Some lessons from Microsoft

Blue-sky thinking

Parts of the digital economy are competitive. Look at the cloud




Oct 22nd 2020 | words 676

 

 

 

THE TERM big tech is often used as shorthand to describe the small group of digital firms that tower over the 21st-century economy. Together, they make up over a fifth of Americas stockmarket. But behind that phrase a lot is going on. As business lines have become monopolised, it has become commonplace to complain that tech firms are offering consumers a toxic deal. But in a growing number of areas the picture is healthier.

 

The largest tech companies have expanded into a dizzying range of industries. Amazon faces credible e-commerce rivals in the form of Walmart and Shopify. Video-streaming is a fight for supremacy between half a dozen firms. And cloud computing has become a fiercely contested market, too, as our analysis of the adventures of Microsoft shows (see Briefing). Its experience is a reminder of the benign power of competitionand of how governments should be surgical about taming tech.

 

 

 

Cloud computing took off about 15 years ago, as businesses began to outsource their web-hosting, data centres, core computer systems and many applications to a few big providers, particularly the pioneer AWS, run by Amazon. The pandemic has shown just how critical the cloud has become. Many of the economys main functions depend on it, including a wide range of e-commerce sites and applications that let you work from home. The scale of this activity is huge; approaching 10% of all technology spending is on the cloud. So are the sums of money being invested. Perhaps $40bn is being ploughed this year into data centres and other physical gear by AWS and others.

 

 

 

The cloud brings obvious benefits. The firms using it replace lumpy capital expenditure on rickety bespoke IT with a variable payment for a service that can easily expand its capacity as needed. That is one reason firms such as Zoom have been able to grow so fast during the lockdown. Having many users for each piece of infrastructure means they are put to work more efficiently.

 

The cloud has also been seen as an example of the internets fragmentation. Alibabas and Tencents cloud arms dominate in China and are making some inroads elsewhere in Asia. Europe is so anxious about American firms that it has launched a state-backed rival, called Gaia-X. Businesses in poor countries may struggle for access to the cloud, slowing their development.

 

The biggest fear has been of a cloud monopoly. Here the news is encouraging. AWS remains the clouds biggest firm, but Microsoft, the original antitrust bad boy, is putting up a fierce fight with its own service, Azure, and hopes to get more of its Office and Windows customers to use it for the cloud, too.

 

Alphabet is also putting its cloud forward. On October 8th IBM said it would spin off part of its services business to focus on the hybrid-cloud, which marries old-fashioned on-site work with the cloud. Likewise Oracles proposed bid for TikTok, a social-media firm, is in part an effort to secure an anchor-customer for its nascent cloud operation. Regulators need to be vigilant to ensure that cloud firms are not abusing other companies data, erecting unfair barriers to entry or misusing their dominance in other businesses to get ahead. But broadly, the boom means more choice and keener prices.

 

This rivalry also offers a signal to governments. Treating big tech as a monopolistic monolith does not make sense when some markets are competitive. Nor does banning tech firms from entering adjacent new marketsas a recent congressional report proposed. Better for governments to ensure that users have control over their data, and then vigorously tackle the areas like search and social media where monopolies have taken hold (see article). If the main source of competition for big tech firms ends up being other big tech firms, so be it.







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Economist | Microsoft and tech competition

 

  

Some lessons from Microsoft

Blue-sky thinking

Parts of the digital economy are competitive. Look at the cloud




Oct 22nd 2020 | words 676

 

 

 

THE TERM big tech is often used as shorthand to describe the small group of digital firms that tower over the 21st-century economy. Together, they make up over a fifth of Americas stockmarket. But behind that phrase a lot is going on. As business lines have become monopolised, it has become commonplace to complain that tech firms are offering consumers a toxic deal. But in a growing number of areas the picture is healthier.

 

The largest tech companies have expanded into a dizzying range of industries. Amazon faces credible e-commerce rivals in the form of Walmart and Shopify. Video-streaming is a fight for supremacy between half a dozen firms. And cloud computing has become a fiercely contested market, too, as our analysis of the adventures of Microsoft shows (see Briefing). Its experience is a reminder of the benign power of competitionand of how governments should be surgical about taming tech.

 

 

 

Cloud computing took off about 15 years ago, as businesses began to outsource their web-hosting, data centres, core computer systems and many applications to a few big providers, particularly the pioneer AWS, run by Amazon. The pandemic has shown just how critical the cloud has become. Many of the economys main functions depend on it, including a wide range of e-commerce sites and applications that let you work from home. The scale of this activity is huge; approaching 10% of all technology spending is on the cloud. So are the sums of money being invested. Perhaps $40bn is being ploughed this year into data centres and other physical gear by AWS and others.

 

 

 

The cloud brings obvious benefits. The firms using it replace lumpy capital expenditure on rickety bespoke IT with a variable payment for a service that can easily expand its capacity as needed. That is one reason firms such as Zoom have been able to grow so fast during the lockdown. Having many users for each piece of infrastructure means they are put to work more efficiently.

 

The cloud has also been seen as an example of the internets fragmentation. Alibabas and Tencents cloud arms dominate in China and are making some inroads elsewhere in Asia. Europe is so anxious about American firms that it has launched a state-backed rival, called Gaia-X. Businesses in poor countries may struggle for access to the cloud, slowing their development.

 

The biggest fear has been of a cloud monopoly. Here the news is encouraging. AWS remains the clouds biggest firm, but Microsoft, the original antitrust bad boy, is putting up a fierce fight with its own service, Azure, and hopes to get more of its Office and Windows customers to use it for the cloud, too.

 

Alphabet is also putting its cloud forward. On October 8th IBM said it would spin off part of its services business to focus on the hybrid-cloud, which marries old-fashioned on-site work with the cloud. Likewise Oracles proposed bid for TikTok, a social-media firm, is in part an effort to secure an anchor-customer for its nascent cloud operation. Regulators need to be vigilant to ensure that cloud firms are not abusing other companies data, erecting unfair barriers to entry or misusing their dominance in other businesses to get ahead. But broadly, the boom means more choice and keener prices.

 

This rivalry also offers a signal to governments. Treating big tech as a monopolistic monolith does not make sense when some markets are competitive. Nor does banning tech firms from entering adjacent new marketsas a recent congressional report proposed. Better for governments to ensure that users have control over their data, and then vigorously tackle the areas like search and social media where monopolies have taken hold (see article). If the main source of competition for big tech firms ends up being other big tech firms, so be it.







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