection, aggregation, and analysis easier and more accessible is a net negative.<p>Which I suppose is great for cloud providers.

This seems like a mix of wishful thinking and extrapolating from a single outlier (Snowflake).

The article has a eye-grabbing title that is quite larger than what&#x27;s covered in the content, which has become a norm nowadays. My read: the article builds on 1 core thesis --- the big 3 are moving into infrastructure focused vendors, and more and more software layers, when moved to Cloud, will be owned by vertical aligned vendors with gradually refined market focuses (data warehouse, streaming&#x2F;messaging, app hosting, etc.; and the pattern repeats itself along even higher levels).<p>I cannot say I have enough data to agree or disagree with the prediction. Mostly, the Cloud is still very early in its development.<p>The Cloud today only changes how the underlying business model works in provisioning computing. I.e., people now by default goes to Cloud for machines. That&#x27;s a generational transition from the old DC&#x2F;on-prem model.<p>But on top of this new model, the software only start to gain some properties that are distant from the old model fundamentally. Lambda is one such example. Docker&#x2F;Kubernetes, as the article points out, is actually very incremental development over the old models (thinking about Vsphere puppet scripts etc.).<p>My sentiment is that fundamental shift like Cloud, only manifest itself after it gives birth to fundamental shift in how applications are developed and run. There are a lot of relatively new trends in this area, but none of them give me the impression of a killer paradigm. I am looking for something like PC + windows, Internet + Google, Cloud + ? type of thing.<p>Let&#x27;s see in 10 years.

This is the polar opposite of what is happening in cloud.<p>All vendors are moving up the stack, with the eventual endpoint being even business productivity apps aligned with Azure, GCP, AWS.<p>They all see IAAS as the commodity end with less value add and lock-in.<p>This is undeniable through actions and PR statements and has been the observed direction of travel for a decade at least.

Seems like Americans live in some sort of other parallel reality Internet where Hetzner et al., don&#x27;t exist.

Not to detract from the point, but I don&#x27;t think you can take revenue numbers from RedShift to Snowflake like that. We made that move and ended up with 20x the monthly cost (after budgeting for 10x).<p>Seems like AWS is still making their money on the underlying layer in our case.

His whole argument more or less hinges on the fact that the 3 services he picked only had AWS, GCP and Azure as options, and hence the big 3 are content to defend their market position. But that&#x27;s not a done deal as things can change on a dime and the cloud vendors are being vigilant. Their 50-60% margin will be spent on developing more lock-in.<p>On one side you have Cloudflare. Cloudflare is the Apple of cloud. They&#x27;re gunning for the big 3 by vertical integration and proprietary products and hence changing the way the market operates.<p>On the other side you have up-and-coming IAAS and MAAS providers chipping away at the margins. These are either commodity providers that cut the fat, or owners of DC and&#x2F;or connectivity so has the synergy to undercut the cloud platforms. This plays into the open platform push such as cloud native &#x2F; kubernetes.<p>It&#x27;s almost certain that the cloud providers will lose marketshare in the IAAS space as they simply can&#x27;t compete on cost. Regulation is also going to catch up to prevent cloud lock-in. So the only play these platforms have is to fight on scale and features which means continuous expansion on all fronts, including higher-level services.

I think this guy is very optimistic on cloud if he thinks in ten years people will still view it as the right way to go. A bunch of monopolies are using various levers to push companies to shift to a model with uncapped spending (literally), with a huge extra profit margin. Cloud has benefits for two narrow segments of business: Rapidly scaling new companies and extremely globalized companies, and makes basically no sense for anyone else.<p>As regulations catch up, national borders continue to impact how businesses operate across networks, etc., I doubt the cloud model will still look good in ten years. Half the benefit of the cloud is just being... newer. Interfaces are often more modern simply because, well, the Windows Server team all started working on Azure instead. A decade from now, people will look at the pains and problems of working with AWS and Azure the way people look at dealing with Windows Server and hardware maintenance today: Looking a little rough.

&gt; What happened?<p>Marketing. Everyone has heard of Snowflake. And not just IT people. Finance, marketing, I’m sure even the cleaners have heard how wonderful it is.<p>Redshift on the other hand is something that a lot of IT people and even some data warehousing people seem unaware of.<p>There are many people who seem to think that Snowflake is the <i>only</i> option.

