16 ms·

Good article, thanks for submiting! The challenge for AWS is one lots of incumbents have experienced: they created a market and it's economics and now they're

Good article, thanks for submiting! The challenge for AWS is one lots of incumbents have experienced: they created a market and it's economics and now they're being attacked by the next generation of market entrants who've structured their businesses to _specifically_ attack those economics. What's interesting is that challenge can be a really big problem for incumbents, as those economics can form a core (very rigid) part of their operating model; it can make it VERY hard to address without fundamental (read: risky) change to a business. There aren't many examples of incumbent businesses doing it successfully, as it needs a kind of 'self-inflicted disruption' that's very hard to do in large organisations where politics and empire building can make it difficult. If someone could do Managed NAT Gateway next I'd appreciate it!

jgrahamc 5y ago
they created a market and it's economics and now they're being attacked by the next generation of market entrants who've structured their businesses to _specifically_ attack those economics https://www.amazon.com/Innovators-Dilemma-Revolutionary-Change-Business/dp/0062060244 https://www.amazon.com/Innovators-Dilemma-Revolutionary-Chan...
- MauranKilom 5y ago
  Did you purposely link to it on Amazon? :)
- Joe8Bit 5y ago
  Hah, thanks! My comment was fairly blatantly stealing from the book! It's so interesting from an incumbents internal POV (I saw it a few times during my time at McKinsey) as changing an organisations economics is often the unstoppable force that meets the immovable object of internal politics. There's a really interesting ongoing example of this in the the UK as 'attacker' banks (e.g. Monzo, Starling) challenge the economics of incumbents. It's not quite the same, as these attackers are removing back-end cost (e.g. branch networks) from an already 'free' product (e.g. retail banking) but it's meant that big banks are looking at their balance sheets and seeing a set of gaping money pits that will require fundamental change in their operating models to be able to get rid of/compete with.
- netcan 5y ago
  This is a good point but... Innovation without disruption tends to get underlooked, being less dramatic. Think of the old auto companies over the years. They start off making tractor-like cars. They survive through the cars-as-fashion eras, the internationalisation of manufacturing, etc. If old auto companies emerging from the 80s were new, we'd call it disruptive innovation. That said, both disruption and innovator's dilemma are real. The innovator dilemmas also roughly corresponds to stuff early economists wrote about. Peak markets. Markets are great as they grow. When they reach their terminal size (eg most people already own cars), profits go down, stagnation can occur. That stagnation, especially if the market declines in size, leads to crashes and new paradigms eventually emerge. Marxists sometimes take this to a systemic extreme, with "peak capitalism" and derivative concepts. On the conservative side, you'll find these ideas at the heart of austrian business cycle theories and Schumpeter's "creative destruction." The digital economy is cushioned by tremendous potential for growth, so far. FB, for example, knows that it's not cool anymore. They can just buy whoever is cool.
  - ipaddr 5y ago
    That reminds me of music industry and the constant buying of smaller labels. Owning distribution is the key and facebook has a massive platform for that.
  - ethbr0 5y ago
    Slight historical note: most Japanese auto manufacturers started off making motorized bicycles and small utility vehicles, then pivoted up into retail cars.
nhumrich 5y ago
Google cloud has a managed nat gateway.
McScrooge 5y ago
Are there any examples of an org creating an internal competitor to disrupt external competitors and potentially replace itself?
- jhawk28 5y ago
  Apple's products regularly cannibalize themselves.
- oblio 5y ago
  iPhone killed the iPad. Netflix streaming killed Netflix DVDs-by-mail. Azure-cross-platform-support-is-king is sort-of killing Windows-only-tools. It's still super hard to do, but every CEO post-2000 has read the innovator's dilemma and you can see that in their actions.
  - filereaper 5y ago
    >iPhone killed the iPad. I think you meant iPod here.
    - deleted 5y ago
      [deleted]
    - ipaddr 5y ago
      Both would apply. The iPod in the late 2000s and somewhat later the iPhone got bigger screens and killed the iPad craze.
- ksec 5y ago
  Intel transition from NAND to Chip.
- htrp 5y ago
  Many have tried .... no one has succeeded because internal venture innovation is hard.
  - oblio 5y ago
treis 5y ago
It does seem like CF is coming in and burning down the market instead of capturing part of it. Free is cool for developers but not exactly great for profits. I can see a long term strategy where the next unicorn starts on CF and eventually pays them money. But it also feels like the big fish will migrate to AWS leaving CF with the cheap clients.
- headphoneswater 5y ago
  Free at a small scale sure, my company pays CF a bundle and we're not a unicorn
- brightball 5y ago
  IMO the services that Cloudflare offers more than justify the price when you have even a minimal budget to pay for them.
- coenhyde 5y ago
  I feel your view of CF is about 4 years old. Combine CF's Cloud strategy with their IT/Security offerings (eg Cloudflare One), they are effectively building a new layer on the internet. Very sticky and hard to replicate unless you cover all bases like Cloudflare. Though, it might usher in a dark age if they are too successful. They could end up owning the internet.
  - treis 5y ago
    I'm talking specifically about R2 and other offerings where they're competing more directly with AWS. Their other stuff is where you want to be in business. Market leading technology that you can charge a premium for.
    - coenhyde 5y ago
