Platformonomics TGIF is a weekly roll-up of links, comments on those links, and perhaps a little too much tugging on my favorite threads.
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CAPEX Week is over! It is a huge step down, but on to the Superbowl!
News
Follow the CAPEX: Cloud Table Stakes 2023 Retrospective
I published my annual look at hypercloud CAPEX spending this week. The best part of publishing is all the people who come out of the woodwork with great perspective to add. The worst part is all the jokes I think of right after publishing.
The scale of hypercloud CAPEX investment is immense. But apparently not immense enough:
Introducing Platformonomics ClownWatch™
CAPEX spending helped us separate the clowns from the clouds.
CAPEX is also a great lens for generative AI, which requires even more expensive infrastructure (thanks NVIDIA!). Once again, we can contrast flowery rhetoric with hard investment.
IBM (no surprise) is the first member of the Platformonomics ClownWatch™ list of AI poseurs. IBM is running the same playbook they used for cloud: chant the buzzwords, cut actual CAPEX spending, talk up irrelevant products, hope to book some consulting business from less discerning enterprise customers, and try not to go to jail for securities fraud.
Amazon CEO Andy Jassy said “every single business” at Amazon had “multiple” generative AI initiatives. Except, it seems, the people who build out the AWS infrastructure. In the middle of the AI boom where GPUs are the most coveted items on Earth, AWS CAPEX investment was down 10% in 2023 (even as the business grew by 13%). The disconnect between Amazon’s incessant AI chatter and shrinking investment requires us to put AWS on negative watch for potential addition to the ClownWatch™ AI list. Stay tuned.
Viewer Mail Episode 1
Q: Was the cloud infrastructure build-out a ZIRP phenomenon? AWS seems to have ended debt financing about the time interest rates started to normalize.
A: I don’t think so. The cloud is a real business funded from cash flows and still growing, which is the antithesis of ZIRP phenomena. Meta and Microsoft are still using finance leases to fund server purchases. And in the case of Amazon, I think they just have more cash compared to the early days (and they have more cash because they’ve run out of things to invest in, including, it seems, AWS infrastructure).
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Server Depreciation
I’m writing too much a lot about depreciation. Traditionally my view is gross investment is what is interesting as that corresponds to the growth in infrastructure. Depreciation is just an after-the-fact bean counter adjustment. But depreciation adds up to real money (or at least real accounting adjustments) when you have tens of millions of servers and extend their useful lives by 50% (from four years to six). Moore’s Law needs to get back in gear or the accountants will win this battle.
Software Migration Alert: Everbridge
As you know, when private equity comes amalgamating, it is time to start migrating.
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Perfidious Private Equity, Private Equity in Action: VMware (Continued), Private Equity in Action: VMware, Private Equity Will Buy and Ruin More Software Companies, Software Migration Alert: VMware (Continued), Software Migration Alert: VMware, Software Migration Alert: Rover, Software Migration Alert: Avid Technology, Software Migration Alert: EngageSmart, This Week’s Software Migration Alerts
So You Want to Build an AI Company: Episode 2
Their administrative bloat is your opportunity.
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