Reply to post: Network Effects

Pumping billions into data centres won't guarantee you an empire


Network Effects

I don't think that economies of scale involved in operating a data centre will explain the dominance of a few cloud providers. Rather it will be the network effects of all the third party software, developers, consultants, and services that will be built around the proprietary features of those clouds. A challenger would have to reproduce all of those in order to effectively challenge an incumbent.

It's like how Microsoft is dominant on the desktop, and Android is dominant in mobile. Apple can be a distant runner up in either of those spaces, but anybody else is a marginal player. It's the third party effects though which are the sources of that dominance.

Cloud providers will concentrate on increasing the network effects, and making it difficult for customers to leave once they're inside. They will also work on creaming off as much of the potential profits for themselves as possible, including by carving out promising lines of business to be exclusively for their own products.

If you believe that a free market is a good thing when it comes to economic performance, then this is a dystopian future. Economic growth will be weighed down by sub-optimal allocation of capital and poor use of resources. All in all, this is not a good thing.

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