      Fair enough. Though I think these cloud products need to be viewed in the context of their other services. The value you from of using these cloud products isn't necessarily their direct feature set. It is that the network activity stays within Cloudflare and when combined with their other products, can't really be done easily with other services.
mooreds 5y ago
> If someone could do Managed NAT Gateway next I'd appreciate it! Yes please! Such a useful networking tool, but so expensive to run as a managed service. Yes, you can run your own EC2 instance (searching turned up this guide, which looks useful: http://evertrue.github.io/blog/2015/07/06/the-right-way-to-set-up-nat-in-ec2/ http://evertrue.github.io/blog/2015/07/06/the-right-way-to-s... ) but it'd be great to have this run by a cloud provider, yet be affordable.
- matsur 5y ago
  We (Cloudflare) have got some things cooking here :) I'd love to hear more about what problems you're trying to solve/features you'd like to see besides "cheaper" — can you email me at rustam at cloudflare ?
  - outworlder 5y ago
    Not OP but I'll add: AWS can only have a single NAT gateway per subnet/availability zone(they are usually added in the route table as 0.0.0.0/0). Nat GWs can only scale up so much. If we blow past the limits, then the only option is to use resources from a different subnet. I realize things cannot scale vertically forever, but the fact that one can scale horizontally (by adding more NAT GWs in different subnets) tells me that there could be an architecture that would make this a non-issue to customers. Also if a NAT Gateway has issues (see the outage on Aug 31st) we, the customers, have to figure out how to route around it. In Google Cloud you can (easily) add multiple NAT gateways as your requirements grow, while staying in the same subnet. Not sure how far one can go (didn't go past 20 Nat GWs or so). We still have to worry about that (specially since in GCP the number of allowed connections is much smaller), ideally we shouldn't have to worry about this either :) Azure does not have the same concept because they are bonkers (outgoing traffic goes out of your load balancer (?!))
    - matsur 5y ago
      Are you running TCP/UDP workloads or is NAT for any IP protocol needed?
  - 5y ago
whoisjuan 5y ago
> The challenge for AWS is one lots of incumbents have experienced: they created a market and it's economics and now they're being attacked by the next generation of market entrants who've structured their businesses to _specifically_ attack those economics. Absolutely. This exactly what Tesla has been doing with car industry incumbents. For example, the higher specs versions of the Model 3 beat +$100k cars in acceleration, raw power, torque, handling, etc. Incumbents have been selling performance as a high-ticket price feature for decades. Traditional brands cannot compete on high-performance features against Tesla without cannibalizing their ICE offering.
- bboylen 5y ago
  Too bad they shot themselves in the foot with the cybertruck design. Don't get me wrong I think it's funny/cool that a car with that design is out there, but it just won't be able to eat up the high-end performance truck market even if it has insane torque.
  - handrous 5y ago
    I'm seeing "truck guys" giving a shit about Ford's upcoming all-electric truck in a way they didn't about the cyber truck, except as a curiosity. I think they screwed up the marketing on that in just about every possible way, including the name and the design.
    - XorNot 5y ago
      I'd argue it's because the electric F150 has an actual release date and specs designed to take the Cybertruck on head first. Has there been any follow ups on the Cybertruck recently? So far it seems like vaporware.
    - sitkack 5y ago
      The eF150 is going to expand the truck market. Cyberwagon is Tesla's Aztek.
    - majormajor 5y ago
bezosjuice 5y ago
Bezos can spin up a greenfield cloud team and specifically target the new competition if he needs to. AWS has nothing to fear making 45 billion last year.
bambax 5y ago
> they created a market Yes they did, but they also reportedly have a 30%+ net margin. How is it surprising that other players who are in the position to do so, will attack them on price? While of course offering full API compatibility, which is what challengers have to do. Do we need board game analogies to explain that some components of AWS are going to get commoditized? The response from AWS will be innovation.
- adventured 5y ago
  It has been fascinating to watch the price freeze, the collusion, between the three majors in AWS, Azure and Google Cloud. They stopped hatcheting each other on price years ago. The downward price competition used to be very common in the earlier years, they'd frequently undercut one right after another. They like their profitability and oligopoly, so they stopped doing it (among the giant companies only more desperate Oracle continued to aggressively slash at things like egress fees). Enter Cloudflare.
  - peytoncasper 5y ago
    Isn't this to be expected though? Early on, optimizations are everywhere which allow you to pick the low hanging fruit. Ideally, this gets passed onto the consumer. However, over time, the optimizations become more costly to develop and less of them exist. Just the other day I got a notification from GCP about new Spot Instances driving prices down by 80% which exceeds their existing preemtible instances. Similarly with AWS releasing Graviton instances offering better performance and cheaper pricing. I think egress fees have always been the catch, and I don't think they've seen much price changes over time. So I am excited to see it, but I wonder how much of that is due to the current one directional nature of cloud migration. Most people are moving to a single cloud. As a result, there probably hasn't been a ton of demand to negotiate the outbound movement. We can debate the merits of the lock in nature, but I don't think that technological improvements really help here. This is just a decision to charge for bandwidth or not.
anitil 5y ago
> There aren't many examples of incumbent businesses doing it successfully Can you think of any that have? I'd be interested to see any counter examples

