Initial Positions and Laws of [Competitive] Motion

Initial Positions: Where are the Three Bodies?

Let t(0) = Jan ’22. What are the initial positions of the three bodies?

Breaking orbit. by @lyssamarielowe

Breaking orbit. by @lyssamarielowe

As Covid-19 impacts every aspect of our work and life, we have seen two years' worth of digital transformation in two months.

— Satya Nadella

An oversimplified, high-level overview about the relative strategic positioning of the Big Three cloud hyperscalers from early 2020 (say, pre-NYC lockdown) would have gone something like this: AWS is Goliath, Azure might catch up to AWS because incremental market share gains in cloud penetration are likelier to be from larger, legacy (non-“tech-first”) enterprises where Microsoft has an advantage due to near ubiquitous penetration of software products (Windows, Office, VSCode, Github, etc.) and a clearly articulated hybrid cloud strategy, and GCP’s new CEO has to prove that they’ve sufficiently internalized the need to build out their enterprise sales muscle so that they can quickly get to sufficient scale to reach the promised land of mid-20% operating margins.

In other words, intra-industry competitive positioning hasn’t dramatically changed between then and now — plenty of analysts could have (and did) pretty much give the same synopsis circa 2019. At the risk of being only slighty less reductionist than I’ve already been, the even higher-level story goes along the lines of:

Docker and Kubernetes enabled widespread developer adoption of containerization and container orchestration, a development that was driven by and, in turn, accelerated the mainstreaming of microservice architectures to replace traditional, monolithic architectures
An ethos of vendor-agnostic modularity, driven by concerns of vendor lock-in and empowered by the adoption of containerization, normalized the rhetorical and actual adoption of hybrid cloud and multi-cloud architectures, possibly allowing for the long forewarned phenomenon of cloud commoditization to grow deeper roots
The decade-long process of commoditization of basic compute, network, and storage services from cloud providers accelerated hyperscaler focus on higher margin, differentiated services like industry/vertical-specific solutions (effectively going up the stack) and AI/ML, as well as cement their infrastructure dominance by integrating backwards into chip design

In relative terms, GCP had/has more to gain from positive trends in containerization adoption and resultant commodification of lower-level offerings because of their third place position, Azure had/has more to gain from hybrid cloud adoption where they have a clearly articulated strategy [ctrl+F “hybrid” in each hyperscaler’s respective 10-K’s — you hit 0 results for AMZN], AWS has more to lose from multi-cloud adoption [a category that Google considers to subsume hybrid cloud and claims as a trend it is positioned to gain from], both GCP and Azure claim horses in the race for dominance in AI with respect to both developer mindshare [where Google’s TensorFlow platform competes with Facebook’s/Meta’s Pytorch platform that AWS partners with them on to combat TensorFlow] and exploration of industry use cases [where Google’s DeepMind battles with the Azure x OpenAI partnership], and Azure has a relative advantage in providing industry-specific solutions due to strong enterprise relationships and simply by virtue of not being Amazon.

<aside> ✴️ From JP Morgan’s CIO Survey, JPM CIO Survey 2020: Cementing Cloud and Digital Superpowers (Jun 2020):

AWS is overwhelmingly dominant in share of spend among tech-first companies but Azure is marginally dominant over AWS in share of spend among non-tech enterprise IT-based organizations where there is more room for continued cloud penetration — i.e., All tech-first companies are already running on the public cloud to some extent and older companies are still working through their legacy stack in order to catch up

Only 0.8% of organizations surveyed by JPM (survey participants had an average IT budget of 675M per firm at N=130 firms, see the presentation for distribution/skew of firm sizes) did not use Microsoft-based software, making Microsoft the software provider with the highest penetration within enterprises

Microsoft’s workplace collaboration and productivity software (i.e., Office 365, Teams, Excel, etc.) obscure any potential for a like-for-like comparison of IT spend between just Azure vs AWS, but Microsoft’s dominance in spend among enterprises is a clear vindication of their full-stack approach

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Despite macro uncertainties justifying IT budget cuts, reduced spend on non-critical cloud workloads throughout 2020, and lockdown-induced delays in executing hybrid cloud implementations, Cloud companies were clear beneficiaries of an unprecedented catalyst for accelerated digital transformation in the form of COVID-19.

<aside> ✴️ From the same JPM CIO Survey:

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79% of CIOs agree with the notion that the COVID-19 pandemic will act as a forcing function to make them Digitally Transform and move to Public Cloud even faster than they had planned. 36% will increase their incremental spending in these areas for 2020 and beyond, while due to economic uncertainty 22% will maintain and 20% will reduce this spend.

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<aside> ✴️ From Flexera’s Flexera: State of the Cloud 2021 (Mar 2021):

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