Sunday, November 17, 2013

Can A Slingshot Take Down The AWS Juggernaut?

If your purpose in life is to entertain the gods, you might as well put on a good show.

Amazon's Re:Invent show last week turned out to be quite a coming out party for the predominant infrastructure service provider. There were a number of interesting announcements that moved the stocks of perceived competitors, and of course, there was a disproportionately large showing of attendees at the Venetian in Las Vegas. For me, the highlight was provided by good friend, and super smart VC, Jerry Chen, who went on  The Cube to lay down the gauntlet starting at about 7:00 in the video below:

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The salient point Jerry made was the comparison between an ascendant Amazon AWS and the now-decidedly incumbent Microsoft circa the 1990's. His argument is that there are really two investable bets to make (well, he said three, but the third is less interesting to me). The first is that there are companies to be formed that can make AWS more enterprise-ready, and the second is that you can invest in someone that will take down AWS. If nothing else, it is heartening to see Jerry has taken up the mantle of the venture capitalist, and has pointed to the next big hill for the army to conquer. As entrepreneurial cannon fodder in this battle, I greatly appreciate the affirmation.

Well, since I can't sleep well on airplanes, and I had the misfortune of taking an overnight flight home from Las Vegas, I had plenty of time to think about this matter. After reaching back into my memories as a newly minted engineer in 1991-1993, it is obvious that history does indeed rhyme if it does not repeat. Hence, I think I have come to a conclusion on which will be the better bet if I were investing venture money right now.

A Tale of Two Microsofts

Having the pleasure of attending some of the original Win32 Developer's conferences, the Microsoft PDC's, during the early 90's, as well as the WinHEC conferences up until 2008, I had a semi-privileged, front row view of the revolution that Microsoft led over the course of a decade. Given the day-to-day reality in which we operate, it is easy to forget that the world at the time of the 1993 PDC was radically different than what we have today. In fact, most readers may find my observations of being a Windows "dev" back then quite amusing.

As I recall, developing code for Windows before Windows NT was released was a trying process. The development tools before Visual C++ were not that friendly. The operating systems were either very buggy and unreleased (as in the 32 bit NT), or super-duper buggy and shipping (Windows 3.0, 3.1, 3.11). In the case of the latter releases, you had no meaningful memory isolation between tasks, and so a simple coding typo could take down the whole box while you were working. Having learned to code in the Berkeley and AT&T UNIX operating systems, it felt like I was playing with a toy rather than a tool of enterprise transformation.

Back then, the "real" systems that businesses ran on were either UNIX-based mid range servers, or mainframes. The PC client was really just an over-powered terminal that also had some desktop apps, as well as file and printer sharing. Strategy discussions in PC software companies centered around how overpowered the clients were in comparison to the big iron, and what that fact foretold about the future. Indeed, the developers' conferences were largely full of optimistic young developers trying to change the role of the PC architecture. The rhetoric coming from Gates, Ballmer, and Allchin included lots of chest-pounding bravado about how good the next generation would be, and how it would take on a huge role in the enterprise - if only we developers would agree to write awesome new apps for Win32. We all would go home with palpable excitement and a religious zeal.

A little over a decade later, the world was radically changed. Perhaps not for the better. Substantially all of the mid-range systems vendors had vanished. Windows was dominating both the client and well as the back office of enterprises everywhere. The ecosystem that had developed all those awesome Windows apps had largely been cannibalized by Microsoft, and all those developers had moved on to writing web apps or other cool, Linux-based  things that were out of the way of the perceived MS predatory machinery. It was here that compute and storage virtualization emerged as dominant technologies. It is easy to argue that AWS and VMware tipped the datacenter market from the new incumbents right here.

Amazon Looks More Like the MS of the 90's

Last week's conference was full of developers. The rhetoric brought back memories of the 90's. The show floor was full of small, venture-funded companies. The representatives of the big incumbents were trying to make themselves invisible. Everyone, including the VC's, were talking about how AWS was not ready for the enterprise - yet. Although rumors suggest that AWS is a $5 billion revenue stream, it does not look like the big players are using it yet.

It's hard to envision that AWS can be tipped over when it's user base is not the demanding enterprises that make up the bulk of IT spend in the market. The fact that it got to this point based on the grass-roots support of a big developer community makes it very scary. People are right to be afraid that this company could be the next big IT monopolist. However, if you are an investor, would you consider it an easier bet to take them down, or to help them achieve the dominance they seek? The key, in my opinion, rests with Amazon. If they take a page from their neighbors in Redmond, and eat their ecosystem, the community will move on very quickly, and the bet is an easy one.

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