jgrahamc 5y ago

they created a market and it's economics and now they're being attacked by the next generation of market entrants who've structured their businesses to _specifically_ attack those economics https://www.amazon.com/Innovators-Dilemma-Revolutionary-Change-Business/dp/0062060244 https://www.amazon.com/Innovators-Dilemma-Revolutionary-Chan...

MauranKilom 5y ago
Did you purposely link to it on Amazon? :)
Joe8Bit 5y ago
Hah, thanks! My comment was fairly blatantly stealing from the book! It's so interesting from an incumbents internal POV (I saw it a few times during my time at McKinsey) as changing an organisations economics is often the unstoppable force that meets the immovable object of internal politics. There's a really interesting ongoing example of this in the the UK as 'attacker' banks (e.g. Monzo, Starling) challenge the economics of incumbents. It's not quite the same, as these attackers are removing back-end cost (e.g. branch networks) from an already 'free' product (e.g. retail banking) but it's meant that big banks are looking at their balance sheets and seeing a set of gaping money pits that will require fundamental change in their operating models to be able to get rid of/compete with.
netcan 5y ago
This is a good point but... Innovation without disruption tends to get underlooked, being less dramatic. Think of the old auto companies over the years. They start off making tractor-like cars. They survive through the cars-as-fashion eras, the internationalisation of manufacturing, etc. If old auto companies emerging from the 80s were new, we'd call it disruptive innovation. That said, both disruption and innovator's dilemma are real. The innovator dilemmas also roughly corresponds to stuff early economists wrote about. Peak markets. Markets are great as they grow. When they reach their terminal size (eg most people already own cars), profits go down, stagnation can occur. That stagnation, especially if the market declines in size, leads to crashes and new paradigms eventually emerge. Marxists sometimes take this to a systemic extreme, with "peak capitalism" and derivative concepts. On the conservative side, you'll find these ideas at the heart of austrian business cycle theories and Schumpeter's "creative destruction." The digital economy is cushioned by tremendous potential for growth, so far. FB, for example, knows that it's not cool anymore. They can just buy whoever is cool.
- ipaddr 5y ago
  That reminds me of music industry and the constant buying of smaller labels. Owning distribution is the key and facebook has a massive platform for that.
- ethbr0 5y ago
  Slight historical note: most Japanese auto manufacturers started off making motorized bicycles and small utility vehicles, then pivoted up into retail cars.

