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> making the actual profit margins from AI-centric companies close to 0 The same thinking stopped many legacy tech companies from becoming a “cloud” company ~2

> making the actual profit margins from AI-centric companies close to 0 The same thinking stopped many legacy tech companies from becoming a “cloud” company ~20 years ago. Fast forward to today and the margin for cloud compute is still obscene. And they all wish in hindsight they got into the cloud business way sooner than they ultimately did.

lmm 2y ago
Are the second-tier cloud companies really seeing big margins? Why is it not competed away to zero like airlines?
- mbb70 2y ago
  There is essentially zero cost for a user to switch airlines. The cost to switch clouds is astronomical for any decent sized org.
  - throwaway2037 2y ago
    I like the sentiment of your post. I mostly agree. If you use OpenShift, doesn't that help to reduce the cost of switching cloud providers?
    - coredog64 2y ago
      Not really. What happens when you run a cloud on top of your cloud is that you don’t get to use any of their differentiating features and that winds up costing you money. Plus you have to pay for your own control plane when that’s already baked into the cloud provider’s charge model.
      - throwaway2037 2y ago
        > Plus you have to pay for your own control plane when that’s already baked into the cloud provider’s charge model. When you say "control plane" does this mean Kubernetes?
    - fragmede 2y ago
      You're not switching cloud providers. Amazon's not going to suddenly decide to jack up rates for EC2 instances on you. So the extra complexity just isn't worth it. There is a hypothetical "but what if we honestly actually really really do", but that's such a waste of engineering time when there are so many other problems to be solved that it's implausible. The only time multi-cloud makes sense is when you have to meet customers where they're at, and have resources in whichever cloud your customers are using. Or if you're running arbitrage between the clouds and are reselling compute.
  - jart 2y ago
    Those poor little AI clouds will never keep people reeled in unless they invent something like CUDA.
- flyingpenguin 2y ago
  There will probably be 2 huge winners, and everyone else will fail. Similar to the solar boom.
  - throwaway2037 2y ago
    Who are the winners in solar?
jordanb 2y ago
That's not the way I remember the cloud transition at all. My company adopted an internal cloud. VMWare had some great quarters. Openstack got really big for a while and everyone was trying to hire for it. All the hosting companies started cloud offerings. What ended up happening was Amazon was better at scale and lockin than everyone else. They gave Netflix a sweet deal and used it as a massive advertisement. It ended up being a rock rolling down a hill and all the competitors except ones with very deep pockets and the ability to cross-subsidize from other businesses (MSFT and Google) got crushed.
- demondemidi 2y ago
  It still blows my mind that Microsoft is the most valuable company in the planet because of the cloud and Balmers long term vision. I thought they would have gone the way of IBM.
  - fragmede 2y ago
    Which, IBM booked about $62 billion in revenue for 2023. I thought Nvidia recently took that crown recently though.
  - hollerith 2y ago
    Agree. Ballmer seems to have done his job well.
    - alberth 2y ago
      While I agree, he also admits his biggest miss was phone/hardware (which is what catapulted Apple). https://youtu.be/v9d3wp2sGPI?feature=shared https://youtu.be/v9d3wp2sGPI?feature=shared
- coredog64 2y ago
  It’s not just the software, it’s the hardware too. Too many companies got good at speeding up VM deployments but ignored theory of constraints and still had a 4-6 month hardware procurement process that gave everyone and their dog veto power. And then you come to companies that managed to streamline both and ran out of floor space in their data center because they had to hold onto assets for 3-5 years. At one previous employer, the smallest orderable unit of compute was a 44U rack. They eventually filled the primary data center and then it took them 2 years to Tetris their way out of it.

lmm 2y ago

Are the second-tier cloud companies really seeing big margins? Why is it not competed away to zero like airlines?

mbb70 2y ago
There is essentially zero cost for a user to switch airlines. The cost to switch clouds is astronomical for any decent sized org.
- throwaway2037 2y ago
  I like the sentiment of your post. I mostly agree. If you use OpenShift, doesn't that help to reduce the cost of switching cloud providers?
  - coredog64 2y ago
    Not really. What happens when you run a cloud on top of your cloud is that you don’t get to use any of their differentiating features and that winds up costing you money. Plus you have to pay for your own control plane when that’s already baked into the cloud provider’s charge model.
    - throwaway2037 2y ago
      > Plus you have to pay for your own control plane when that’s already baked into the cloud provider’s charge model. When you say "control plane" does this mean Kubernetes?
  - fragmede 2y ago
    You're not switching cloud providers. Amazon's not going to suddenly decide to jack up rates for EC2 instances on you. So the extra complexity just isn't worth it. There is a hypothetical "but what if we honestly actually really really do", but that's such a waste of engineering time when there are so many other problems to be solved that it's implausible. The only time multi-cloud makes sense is when you have to meet customers where they're at, and have resources in whichever cloud your customers are using. Or if you're running arbitrage between the clouds and are reselling compute.
- jart 2y ago
  Those poor little AI clouds will never keep people reeled in unless they invent something like CUDA.
flyingpenguin 2y ago
There will probably be 2 huge winners, and everyone else will fail. Similar to the solar boom.
- throwaway2037 2y ago
  Who are the winners in solar?

jordanb 2y ago

That's not the way I remember the cloud transition at all. My company adopted an internal cloud. VMWare had some great quarters. Openstack got really big for a while and everyone was trying to hire for it. All the hosting companies started cloud offerings. What ended up happening was Amazon was better at scale and lockin than everyone else. They gave Netflix a sweet deal and used it as a massive advertisement. It ended up being a rock rolling down a hill and all the competitors except ones with very deep pockets and the ability to cross-subsidize from other businesses (MSFT and Google) got crushed.

demondemidi 2y ago
It still blows my mind that Microsoft is the most valuable company in the planet because of the cloud and Balmers long term vision. I thought they would have gone the way of IBM.
- fragmede 2y ago
  Which, IBM booked about $62 billion in revenue for 2023. I thought Nvidia recently took that crown recently though.
- hollerith 2y ago
  Agree. Ballmer seems to have done his job well.
  - alberth 2y ago
    While I agree, he also admits his biggest miss was phone/hardware (which is what catapulted Apple). https://youtu.be/v9d3wp2sGPI?feature=shared https://youtu.be/v9d3wp2sGPI?feature=shared
coredog64 2y ago
It’s not just the software, it’s the hardware too. Too many companies got good at speeding up VM deployments but ignored theory of constraints and still had a 4-6 month hardware procurement process that gave everyone and their dog veto power. And then you come to companies that managed to streamline both and ran out of floor space in their data center because they had to hold onto assets for 3-5 years. At one previous employer, the smallest orderable unit of compute was a 44U rack. They eventually filled the primary data center and then it took them 2 years to Tetris their way out of it.