I wouldn't say the Google strategy was wrong per se - their stock has about 10x'd since then. But it's interesting to see how much things change over time.
However, I think the sentiment is probably true that selling VPS is low-margin over the long-term, but i think the margins come from the other bits: global economies of scale, good infrastructure management & practices, and providing their proven internal technologies (ML/AI, managed distributed services). Long-term, it seems like Google could come out the winner, but only if the other aspects of business are also done well (like sales). It seems like Google Cloud is picking up market share, but still far away from the 3 As (AWS, Azure, Alibaba)
And they stayed because of Azure. Azure was making huge profit when google decided to increase number of data centers. This wouldn't be coincidence, IMO.
It's even sillier than that: Microsoft counts (a significant portion of) boxed copies of Office that you buy in a store as Azure cloud revenue. The justification being that buying a copy Office in a box gets you the right to the cloud-based version rather than the offline one you actually bought. Ultimately it's about flexibility.
And in this case, the flexibility to make your Cloud business whatever percentage of your total company revenue it might take in order to claim the market share numbers you want.
(I work for Google, opinions are my own)
Of course little else is going to look like a better idea! Every direction is downhill!
But every other local maximum can only be reached by first crossing a valley.
When I joined Amazon in 2012, the message is clearly that AWS competes with IBM Oracle EMV Vmware NetApp. I do not have proof if the original plan was that in the early days. But given my impression on Amazon and AWS' executive team, I'd say very likely enterprise IT has always been Amazon's end game.
With basically every major tech company (Amazon, Google, Microsoft, IBM) now having some cloud offering and so many companies switching their on-site infrastructure for the cloud, it seems like it's only a matter of time until compute time becomes a commodity. Once that happens pricing becomes a race to the bottom and margins become much smaller.
Not sure if this is the original from HBR but it is from 1965: https://hbr.org/1965/11/exploit-the-product-life-cycle
From "Maturity Stage":
> The market maturity stage typically calls for a new kind of emphasis on competing more effectively. The originator is increasingly forced to appeal to the consumer on the basis of price, marginal product differences, or both.
Even if moving a containerized application across cloud services was as simple as clicking a few buttons, if you're doing any sort of logging, and especially later any computation over those logs, you will be locked in one way or another.
The cloud is enormously expensive if people are buying it for "compute time".
But that's the miscalculation: thinking people buy cloud for "compute time". By and large they do not. They buy cloud for flexible provision, robust management, easier deployment, and better monitoring.
And those are differentiated qualities.
Google Cloud Storage launched in 2010
Google has been chasing Amazon since AWS started, and has been accelerating investment.
Multi-cloud isn't a myth, but it's pretty close. It requires lots of discipline that most customers won't have. The smart money is on cloud providers improving their margins, not shrinking them.
Are more providers entering into the cloud space? I thought AWS and Azure had this on lock down, with Google a third fiddle.
Are new companies able to enter this space now? I assume the capital investment required for allocating and maintaining tons of data centers at edge nodes that are globally distributed would be too steep.
But I don't see anybody competing with AWS/Azure/GCP anytime soon.
But I strongly object to the capital characterization. Akamai, the gorilla in the CDN room, to looks to have capital expenditures of $200M or so for hardware/colo/etc. Cloudflare was spending $20-30M IIRC. Conversely Amazon “Cash capital expenditures were $6.7 billion, $10.1 billion, and $11.3 billion in 2016, 2017, and 2018, which primarily reflect additional capacity to support our fulfillment operations and additional investments in support of continued business growth in technology infrastructure (the majority of which is to support AWS).”
Money alone doesnt buy success but the CDN guys dont seem to showing up to the game yet. As youve noted I dont really see anyone else on the trajectory to general competition with the big three.
Disclaimer: Im a principal at AWS and have worked on CloudFront. All my comments are based on my personal reading of publicly available data like 10K & S1 filings.
The barriers for entry on the Cloud will never drop. The Cloud grows more and complex and regional data centers across the globe are impossible for any company without gobs of money to compete with. The margins will drop, but only because the competition between the big 3 has barely even started; even that I believe is a decade away.
The same thing happened with the underlying server/architecture/processor providers. For a while it a vibrant field with multiple competitors and high margins. After a while, competition and differentiation drove down margins.
When the margins drop only the best players will be left. Those players will buy out the competition until there's just 2 or 3 big players who will then ratchet up the prices until they reach a stable equilibrium.