nhumrich 5y ago

Google cloud has a managed nat gateway.

McScrooge 5y ago

Are there any examples of an org creating an internal competitor to disrupt external competitors and potentially replace itself?

jhawk28 5y ago
Apple's products regularly cannibalize themselves.
oblio 5y ago
iPhone killed the iPad. Netflix streaming killed Netflix DVDs-by-mail. Azure-cross-platform-support-is-king is sort-of killing Windows-only-tools. It's still super hard to do, but every CEO post-2000 has read the innovator's dilemma and you can see that in their actions.
- filereaper 5y ago
  >iPhone killed the iPad. I think you meant iPod here.
  - deleted 5y ago
    [deleted]
  - ipaddr 5y ago
    Both would apply. The iPod in the late 2000s and somewhat later the iPhone got bigger screens and killed the iPad craze.
ksec 5y ago
Intel transition from NAND to Chip.
htrp 5y ago
Many have tried .... no one has succeeded because internal venture innovation is hard.
- oblio 5y ago

treis 5y ago

It does seem like CF is coming in and burning down the market instead of capturing part of it. Free is cool for developers but not exactly great for profits. I can see a long term strategy where the next unicorn starts on CF and eventually pays them money. But it also feels like the big fish will migrate to AWS leaving CF with the cheap clients.

headphoneswater 5y ago
Free at a small scale sure, my company pays CF a bundle and we're not a unicorn
brightball 5y ago
IMO the services that Cloudflare offers more than justify the price when you have even a minimal budget to pay for them.
coenhyde 5y ago
I feel your view of CF is about 4 years old. Combine CF's Cloud strategy with their IT/Security offerings (eg Cloudflare One), they are effectively building a new layer on the internet. Very sticky and hard to replicate unless you cover all bases like Cloudflare. Though, it might usher in a dark age if they are too successful. They could end up owning the internet.
- treis 5y ago
  I'm talking specifically about R2 and other offerings where they're competing more directly with AWS. Their other stuff is where you want to be in business. Market leading technology that you can charge a premium for.
  - coenhyde 5y ago
    Fair enough. Though I think these cloud products need to be viewed in the context of their other services. The value you from of using these cloud products isn't necessarily their direct feature set. It is that the network activity stays within Cloudflare and when combined with their other products, can't really be done easily with other services.

mooreds 5y ago

> If someone could do Managed NAT Gateway next I'd appreciate it! Yes please! Such a useful networking tool, but so expensive to run as a managed service. Yes, you can run your own EC2 instance (searching turned up this guide, which looks useful: http://evertrue.github.io/blog/2015/07/06/the-right-way-to-set-up-nat-in-ec2/ http://evertrue.github.io/blog/2015/07/06/the-right-way-to-s... ) but it'd be great to have this run by a cloud provider, yet be affordable.

