Verticals clouds are on the rise, as traditional clouds give way to specialization.

Verticals clouds are on the rise, as traditional clouds give way to specialization.

The infrastructure narrative of the last 15 years has been dominated by the cloud. Its growth has driven a surge of innovation in everything from hardware, to software, to operations – and resulted in the largest migration of workloads in the history of the industry. A handful of hyperscalers have driven this growth, and their impact is hard to overstate. They dominate the talent pool. They dominate market cap growth. And they dominate global IT spend, with the top fewspending more that $5B in 2019(and at least one over $10B). As a result, they also have outsized influence on the entire supply chain from chips to software, which they now use to drive agendas confined to their (relatively) narrow view of how infrastructure should look. 

From this very well-earned position of dominance, they’ve convinced large swaths of the industry that they are the only companies who can build scalable and cost-effective cloud infrastructure upon which the rest of the industry should be content building applications. (Until, of course, they decide to launch competitive services as a matter of course.) 

However, like all architectural epochs, the large centralized clouds are just another waypoint on the long arc of IT infrastructure. And their extreme success is now resulting in yet another shift that is naturally pushing workloads back out to more specialized infrastructure. And that trend is the focus of this post. 

This shift, by the way, is in no way any failing on the part of the traditional clouds. In fact, they’re still relatively early in their journey of consuming traditional IT, and will continue to do that for decades – growingly significantly along the way. They are doing exactly what they should, building a very general offering to support the long tail of IT applications. 

However, for the most part, to offer a higher-level resource, they end up just bundling the usual low-level resources in new ways — and they optimize them for the mean workload. As a result, the trad clouds are oftentoogeneral, tooinflexible, and their servicestooshallow. And so a new crop of infrastructure companies are being built to fill the growing need around rich, vertically integrated services. Or vertical clouds, as we like to call them. 

Vertical clouds, which are entirely focused on a specific type of workload or cloud service, tend to be far more sophisticated, far more cost effective, and far more performant. And while they may be built on top of the trad, centralized clouds to start with, more and more we’re seeing them using special purpose physical infrastructure too. 

These companies are now able to do this because (a) cloud applications are increasingly loosely coupled, allowing their developers to pick and choose what cloud infrastructure services they use, and perhaps most significantly, because (b)the size of the cloud has reached a point where the markets for these individual cloud services are large enough to support large, viable independent companies.

And so, in many ways, we’re entering a new and incredibly exciting era of infrastructure, in which any infrastructure service (and really any common sub-component of an application) is fair game to build a company around as a verticalized cloud. The better you are at building the infrastructure, the better the service will be. And because the market is large enough to sustain this, the large central clouds are structurally disadvantaged to compete. The primary question to startups in infrastructure has ironically shifted from “what if AWS/GCP/Azure decides to compete with you?” to “why aren’t you competing more directly with AWS/GCP/Azure?”

To pull away from the abstract, let’s look at a few areas where this is concretely changing how infrastructure companies are being built as used.