It’s tough enough for an Oracle or IBM to compete with cloudy upstarts like Amazon Web Services (AWS), but it’s not much better for a Ford or Safeway. In both cases, the incumbents are being dramatically outspent by their nouveaux riches tech neighbors, as Shira Ovide has pointed out in a Bloomberg article.
Just how much are these companies spending on the “big-ticket physical assets” necessary for delivering everything from autonomous cars to Instagram video streaming? $80 billion.
The rich get richer
For legacy tech vendors, maybe it’s not completely their fault. After all, as cloud maven James Urquhart helpfully noted on Twitter, investments from the cloud leaders are “why Oracle could never get started….Amazon, Microsoft, and Google already had large-scale infrastructure spending driven by existing businesses before they moved into cloud.” Redmonk analyst Stephen O’Grady piles on, discussing the “daunting” nature of such economies of scale:
The economies of scale that larger players can bring to bear on the markets they target are, quite frankly, daunting. Their variable costs decrease due to their ability to purchase in larger quantities; their fixed costs are amortized over a higher volume customer base; their relative efficiency can increase as scale drives automation and improved processes; their ability to attract and retain talent increases in proportion to the difficulty of the technical challenges imposed; and so on.
SEE: Cloud migration decision tool (Tech Pro Research)
Not only did these web giants have lots of hardware sitting around, but they also had businesses that taught them how to run the infrastructure at massive scale. Having the hardware is one thing; knowing how to most effectively run it is quite another. As such, Oracle’s suggestion that it doesn’t need to invest in data centers because its technology is so efficient is wrong on two counts. Three, actually (since it’s laughable that it would claim greater efficiency than companies with much more experience running at dramatically bigger scale).
But it’s not just about data centers.
Indeed, as Ovide noted, the big four are spending big on semiconductors, specialized equipment, and more. That $80 billion in spend is 10X what GM spends each year. While this may not seem like an apples to apples comparison, Ovide brings it home: “How can a company hope to compete with Google’s driverless cars when it spends $20 billion a year to ensure it has the best laser-guided sensors and computer chips?”
Flush with cash from immensely profitable advertising, IaaS, and other businesses, the tech giants are invading other markets, spending obscene amounts of money to compete.
SEE: Amazon Web Services: A cheat sheet (TechRepublic)
This is “daunting” if you’re a startup hoping to make a dent on Apple’s mobile kingdom, but it’s perhaps even more so if you’re a legacy retail, hospitality, finance, or [insert your industry here] company. Why? Because these companies tend to be public entities with cost structures and decades of experience that make sizable investments hard to pull off.
This is why it’s very possible today we click on Google’s ads, but tomorrow we’ll drive their cars. Or we rent infrastructure or buy books from Amazon today, but tomorrow we’ll stream our entertainment from them. It’s a matter of money, and these tech giants have got lots of it and aren’t afraid to invest it.