[chillydawg]

It is today, but it won't last. As automation tooling gets better the barriers to entry drop and competition kicks in and lowers prices. You can see it already: Aws are constantly lowering their prices. It's not just to be nice, they're competing hard.

[solatic]

Core infrastructure may or may not be low margin (traffic rates are nearly pure margin designed to create a moat and may or may not eventually be challenged by regulators as anti-competitive; it remains to be seen). But the lion's share of cloud margin comes from value-added managed services e.g. AWS Lambda and GCP PubSub, which are exceedingly more expensive than their underlying infrastructure but not nearly so expensive as to justify small companies hiring FTE to manage open-source equivalents. And there aren't nearly enough cloud players to justify competition building out competing implementations for, say, the Lambda API, with the sole exception coming to mind being competing object storage providers implementing the S3 API.

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.

[zjaffee]

I promise you this isn't true, maybe over the long term the value add services will be higher margin, but for most of the big players right now the margins are in the core infrastructure aspects like standard storage and compute.

[redredrobot]

I don't think your statements about (a) where cloud margins come from and (b) Lambda vs VM cost are correct.

[partiallypro]

> the barriers to entry drop

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.

[erikig]

This is just history repeating itself.

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...

[ksec]

> 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.

Why? My guess is that the market for Cloud computing is constantly expanding and there isn't a plateau in sight?

[tonyedgecombe]

I suppose it depends on the amount of lock-in they can achieve, if it's hard to move from one provider to another then that will keep margins higher.

[echelon]

> barriers to entry drop

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.

[discodave]

Arguably the CDNs (Akamai, CloudFlare and friends) have made the capital investment, and are now in the cloud business.

But I don't see anybody competing with AWS/Azure/GCP anytime soon.

[donavanm]

Maaaaaybe. I see the CDNs bringing on compute & durablish storage at the edge. And id buy the argument theyre positioning themselves for the next round of “cloud” ala Lambda + DynamoDB.

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.

[PopeDotNinja]

"Your margin is my opportunity." [1]

[1] https://quoteinvestigator.com/2019/01/13/margin/

[outside1234]

You forgot storage and the huge lock-in that storage has.

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.

[phamilton]

AWS Snowball puts 10PB at $350k. They are already paying 200k/month for 10PB, paying 2 months worth to move it doesn't seem outrageous to me.