And then another layer gets added to this tasty lasagna:
- Processor
- Architecture
- OS
- VirtualizationService
- CloudProvider
And then we start the process of innovation to margin squeeze again...
Why? My guess is that the market for Cloud computing is constantly expanding and there isn't a plateau in sight?
It would cost $850,000 to move 10PB of data out of a cloud. People aren't going to do it. They aren't going to be able to afford to do it.
And it was widely thought to not be high margin at the time. Cloud prices have not fallen as fast as hardware.
FWIW, many people still think it will become low margin.
But once you are there and make the cloud/devops process part of your DNA, you may find that it isn't the optimal place to live from a cost perspective. I moved a workload from a big cloud provider to a private datacenter recently and reduced the costs on an annual basis by like 60%. We did need to make a big capital investment.
For every AWS API with significant adoption, Google should have implemented it. Make transitioning from AWS to GCE as simple as possible.
AWS was the clear leader, and sure, you can try to attract different customers... but they should have also tried to make it as easy as possible for existing AWS customers to migrate.
Then, you offer your customers additional services that the other guy doesn't offer.
Not to mention some of the paradigms: regionalized dashboards/endpoints, the mess that is EC2Classic/VPC, lack of projects for compartmentalization/namespacing ... a lot of those APIs also leak internal implementation details of their products, and trying to match them would be silly.
And they did follow one API that everybody else has: S3. And that one is decent only because it's basically HTTP with some auth headers sprinkled in.
My overall experience with GCloud is much better thanks to these redesigns. AWS just seems like an underdesigned mess of loosely coupled components implemented by siloed teams.
That was my experience as well. It felt like they never included any UX person throughout any of the decisions. Their naming convention alone always seemed confusing to me, although it does seem to be improving.
By that chart, GOOG's only about 5x-ed since 2006.
If they would have invested in on-demand streaming video, maybe they wouldn't have been "stomped" by Netflix's 60x return since a similar date?
Hilarious, now that we know amazon builds better infrastructure. How they say it? „don’t buy your own hype“!
Google's cloud seems pretty capable, they're just going through teething. They got to live migration extremely fast, and they seem to have nailed BigQuery and Spanner (albeit not the pricing model.) They will get more reliable.
Internally though, Google was (and maybe still is) a decade ahead. With Borg they deployed their entire infrastructure as containers, running at insanely high utilization via Heracles, and built homogeneous and highly-scalable networking. They invented synchronous georeplication with Spanner. From all accounts, it's a paradise.
It just turned out they were too greedy with keeping their innovations to themselves, too egotistical to believe the rest of the world would catch up, and it was too difficult to productize their infra.
For instance, their containers can only rely on API filters for security, so they couldn't bring Borg to the masses, other than cutting it down dramatically to make Kubernetes and requiring it to run on VMs. It looks like Spanner is also priced by the core, which implies it also can't be safely/compliantly commingled with their internal instances.
Still, for a company playing catch-up and needing to completely change their mindset (remember that initially they didn't even offer VMs), they're doing darn well. Especially now that they've pivoted to GKE/big data/ML and targeting multi-cloud or niche clients rather than enterprises.
Google deserves fame for its infra, it just didn't have good business sense when it came to cloud.
The road to higher reliability is a slow one when we are talking about cloud-level 9s. I get the feeling they are still in the early stages of adopting a B2B culture and everything that comes with that.
For example, the June global network outage was caused by a software bug that had global implications. AWS moved away from building software that crossed region boundaries years ago, I would guess because they had an issue like this one. It feels like GCP is many mistakes behind AWS.
Cloud reliability isn't due to genius, it's just software+infrastructure that has been improved again and again in response to new failure modes. I think it will be several years before GCP has reliability that is comparable to what AWS has today.
But I feel like their real mistake was trying to do things right, rather than compatibly. I think Google Cloud Engine is undeniably a better system than ad-hoc Linux VMs. But nobody really wants to rewrite all their code to work with it.
Which is a fundamentally wrong analysis. Managed compute, network, and storage was going to happen whether or not Google got into the business, helping build Google's competitors. The only difference is that Amazon gets to collect the rent.
Just like Microsoft, which made bad decisions about the Internet but grew anyway so continued to reward its execs, Google completely fumbled in cloud but grew in other places and continued to overcompensate its execs.