The Cloud Czars gained dominance by putting cash flow into cloud infrastructure.
Apple, Microsoft, Amazon, Google, and Facebook now spend billions of dollars each quarter on data centers. They upgrade the ones they have, and they build new ones. This is the cloud world we know.
Cloudflare wants to change that. The company is selling a concept called “Web3,” in which every server can be a node on the cloud network.
The offering is based on distributed technology already used for cryptocurrency like Bitcoin and Ethereum. Cloudflare supports these efforts with gateways. The idea is that distributed software can now support cloud storage for less than what Amazon (for instance) charges to move data out of its S3 repository. It’s in moving data out that Amazon Web Services sees its biggest profits. Cloudflare says it can disrupt that. Amazon calls its storage offering S3. Cloudflare calls its new one R2.
Great theory. Harnessing the edge to take on the center makes sense. Letting anyone with unused space play in cloud markets sounds great. Exporting data with S3 is expensive.
Cloudflare is offering a way to arbitrage cloud costs. It’s bringing storage held in data centers, at REITs, and in its customers’ corporate networks to the cloud market. The more cloud-based software products Cloudflare supports in its stack, the more powerful the solution becomes. More data and applications live at the edge of the network. This is good for everyone.
But ultimately the cloud is infrastructure. Cloud capital spending was $38 billion in the first quarter of 2021. Most of it was spent by just 4 companies – Amazon, Microsoft, Google, and Facebook. Note that Facebook still isn’t re-selling any of its capacity.
If Amazon sees itself with excess capacity, it can drop its prices and flood the market. Even the cloudless cloud needs clouds to make it rain. Harnessing the edge is a good thing, but it won’t create a problem until cloud demand slows. When it does, scale will matter, and costs will likely shake out the cloudless cloud first. The Cloud Czars aren’t going the way of IBM and AT&T just yet.
