The Rise of the Infrastructure Age

1242300255271879827

 

We have reached a plateau in consumer technology as far as information devices are concerned. Smartwatches suck, tablets haven’t changed profoundly since their conception, portable music players and digital cameras (at least for the amateur) have become obsolete thanks to the consolidation of media into our phones, and new generations of smartphones and computers no longer offer groundbreaking features but mostly upgrades on existing features (better cameras, faster processors, more storage, higher resolution screens, etc.) We’re left wondering what, if anything, will be the next big thing, but there just aren’t any huge gaps left to fill with these gadgets. A major shift is taking place in tech, and the future isn’t in information devices. The future is in infrastructure.

What Tesla is doing with home battery is far more important than what Apple is doing with watches. Tesla is changing the way we think of owning and providing power in our homes, a utility once run entirely on a grid owned by the county. It’s not that these small iterations and upgrades to our devices are bad or unnecessary, but we’ve gotten to a point where all we need as a consumer is a better version of what we already have. The next real revolution of gadgets isn’t going to to be about your phone, it’s going to be about the world around us and how we live within it.

Technology is constantly transforming and permeating into every part of our lives. It no longer exists in just our phones and computers. It has moved into our homes, our transportation, and our public spaces. You can control and interact with your air conditioner, refrigerator, or security system right from your phone, no matter where you are. Large IT companies like IBM and Cisco are developing new technology to manage and improve public safety, city planning, and government agency administration. NASA is using satellites to measure soil moisture to study weather and climate cycles. Technology is now responsible for connecting us to and informing us more deeply about our physical world.

Google has shown a huge interest in this new age of infrastructure that we are entering. They’ve expanded broadly beyond their internet search and advertising origins, getting involved in self-driving cars, Internet glasses, smart thermostats, and even research on the biology of aging to find ways to extend our lifespans.

Google is now looking to get involved in the smart city space alongside the aforementioned IBM and Cisco, and they’re doing it in the form of their latest start-up: Sidewalk Labs. Sidewalk Labs will be headed by Daniel L. Doctoroff, former deputy mayor of New York City for economic development and former chief executive of Bloomberg L.P. It will be based in New York with a team at Google, of course, and led by its chief executive, Larry Page.

Sidewalk Labs claims that their mission “is to improve life in cities for everyone through the application of technology to solve urban problems.” Some of the problems they aim to tackle include cutting pollution, curbing energy use, streamlining transportation, and reducing the cost of city living. Doctoroff says Sidewalk Labs plans to work in “the huge space between civic hackers and traditional big technology companies.” Bike-sharing programs, like New York City’s Citi Bike, is an early example of the kind of technology-assisted innovation they want to pursue.

Large companies aren’t the only one’s interested in innovating our cities technology. Academia has also had it’s eye on this prize. New York University established the Center for the Urban Science and Progress in 2013 to research and unite The Digital Revolution with Global Urbanization. They’ve recently been analyzing large sets of data around the city including using the city’s 311 data, wireless sensors, noise meters on traffic lights and street corners, and more in order to inform policy choices. By looking at things like noise limits for vehicles and muffler costs, they can create computer simulations that could predict the effectiveness of enforcement steps, charges, or incentives to buy properly working mufflers. Their goal above all is to make urban living less severe.

As the physical and virtual world meld ever more intricately, we’ve seen a new threat arise that becomes increasingly dangerous: hacking. As new devices emerge that hold more data and more power, the risks of hacking rise exponentially. We’ve already seen huge breaches in security with our own government at the hands hackers. Security is going to become increasingly important as more complex developments are made.

The internet has brought us together, but infrastructure is what’s going to make this ever growing connectedness feasible, bearable, and efficient. The globalized world needs innovation if human beings are going to survive. Populations are multiplying, urbanization is on the rise, and the world needs proper infrastructure that is going to support the aggressively growing demands of a physically and virtually connected world. To me, that is far more exciting than anything Apple is going to come out with for your next iPhone release.

When Do the Storms Arrive in the Saturated Cloud Hosting Space?

The cloud hosting space is saturated with Fortune 100 companies looking to up their investment in what is already an overly-invested industry.  With the likes of Amazon (Web Services), Microsoft (Azure), HP and IBM (Softlayer) already providing cloud services, it means two things now that Google (Compute Engine) has jumped into the deep end of the pool: lower prices and a willingness to move downstream for customers.

Given the capital-intensive aspect of this business, what is the ROI of this business?  I would have stipulated that it is close to breakeven.  ProfitBricks, a German based provider of cloud hosting, produced the graph below highlighting the profit margin in cloud hosting. They report that the price erosion since 2006 has happened more slowly than technology efficiencies (as measured by Moore’s Law), resulting in profit margins staying the same or increasing depending on where you are in the hosting lifecycle.

Amazon Web Services (AWS) is the market leader in cloud hosting.  They approached the cloud hosting space with significant resources, a service that matched off with the consumer’s requirements, and extremely competitive pricing.  Netflix is their biggest customer (experiencing double-digit growth) and they rely on AWS because they can scale as Netflix grows; Amazon is constantly innovating; and the price is very competitive. And if it isn’t competitive today, it will be in two weeks time.  Ultimately, it was the pricing pressure vis-a-vis their competitors which allowed AWS to capture a significant portion of the cloud hosting market in a very short period of time.

After reviewing some of the technicals above, why would you fund a startup focused on cloud hosting?  Digital Ocean has the answer to that question.  They believe the small business and developer customers are underserved because a majority of the cloud hosting resources are focused on the enterprise customers.  They might be right, to a certain extent — today.  In the future,  the crowded cloud hosting enterprise market will ultimately force the big market makers to smaller markets so that they can generate revenues and maintain top-line earnings for their  shareholders.  It will be interesting to watch if the Digital Ocean bet has legs to stand on or will be washed away in the cloud hosting storm.