More blurring of lines between platform providers and competitors

I had pointed out recently that large platform as a service, or pretty much any *aaS type model, where you present your value atop someone elses platform, leveraging their technologies, is ripe for having the *aaS provider decide they want to move into your space. Once you’ve done the hard work of proving there is a space in the first place.

Well, the Register has an article on this now. I gave a number of specific examples, and pointed out that Amazon isn’t the first to do this, Microsoft had previously done this to the level of an art form.

I noted that it wasn’t unreasonable for the platform player to try to move up-stack, and provide higher margin sales via competitive products. That is, its not a bad thing for consumers.

It is bad if you are tied … hard wired … to a particular provider. Its bad if you are building a new and potentially scalable business atop their platform. You can’t simply look at *aaS as a low cost provider of some element of your stack, you now have to seriously consider the competitive aspect.

Moreover, the *aaS providers are not required by law, regulation, etc. to guarantee you the same access to their infrastructure, engineering, core assets … that they have. They could make your life painful, and I called out the Netflix outage from Amazon that didn’t seem to affect the Amazon Prime streaming (we have both at home, for full disclosure). Think of this like Microsoft, prior to them being forced to keep a level playing field (which they fought again, tooth and nail for years).

To wit:

Zencoder is another company that says it was hit by Bezos’s low-margin bus.

The video-transcoding company’s technology has been running on top of Amazon for a years, but at the end of January Amazon launched Amazon Elastic Transcoder at $0.015 per minute for standard definition video, versus ZenCoder’s $0.02. Amazon also threw in 20 free minutes per month.

“We went into Zencoder knowing that Amazon may compete with us in the future,” Zencoder cofounder Jon Dahl told The Reg. “When we got started, Amazon had been slowly creeping up the value chain for a while. But we felt like we knew how Amazon would approach our space, and we made sure we were strong in areas where AWS is weak, like support, design, flexibility, and feature-completeness. When they launched Elastic Transcoder, it was exactly what we expected.”

and they seem to invite you to hand them the keys to the kingdom

For one thing, partners do not receive notifications of Amazon’s plans to create knock-offs of their own products, The Reg has learned.

In addition, even after producing a knock-off, Amazon representatives pump their partners for information about how they can improve the product, we’ve been told.

“After sharing with them twice what we do and seeing what we showed them show up totally copied by them, I think this time I will respectfully pass on the pleasure,” Newvem’s Laderman told us via email after he had received another request for information from Amazon following the launch of Trusted Advisor.

Of course, Amazon has a response, and you should head over to the site to read it.

I don’t think the Register is wrong here. I think they are chronicling an emerging trend in business models.

For a while, VCs have been telling their portfolio companies to avoid buying hardware, just start using EC2 or other systems to launch company *aaS type products. Let someone else handle this for you, simplify your life, keep your costs down, focus upon your value and core. So I am curious as to what their response is, having effectively gifted the *aaS companies with free R&D, marketing research, and business planning?

I don’t see the trend reversing. But I do think that intelligently run companies will keep in mind the potentially predatory nature of their “partners”, and make sure they can protect themselves if the “partner” decides they want to own that market. Make a knock off or buy the company are some of the major decision points that the partner needs to look at.

Curiously, I think this might actually strengthen IP protection efforts on the part of startups. Lip service has largely been paid to real IP in the past, as part of a picket fence that walls off your little area. Without this, anyone can copy/replicate what you’ve created. Without good IP protection, or without a protectable bit of differentiation, it will be much harder to convince future suppliers of capital, that you have something that is not only of value, but that you can have enough runway time to launch without a gale force wind of an Amazon or similar coming along to cause your company to crash and burn.

We live in interesting times.

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