In 2019 five companies dominate the global economy.
I call them the Cloud Czars.
They are Microsoft, Apple, Amazon, Google, and Facebook.
These companies have a combined market cap of over $4 trillion. The smallest of them, Facebook, is worth more than AT&T and the Walt Disney Co. combined.
The Cloud Czars dominate retailing. They dominate media. They dominate computing and communications. According to politicians of both the left and the right, this means they’re illegal monopolists and should be broken up.
This idea is dumber than anything Donald Trump ever said.
First, there’s no monopoly. These five companies are functionally the same. They have each taken the same route to success. They built scaled cloud data centers using cash flow from existing businesses.
These scaled data centers help the Czars dominate any business they chose. For the most part, they chose different businesses. Microsoft is software. Apple is devices. Amazon is shopping. Google is search, the Internet itself. Facebook is social, more crucially human-to-human communication.
But as their home niches have been filled, the Czars are competing with one another. Google competes with Amazon in shopping, and Apple in devices. Apple competes with Microsoft software. Google and Microsoft are both taking on Amazon in re-selling the cloud. Facebook wants to go into banking.
There is no monopoly here.
There are temporary business advantages created by companies taking big risks. Facebook began investing the $1 billion per quarter needed to build its Oregon data center before it had the cash flow to do it.
Companies that didn’t react to the cloud opportunity were left in the dust. This is as it should be.
AT&T, whose 1908 monopoly grant made it the dominant force in communications for generation, has been left in the dust. IBM, which signed its first monopoly consent decree in 1956, has been left in the dust. Gigantic department store chains like Macy’s, gone under Amazon’s hammer. TV networks that once defined entertainment, gone under the onslaught of cord cutting. Even cable can’t compete with free Amazon Prime or Netflix subscriptions, also powered by the Amazon cloud.
Yet all these are temporary business advantages. The Cloud Czars are going to lose the shared monopoly they enjoy today, and very soon.
That’s because of how clouds are built. Cloud data centers use distributed computing, virtual operating systems sitting on top of everything they run and (most important) commodity hardware and open source software. This lets the clouds take full advantage of Moore’s Law, which is constantly driving the cost of computing down.
Clouds built in 2013 for, say, $1 billion can be built today for a fraction of that cost. The instructions are right there, in public. Facebook built an open source community, the Open Compute Project, specifically to spread this knowledge. Netflix built its Open Connect project to drive down the cost of moving big files around the clouds. A host of smaller companies, like Equinix, Digital Realty, and QTS, have built centers around the world where the clouds interconnect, and where any company is free to install and run its own equipment with full connection to these clouds.
Then there’s the biggest trend of the late decade, the hybrid cloud. This took a long time to get going, but it’s vital that you understand it. Hybrid cloud means all enterprises can build cloud into their internal computing efforts. It means that their existing data centers are either replaced by, or transformed into, clouds. IBM’s open hybrid architecture gives these corporate clouds compatibility with all the clouds of the Czars.
It means customers can arbitrage the clouds for the best price, cutting the Czars’ profits. It means, as the 2020s open, you get a cloud, you get a cloud, everybody gets a cloud.
It means that Amazon competitors like Walmart and Target can move their retail operations into their own systems, which cost less than Amazon paid in the previous decade for its cloud. It means Adobe Creative Cloud doesn’t have to be hosted by Microsoft but can be hosted by Adobe.
The Cloud Czars dominate today because other companies are dependent on them. They can compete against their own customers. This is the heart of the government’s complaint against Amazon. All the small merchants that use Amazon Web Services may be disrupted by Amazon’s “store brands” which compete with their merchandise.
But lots of retailers use store brands to hold down costs and compete with name brand merchandise. Walmart does it. Target does it. Costco does it. Store brands that once represented low cost and value, may now be even better than the national brands. It all depends on how a scaled retailer sources their merchandise, and the quality controls it places on the producer. (Buy Kirkland olive oil.)
It’s easy to confuse temporary business advantage with monopoly because, as I wrote last week, reporters and analysts live in an eternal now. They don’t see the past evolving into the present, and all their graphs of the future are based on current trends holding.
But Moore’s Law is all about disruption. Everyone who embraces technology quickly finds themselves in “technology debt,” beholden to old hardware and software. You see it yourself after a few years with a new phone or PC. Companies saw it as their data centers were replaced by the Cloud Czars.
But the Cloud Czars have technology debt, too.
There’s a second reason why it would be stupid beyond ignorance to go after the Cloud Czar “monopoly.” The American dominance of the global economy, created this decade by the Cloud Czars and 20 years ago by the Internet, may also be temporary.
Alibaba. Tencent. Baidu. China’s “Cloud Emperors” have created $1 trillion of market cap themselves over the last few years. Right now, the Alibaba Cloud is kicking Amazon’s ass in Asia. It has a market share of 20% there. Also, the Alibaba cloud isn’t just infrastructure, or a platform, but a collection of software services, like those Oracle, Microsoft, and their ecosystem partners spent decades building here.
Instead of buying any hardware or software, a merchant or factory in Vietnam can just plug into the Alibaba Cloud and understand as much about their own customers, supply chains, and business processes as anyone buying Salesforce.com software on Google’s cloud, backed by an internal data center. At a fraction of the cost.
While everyone is scared to death of Facebook Libra, Alibaba and Tencent have already built mobile apps that do everything Libra might do. Alibaba’s mobile money system, Alipay, is backed by a money market fund of $150 billion. They’re not just coming after Facebook, but Visa and JPMorgan Chase, with cheaper infrastructure and a fraction of our technology debt.
The bottom line is this. In the world of Moore’s Law, everything is temporary. Everyone can be disrupted. What took $1 billion a decade ago may cost just $100 million today.
It’s a world where no lead is safe. The Cloud Czars are not safe. America’s business dominance is not safe.
Breaking up the Cloud Czars in the face of Moore’s Law is the dumbest idea ever.