There is some truth to this argument: <a href="https:&#x2F;&#x2F;sigops.org&#x2F;s&#x2F;conferences&#x2F;hotos&#x2F;2021&#x2F;papers&#x2F;hotos21-s02-stoica.pdf" rel="nofollow">https:&#x2F;&#x2F;sigops.org&#x2F;s&#x2F;conferences&#x2F;hotos&#x2F;2021&#x2F;papers&#x2F;hotos21-s...</a>

To me, if you cut out all the garbage, this sounds like going back to managed dedicated hosting. All things are new! Managed hosting is <i>so</i> much better than designing your own stack! Look, you can pay us to just do it and it&#x27;s like <i>magic</i>.<p>Seriously?<p>I <i>hate</i> the fact that most of my projects live on AWS right now. But I don&#x27;t feel locked in; I can jump off if I want. I don&#x27;t buy into the entire ecosystem (read: the parts that are difficult to migrate away from), but AWS is just an amazing way to manage lots of resources and patch them together in any way you can imagine. And therein lies the creativity and control -- and cost savings. Because no two projects scale in the same way. The fantastic thing about self-managed cloud environments is that you can find the right size and scalability for each thing, and everything is where you put it. Zero-downtime is up to you. The biggest drag on downtime is people in between you and access to restarting or working directly on those services. In the 2000&#x27;s, I used to have to put in a fucking <i>ticket</i> with <i>tech support</i> to <i>reboot a server in a datacenter six timezones away</i>, and it wouldn&#x27;t happen until someone had breakfast.<p>Do you think people who write code and handle the optimization of it across databases and servers around the world, want to pay a middleman to &quot;magically&quot; do everything - and see why it doesn&#x27;t scale, and find out who to call when it breaks? No, of course they want control over how their organization runs.<p>I mean, part of my job is just identifying services we&#x27;re currently <i>overpaying</i> for. I can take that down to a very fine-grained level with AWS. Why would I want to pay someone else to hide that information from me?<p>&quot;The edge&quot; is like &quot;no-code visual programming language&quot;. No one seriously wants convenience over power; but it&#x27;s a great marketing pitch.<p>2030 will not be the revenge of managed hosting brought to you by lazy corporations like Cloudflare. It will be distributed self-managed stacks running everywhere.

I think one thing that articles like this miss is that not all cloud services run, themselves, in VMs. For example, most of Google&#x27;s don&#x27;t. While virtualization has improved a lot, it wouldn&#x27;t be possible to replicate many of Google&#x27;s cloud offerings with competitive performance and cost on Google&#x27;s Compute Engine. Cloud Storage, BigQuery, serverless (Cloud Run, App Engine, Cloud Functions), Spanner, Bigtable, and Firestore all come to mind.<p>One big challenge for cloud workloads is multi-tenancy. If you want to run arbitrary untrusted code on the cloud, your only option is something like gVisor (which isn&#x27;t exactly a compromise-free solution). Nested virtualization is not secure and will likely even preform worse.

Not sure about this. Take Microsoft for example. Databricks runs on Azure, but they are investing heavily on Synapse workspaces so they own both the underlying infrastructure and the application stack on top.<p>I think the cloud providers have incredible amounts of engineering resources. Their aim is to do anything to get everyone onto the platforms. I don’t see any clear trend coming out in the years ahead. There will be a myriad of solutions (some wholly owned by the cloud provider and some with a third party like snowflake or databricks involved) and customers can choose what works for them.

&gt; Other pure-software providers will build all the stuff on top of it.<p>I was just watching the AWS keynote and it seems they are doing the opposite, offering more and more ready-made services so that startups don&#x27;t need to write software at all.<p>What&#x27;s the end goal of this? In the future amazon will use ML to auto-generate startups and offer them for sale. Then startup entrepreneurs will not need to hire programmers anymore, they will just buy a premade startup from AWS and become traveling salesmen. Basically gig worker CEOs for Bezos.

This theory and the conclusion on what the landscape will look like is spot on -- it&#x27;s so spot on it&#x27;s already obvious. In fact, it doesn&#x27;t go far enough. People are overlooking another angle -- the evaporation of the moat around the larger providers in terms of infrastructure they provide. Every year it gets easier and easier to run core AWS offerings (ex. S3 or EC2-like services) as long as you don&#x27;t need 5 9s of availability (I&#x27;d argue most businesses actually don&#x27;t need that and don&#x27;t have it even if the underlying infra does). Smaller players can run that infra at much smaller scale than AWS with higher relative margins.<p>Software is easier to administer these days (don&#x27;t say buzzwords like &quot;cloud native&quot; never did anything for you), and the startling thing is that the larger clouds still have a near monopoly on robustness&#x2F;service choice. Of course I&#x27;m lying a bit here -- OVH has managed databases, and there are Managed Service Providers (MSPs) that run in places that are <i>not</i> the major clouds but the point here is that fundamentally technological leverage and hardware prices are actually chipping away at the moats of the large clouds every day. Larger clouds have to move up the value chain, and that is exactly where smaller companies can have an advantage (not in pricing, but in quality).<p>Hetzner has just opened it&#x27;s first US data center in Ashburn, Virginia -- and IMO was worth using when it was only in Germany. Time to interactive is really important, but almost no one worries about this when it comes to dealing with backends. Deploying your frontend to cloudfront&#x2F;vercel&#x2F;any other CDN and leaving your relatively simple backend (what you might use for a simple three tier ruby&#x2F;django app) is extremely cost effective but requires know-how. Hetzner starting operations in the US is going to introduce new competition in the lower layers of this vertical, and there&#x27;s absolutely no reason that the Managed Service Providers (MSPs) can&#x27;t take advantage of this and grow their customer base. I&#x27;m trying to start making the know-how portable -- building a cloud that runs on many providers (starting with Hetzner) and I&#x27;m calling it Nimbus Web Services[0] with a launch early next year.<p>[0]: <a href="https:&#x2F;&#x2F;nimbusws.com" rel="nofollow">https:&#x2F;&#x2F;nimbusws.com</a>