matsur 5y ago
We (Cloudflare) have got some things cooking here :) I'd love to hear more about what problems you're trying to solve/features you'd like to see besides "cheaper" — can you email me at rustam at cloudflare ?
- outworlder 5y ago
  Not OP but I'll add: AWS can only have a single NAT gateway per subnet/availability zone(they are usually added in the route table as 0.0.0.0/0). Nat GWs can only scale up so much. If we blow past the limits, then the only option is to use resources from a different subnet. I realize things cannot scale vertically forever, but the fact that one can scale horizontally (by adding more NAT GWs in different subnets) tells me that there could be an architecture that would make this a non-issue to customers. Also if a NAT Gateway has issues (see the outage on Aug 31st) we, the customers, have to figure out how to route around it. In Google Cloud you can (easily) add multiple NAT gateways as your requirements grow, while staying in the same subnet. Not sure how far one can go (didn't go past 20 Nat GWs or so). We still have to worry about that (specially since in GCP the number of allowed connections is much smaller), ideally we shouldn't have to worry about this either :) Azure does not have the same concept because they are bonkers (outgoing traffic goes out of your load balancer (?!))
  - matsur 5y ago
    Are you running TCP/UDP workloads or is NAT for any IP protocol needed?
- 5y ago

whoisjuan 5y ago

> The challenge for AWS is one lots of incumbents have experienced: they created a market and it's economics and now they're being attacked by the next generation of market entrants who've structured their businesses to _specifically_ attack those economics. Absolutely. This exactly what Tesla has been doing with car industry incumbents. For example, the higher specs versions of the Model 3 beat +$100k cars in acceleration, raw power, torque, handling, etc. Incumbents have been selling performance as a high-ticket price feature for decades. Traditional brands cannot compete on high-performance features against Tesla without cannibalizing their ICE offering.

bboylen 5y ago
Too bad they shot themselves in the foot with the cybertruck design. Don't get me wrong I think it's funny/cool that a car with that design is out there, but it just won't be able to eat up the high-end performance truck market even if it has insane torque.
- handrous 5y ago
  I'm seeing "truck guys" giving a shit about Ford's upcoming all-electric truck in a way they didn't about the cyber truck, except as a curiosity. I think they screwed up the marketing on that in just about every possible way, including the name and the design.
  - XorNot 5y ago
    I'd argue it's because the electric F150 has an actual release date and specs designed to take the Cybertruck on head first. Has there been any follow ups on the Cybertruck recently? So far it seems like vaporware.
  - sitkack 5y ago
    The eF150 is going to expand the truck market. Cyberwagon is Tesla's Aztek.
  - majormajor 5y ago

bezosjuice 5y ago

Bezos can spin up a greenfield cloud team and specifically target the new competition if he needs to. AWS has nothing to fear making 45 billion last year.

bambax 5y ago

> they created a market Yes they did, but they also reportedly have a 30%+ net margin. How is it surprising that other players who are in the position to do so, will attack them on price? While of course offering full API compatibility, which is what challengers have to do. Do we need board game analogies to explain that some components of AWS are going to get commoditized? The response from AWS will be innovation.

adventured 5y ago
It has been fascinating to watch the price freeze, the collusion, between the three majors in AWS, Azure and Google Cloud. They stopped hatcheting each other on price years ago. The downward price competition used to be very common in the earlier years, they'd frequently undercut one right after another. They like their profitability and oligopoly, so they stopped doing it (among the giant companies only more desperate Oracle continued to aggressively slash at things like egress fees). Enter Cloudflare.
- peytoncasper 5y ago
  Isn't this to be expected though? Early on, optimizations are everywhere which allow you to pick the low hanging fruit. Ideally, this gets passed onto the consumer. However, over time, the optimizations become more costly to develop and less of them exist. Just the other day I got a notification from GCP about new Spot Instances driving prices down by 80% which exceeds their existing preemtible instances. Similarly with AWS releasing Graviton instances offering better performance and cheaper pricing. I think egress fees have always been the catch, and I don't think they've seen much price changes over time. So I am excited to see it, but I wonder how much of that is due to the current one directional nature of cloud migration. Most people are moving to a single cloud. As a result, there probably hasn't been a ton of demand to negotiate the outbound movement. We can debate the merits of the lock in nature, but I don't think that technological improvements really help here. This is just a decision to charge for bandwidth or not.

anitil 5y ago

> There aren't many examples of incumbent businesses doing it successfully Can you think of any that have? I'd be interested to see any counter examples