Failures of the Cloud Czars
All five let a strength become a weakness.
The failures of “Big Tech” aren’t what you think.
Each of the five “Cloud Czars” – Apple, Microsoft, Google, Amazon, and Meta – grew complacent over several years and let a strength become a weakness. They each now face problems that will cost tens of billions of dollars to fix. They’re cutting workers in growth areas and denying the reality.
This will spell more trouble in 2023, and opportunities for smaller companies.
I can summarize each Czar’s big problem in one word:
· Apple – China
· Microsoft – Windows
· Google – Gmail
· Amazon – Alexa
· Meta – Facebook
Apple
Apple was not prepared for Xi Jinping’s decision to become America’s adversary, despite it being hinted at for years.
Apple became as dependent on the scaled, just in time operations of Foxconn and other Chinese partners as any Guangdong working man did on 19th century opium. Tim Cook believed the world was becoming flat. It wasn’t.
The problem is that China considers businesses to be part of the state. Even if they’re “private,” they’re still under central control. That means they’re instruments of foreign policy and the military.
Awareness of all this only began to dawn in late 2020, when Xi began his tech crackdown. Most of what he’s doing are also in the goals of American and European reformers, except he demands data, money, and power all flow to the state. Jack Ma is the poster child for what happened. He and the country’s other tech oligarchs were taken down, replaced by bureaucrats beholden to state interests. Even while letting up on the crackdown, he’s having the state buy the “golden share” of the country’s two Cloud Emperors, Alibaba Group Holding and Tencent Holding. Xi is a lot closer to being Hitler than Putin is.
Apple is moving away from China. But how far and how fast it can move is a question. China is increasing its influence throughout Southeast Asia. A new Cold War has begun. Apple is caught in the middle of it.
Microsoft
Windows laid golden eggs for decades. But birds age just as we do. They stop laying.
That’s what has happened to Microsoft as phones have become PCs. Phones now cost $1,000 and up. Apple and Google control this world. Microsoft lost out. PCs now cost just hundreds of dollars, and aren’t moving even at those prices.
But Microsoft still must support Windows, even as its profitability goes down. The bloatware is striking back. Windows creates buy-in for Microsoft Office, and Office creates it for Azure. It’s too big to kill.
In retrospect Apple did the right thing by eliminating backward compatibility. By starting with a clean sheet of paper on the Mac, and another clean sheet with iOS, Apple was able to build a Linux-dependable, windowed interface for the 21st century.
Windows is still Windows. Microsoft’s promise is that it will always be Windows. I recently finished writing a novel in which a character found 25 year old Windows code and just booted it up. This is not good for Microsoft.
Google
The reason Google Cloud continues to lose money is Gmail.
Gmail was never monetized. Just like Google News was never monetized. Critics claim this is just a trick to collect user data that can then be monetized through Google Ads. If it is, it’s not working.
Gmail costs billions of dollars to maintain. For most people it’s free. Just as Google search is free. But Google Search has a business model. Gmail does not. That’s why, while Microsoft’s cloud is wildly profitable, Google Cloud loses money.
In theory, Gmail should operate the way Windows does for Microsoft, persuading people to get Google’s office suite. But that office suite remains second rate. The connection isn’t working. Google has to charge unsustainably low rates on its cloud contracts because it’s not working. Google remains third in cloud, its market share still in single digits, thanks to this profit drain. Google has taken to claiming, in response, that Microsoft is not making any money on Azure. It is. Amazon is making even more.
Just as Microsoft has Azure, Google has YouTube to distract analysts from seeing its problem. If it weren’t for the Fed raising interest rates and last year’s tech wreck, you wouldn’t notice it and I wouldn’t be writing about it. But there it is.
Amazon
Alexa is a great success but also a great failure.
Amazon has sold hundreds of millions of Alexa devices, but the vast majority are barely used. Buttons still work. Alexa isn’t supported in the household devices we use every day. But Amazon must still support it, because of that huge user base. The cost is estimated at $10 billion/year.
The best way forward is to support standards. Create a foundation and donate the code, encouraging other (failed) voice interface makers to do the same. If Siri and Hey Google and Alexa become compatible, then every home automation device sold should also support a voice interface, entrepreneurs would start building useful applications, and in time profits could flow.
Until that happens, Alexa can’t become a compelling offering and will remain a cost center.
Meta
As with the other Czars, Meta’s problems took years to become obvious.
Like the others, Meta became complacent about what was working, assumed the profits would roll in forever, and used that assumption to start developing its “metaverse,” a virtual, artificial intelligence world it thinks it can control the way Apple controls the iPhone.
But when you rush into a new product and don’t take care of the old one, you get beat. That’s what TikTok did. It beat Meta like Georgia beat TCU. Meta’s “Reels” is a poor imitation, and everyone knows that second place in a market barely keeps you alive, while being third kills you.
Meta still controls the most popular free services in the developing world, through its clouds which are mainly in the U.S., but that won’t last unless it can deliver something more compelling. Ads on WhatsApp messages aren’t it. Instead of improving what works with limited connectivity, making it more useful, Meta wound up going after customers it couldn’t have with something they didn’t want.