I disagree.<p>The profit margin&#x2F;markup cloud providers make increases the higher you climb the abstraction layer. 1GB of RAM is 10X more expensive in Lambda than in EC2, but costs AWS the same to provide.<p>Second - services offered are a key selling point and driver of competition between clouds. they all want more features.<p>Third - considering point 1 &amp; 2, clouds prefer to offer their own versions of things. i.e AWS and the Elasticsearch fork.

&gt; There&#x27;s never been this many companies going after services that traditionally belonged to the cloud vendors<p>Interesting article.<p>The words &#x27;traditional&#x27; and &#x27;cloud&#x27; in one sentence... I can&#x27;t stand that. The cloud is just marketing speak for the internet. Make it vague on purpose so you can sell the same sh!t in another package to more people. And grab all the data in the meantime.<p>HN is smarter than this, right!?

Obviously the cloud vendors will try hard to foist lock-in on customers, and savvy customers should be trying hard to avoid those proprietary high level services<p>But what percentage of cloud programmers are wise to this? The individual programmers make the decisions that cause lock in<p>Cloud vendors know how locked in you are when you negotiate discounts, but by that time the key decisions are long past

Great post, thank you for sharing. I look forward to seeing this being reposted on HN in 2025, then again in 2030 for us to discuss.

This ignores a major factor driving usage of cloud-native services — namely that you don’t have to go through a corporate procurement process to use them, you can just use them. Which is why you’ll see any service offered by the major cloud providers achieve meaningful market share, even with an inferior product.

&quot;Let&#x27;s say a customer is spending $1M&#x2F;year on Redshift. That nets AWS about6 $500-700k in gross profits...&quot;<p>Can AWS seriously buy and operate infrastructure for half the price than anyone else ? I can&#x27;t imagine that being cheaper than running the datacenter yourself.

&gt; Cloud vendors might be pretty happy making money just in the lowest layer. Margins aren&#x27;t so bad and vendor lock-in is still pretty high.<p>But will vendor lock-in will be significantly lowered if the scenario predicted comes to pass?

I read the article and the comments here.<p>Regarding the article: &quot;Kubernetes will be some weird thing people loved for five years&quot;<p>What will replace it? It seems to me that people are moving towards K8 because it&#x27;s the right abstraction.<p>Regarding suggestions to use Herzner. I just looked because, while I knew the name, I didn&#x27;t know the offerings. All I see is web hosting and Linux VMs.

There&#x27;s a very particular kind of writing style happening here that I think I attribute to Matt Levine:<p>&gt; If that customer switches their $1M&#x2F;year budget to Snowflake, then about $400k7 goes back to AWS, making AWS about $200k in gross profits.<p>&gt; That seems kind of bad for AWS? I don&#x27;t know, we ignored a bunch of stuff here.<p>&gt; …<p>&gt; I&#x27;m not so sure? I spent six years as a CTO and moving from one cloud to another isn&#x27;t something I even remotely considered. My company, like most, spent far more money on engineer salaries than the cloud itself. Putting precious eng time on a cloud migration isn&#x27;t worth it unless cloud spend starts to become a significant fraction of your gross margins. Which is true for some companies! But those are in a minority.<p>I like this style -- conversational, well-cited, like an industry insider giving you an off-the-cuff read on their discipline at a party -- and I&#x27;m glad we&#x27;re seeing more of it. Do I misattribute it to Money Stuff? Was someone doing it before?<p>(Some of my formative reading experiences were with Art Buchwald and Erma Bombeck and I think I see a hint of that too.)

monopolies consolidate, and no tech company wants to be just a utility. my prediction is the monopoly dark age deepens, innovation stagnates. cloud is really monetized technical debt

I don&#x27;t think so.

I’m waiting for graphics cards to be accessible again so we can do ML generative art, music, and multimedia at home and implode the cloud for anything but storage and recovery of algorithmic libraries that regenerate seeds.<p>Sorry&#x2F;not sorry but I’m sick of this bizarre startup fetish for syntax art and finance as usual.<p>The algorithms are public domain. It’s still feudal property ownership. We call caste cohort now, having conjured another abstraction to confuse the rubes.<p>We send kids to college to define statistical objects of unknowable information network effects in many contexts to keep them busy. We’ll probably just morph to supporting the logistics network in the abstract. I can see teens and 20-something basically nationalizing that approach once enough old people die. It’ll all be boxed up behind tidy APIs