Value Investing Planetary-Scale Computation: An industry primer on the hyperscale CSP oligopoly (AWS/Azure/GCP) |
| Planetary-Scale Computation: An industry primer on the hyperscale CSP oligopoly (AWS/Azure/GCP) Posted: 03 Mar 2022 12:26 PM PST I wrote a multipart primer on the public cloud infrastructure industry and the relation of the industry's three-member oligopoly to the broader cloud ecosystem (ex-China). The primer is divided into five sections, with the main section composed of three subsections:
[Sidenote: Notion provides more dynamic affordances for content presentation than Substack/Mirror.xyz/Medium, such as embedding dynamic content, in-line comments, collapsible text, linking to specific in-page locations, etc. By contrast, Mirror.xyz mirrors consume less RAM and are more phone compatible than the Notion mirrors. Although I recommend the Notion view, both are available.] This primer's main section, "Three-Body: Competitive Dynamics in the Hyperscale Oligopoly", is the section of most relevance from a business/industry analysis perspective. This section is extensive so I've made a partial outline of this section for convenience (i.e., what I think might be of most interest to analysts):
An exhaustive point-by-point breakdown of the entire primer can be found in this Figma map for people who want to skim/explore the primer's claims without committing to reading it. The Figma map for the public cloud value matrix can be found here. The location of my personal views/conclusions of the cloud ecosystem that accompany the value chain mapping is here (link to location of in-page Notion block). This primer's focus is competitive dynamics first and financial analysis second — financials and metrics are employed towards painting the competitive landscape and not the other way around. Beyond the general lack of primers for cloud infrastructure and hyperscaler IaaS, a large reason why I am publishing this primer is because I feel that the space is more interesting than what prevalent surface-level discussion might suggest [i.e., Every earnings season you'll find the exact same "AWS/Azure/GCP grew X% on a Y billion base beating/missing expectations by Z%!" takes as last quarter]. The highly modular nature of the cloud computing industry [i.e., Computing is the ultimate "modular" industry, which is probably why Christensen focused so heavily on the computing industry in articulating his modularity theory] and the oligopolistic structure makes it a perfect case study for both Christensen's modularity framework and Porter's frameworks around oligopolies which he develops in Competitive Strategy and an industry case study titled Capacity Expansion in a Growing Oligopoly. My thesis is that a combination of these (and other) competitive frameworks can be employed to provide a unifying context for multiple distinct narratives about the Cloud, including but not limited to: "commoditization" of IaaS, The Tech Monopolies Go Vertical, how the cloud will be reshuffled, Trillion Dollar Paradox, ISVs vs Hyperscalers, hybrid/multi-cloud, the emergence of Cloudflare's modular cloud, etc. — this primer is an attempt to link all of these disparate threads together. I also try to answer overlooked or "obvious" questions like: Why three hyperscalers? Why those three? What prevents industry overcapacity? Why do CSPs even replace servers if they don't actually break down in 3-5 years? What keeps every company from simply switching over to Graviton if the price-performance is so good? Etc. This is an ambitious project and I would not consider myself an expert, so feedback is welcome. [link] [comments] |
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