On Thursday (5/9) we held the Cloud2020 event at the Switch SuperNAP. The goal of the event was to discuss and ponder the state of IT infrastructure/cloud in the year 2020. The structure of the event was meant to ensure that there was room for discussion and debate. In this blog I’m specifically calling out the debate created during the “Programmable Infrastructure” panel with Pete Johnson of Profit Bricks, Randy Bias of cloudscaling, Jonathan Murray of Warner Music Group, George Reese of Entratius and moderated by Larry Carvalho.
It was during the Programmable Infrastructure panel that the crowd of Clouderati finally warmed up to the idea that debate was appropriate and expected. Most of the more boisterous debate was in regards to a comment from Randy Bias. Randy was responding to a question posed to the panel about the future of cloud service providers. Randy stated that he believed we would end up with a duopoly of Amazon and Google. He strongly believes that their existing scale, ecosystems and mindshare mean they will continue to be the dominant cloud forces in the year 2020. To be fair, Randy wasn’t the only one who voiced the belief in a cloud duopoly. However, there were a good percentage of the participants (yours truly included) who commented otherwise.
Why is the Duopoly Bad & Unlikely (I hope) to become real
I’ve written before on GigaOm that a monopoly in the cloud marketplace would be very bad for business and especially innovation. I also state in several places, including Joe Weinman’s book Cloudonomics that the reality of IT infrastructure variation means we’re unlikely at this early stage of cloud infrastructure development to be able to call out a winner. A recent blog by Pete Johnson (also from the above panel), has many good points on this issue as well. However, in this particular case I want to focus on one theme and that is the potentially negative impacts of a duopoly.
I think most of us can agree that IT is becoming an ever greater part of our daily lives and as such more critical to our ability to operate, manage our cost of living and generate opportunities to innovate. Well, if history is to be believed (not all of it is), a duopoly or monopoly and or regulated market in any critical segment of the marketplace is potentially fraught with peril for the buyer. As buyers we have significant experience buying from industries and monopolies that are regulated. We buy products from the banking industry, we fly on airplanes, eat commodities like beef and oranges, we use electricity, and water and so on. However, not all regulated markets have the same barrier to entry that power, water, or railroads do. Imagine trying to run your own power lines or railroad tracks today, cost prohibitive isn’t the word. So while a railroad is regulated as is a bank or an airline, they are not the same thing. You can buy a building, obtain a banking license and open a bank. You can buy a few jets, obtain licensing and routes and start an airline, it’s not so easy to do the same in railroads or power. All regulated industries, not all the same. My concern that cloud might become a duopoly stems from the real potential for a weakening focus on innovation (as competition is removed) and the guaranteed “success” (profit) from being regulated in a duopoly/monopoly market.
Regulated to protect the buyer vs. for guaranteed service survival
In most areas of the country there is no real competition for railroad service to move your cargo. However, you can easily find any one of 20 different banks in a decent sized city. Yes, both are regulated, but not the same situation. In the case of the bank they are regulated (theoretically) to keep from misusing your money and to provide you with some sense of security that your money will be returned when you need it. Not so in the railroad industry. While they too have regulations around safety, etc., their regulations are often established in a way that guarantees a healthy profit (like the power and water delivery markets). If you don’t believe me, I highly recommend you read David Cay Johnson’s book “The Fine Print”, you’ll be angry, but you’ll understand (U.S. market specific).
The Regulated Duopoly and the end of Innovation
I strongly believe that if as suggested the year 2020 brings us a duopoly of cloud providers, we run the real risk of the government recognizing this service as critical infrastructure (I.e., railroad/power delivery). With a duopoly we already carry the possibility that innovation and continued pricing pressure will be a thing of the past, but even worse we could have the lack of innovation and fixed pricing regulated into place by the government. One of the points made by Randy Bias was that the barrier to entry for real competition against Amazon or Google would be the existing scale. Imagine if that barrier to entry is further heightened by regulatory controls.
Guaranteed profit and market position do not equal Innovation
While I tend to disagree with the presumption of the cloud duopoly being a done deal for many reasons, I do fear it’s potential. The good news here is that as stated by several others already we are still in the first inning of the ball game that is cloud infrastructure. I’m very optimistic that some of the innovative smaller players in the market today will grow to become forces for change and further innovation going forward. As only through an open and competitive marketplace can the buyer truly hope to get the best service for their hard earned dollar.