Sign up to receive 5 free days of our daily summary for tech news.

Cloud Giants’ Strength Is Their Achilles Heel

The conventional wisdom is that the biggest cloud computing providers like Amazon, Microsoft and Google have an unstoppable lead because they’re big enough to buy superior custom hardware straight from suppliers. But some are beginning to question how durable the big players’ hardware advantages really are.

Some investors and entrepreneurs argue that the more specialized the behemoths become in terms of hardware, the more difficult it becomes for them to adapt to new software technologies. Fueling the debate is the emergence of a handful of cloud startups relying on commodity gear and open-source software.

To be sure, it’s unlikely that any startup will knock any of the big companies out of the market anytime in the foreseeable future. The hardware advantages enjoyed by Amazon, in particular, are hard to deny. The company works with Intel to design custom processors; it has networking boxes built to its own specs that run house-written software, and it even designs its own power substations to ensure a steady flow of electricity to data centers. The company keeps the margins of its cloud business a secret, but most analysts believe all the hardware and software customizations drive costs down and profits up.

Still, Amazon does have a vulnerability common to industry leaders in many sectors: Once a company has committed to a certain piece of software, it’s difficult to move to new things.

No subscription? You're missing out.

Join the high-powered community of tech and business leaders who rely on The Information's original news and in-depth reporting.

“We’re in the midst of an age where there’s a proliferation of open-source projects, many of which are being created and promoted by these incumbents,” Mr. Oelschig said. “All of these things point to this idea that commodity hardware plus open source should rule.”

Login or Subscribe to follow the discussions happening here and real-time in our   Slack Community.
Read comments from top tech and industry leaders
Joe Lonsdale
Joe Lonsdale
Founding Partner, Eight
Chamath Palihapitiya
Chamath Palihapitiya
Founder & Managing Partner, SocialCapital
Tina Sharkey
Tina Sharkey
CEO, Brandless
Jonah Peretti
Jonah Peretti
CEO, Buzzfeed
Adam D'Angelo
Adam D'Angelo
CEO, Quora
Brit Morin
Brit Morin
Founder & CEO, Brit + CO
Dustin Moskovitz
Dustin Moskovitz
Co-Founder, Asana
Christina Miller
Christina Miller
President & General Manager, Turner
Max Levchin
Max Levchin
CEO, Affirm
Adam Mosseri
Adam Mosseri
Director of Product, Facebook
Alex Mather
Alex Mather
The Athletic
Martha Josephson
Martha Josephson
Partner, Egon Zehnder
James Murdoch
James Murdoch
Co-Chief Operating Officer, 21st Century Fox
Andrew Kortina
Andrew Kortina
Founder, Venmo
Ben Chestnut
Ben Chestnut
Co-Founder & CEO, Mailchimp
Ruchi Sanghvi
Ruchi Sanghvi
VP Operations, Dropbox