JCM9

Zoning guidance generally prohibits land use near an airport that has a high density of people, precisely to limit casualties during an event like this. Industrial would be permitted while residential and commercial use is not.

Scarily there are communities that have ignored such logic and permitted dense residential development right next to an airport.

Yes, the partner resale model of AWS has been a total mess for a while.

This isn’t a binary issue. I disagree with these “abandon the cloud” takes but do agree that most folks spend way way more than they should.

The biggest threat to cloud vendors is that everyone wakes up tomorrow and cost optimizes the crap out of their infrastructure. I don’t think it’s hyperbolic to say that global cloud spending could drop by 50% in 3 months if everyone just did a good audit and cleaned up their deployments.

United is a disaster of a company. Physicians hate them. Patients hate them. I feel bad for anyone forced to deal with their BS.

Their reputation is so bad I wouldn’t be surprised if they rename the company at some point in hoping people forget that they’re United Healthcare.

Fair enough. I guess I’m just like those guys at the investors conference in The Big Short and can’t believe what I’m seeing.

OpenAI is generating $13B a year in revenue. Let’s be generous and say $20B. They’ve signed commitments to spend something like $1.4 trillion on compute. An asset that to date has proven to have a hyper-depreciation cycle.

Someone has to come up with $1.4 trillion in actual cash, fast, or this whole thing comes crashing down. Why? At the end of all this circular financing and deals are folks that actually want real cash (eg electricity utilities that aren’t going to accept OpenAI shares for payment).

If the above doesn’t freak you about a bit at how bonkers this whole thing has become then you need a reality check. “Selling ads” on ChatGPT ain’t gonna close that hole.

That’s absolutely insane.

I get that folks are now just engaged in “keeping up with the Jones’” FOMO behavior but none of this is making any sense.

And these GPUs aren’t sitting idle either. Nobody is questioning that they “need” the compute, it’s the lack of a viable business model to pay for all this long term that has folks worried.

That’s the same as what happened when WeWork was buying up office space pre-pandemic and then using handwavy nonsense like “Community Adjusted EBITDA” as part of the smoke and mirrors to pretend like there was an actual business there.

The pandemic expedited the pain, but the business model was broken and folks called BS long before Covid hit.

Didn’t stop OpenAI doing a mega deal with AMD.

They just didn’t like the chips is the most logical answer. Particularly given AWS has been doing everything they can to pump up interest, and this huge PR release doesn’t even mention it at all. That omission speaks volumes.

This does all smell a bit like when WeWork was buying up seemingly every available office for rent. When it came time to actually pay for said offices… oops.

Reading between the lines of Trainium left out of the announcement says they tried it, weren’t impressed, and wanted NVidia chips instead.

At this point these announcements are more PR posturing than anything that makes financial sense for shareholders.

I do worry what the other side of this looks like when the circular feedback loop driving hype up eventually reverses and drives things down with amplifying effect.

Does OpenAI have $38 billion to buy this? Does AWS have sufficient free cash flow to pay for this “infrastructure” investment they speak of?

Recent analysis shows AWS is burning through Amazon’s free cash on AI buildouts which is very concerning if the bubble pops, leaving Amazon holding the bag of invested capital not making returns.

Amazon is a bit late to the party on these headlines, and lots of unanswered questions about what’s really going on here.

There’s a whole generation now that wasn’t in the trenches for the .com bust or 2008 crisis that’s blissfully unaware of what’s about to transpire when everything that’s been going on unravels.

You just described round tripping.

The problem is that no 3rd party seems willing to just invest cash because they believe these companies are currently a good investment. That’s what’s raising alarm bells.

The OpenAI / AMD deal was even crazier. This stuff is all good, until it’s not. Then everything implodes as not only does the “revenue” go away, but then companies take big write downs from the value of the investments they previously counted as income.

These deals all look like classic “round tripping.” Is there any evidence that this activity is generating actual net new $ that didn’t exist previously?

Amazon’s recent earnings was full of apparent round tripping.

1. Amazon “invests” in Anthropic (cost)

2. Anthropic takes that money and buys AWS (same dollars come back as revenue)

3. Amazon builds big datacenter for Anthropic (cost)

4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon

Meanwhile none of the above appears to actually be making any actual profit in terms of revenues > costs.

It’s bonkers. These are the same sort of shenanigans that were going on with infrastructure prior to the .com implosion. Did we learn nothing?

AWS is lagging in AI, but not by choice. Their leadership is in an all out panic at the moment trying to catch up.

A lot of folks agree though that the smarter play would have been just just sit more on the sidelines intentionally and wait for the bubble to burst, then buy up stuff cheap in the resulting fire sales. AWS should have just focused on the core compute and storage services, which they do well.

AWS simply doesn’t have the right talent to do well in AI at the moment and the folks they did have mostly fled elsewhere.

Impressive results. Microsoft also reported strong cloud growth yesterday.

Amazon reports today. AWS has been slipping and at current growth rates would slip to the number 2 cloud provider in a few years time… let’s see if that trend holds true today.

Not really. The issue was the time it took to correctly diagnose the issue and then the cascading failures that resulted triggering more lengthy troubleshooting. Rightly or wrongly it plays into the “the folks that knew best how all this works have left the building” vibes. Folks inside AWS say that’s not entirely inaccurate.

Legitimate question on if the talent exodus from AWS is starting to take its toll. I’m talking about all the senior long-turned folks jumping ship for greener pastures, not the layoffs this week which mostly didn’t touch AWS (folks saying that will happen in future rounds).

The fact that there was an outage is not unexpected… it happens… but all the stumbling and length to get things under control was concerning.

Agree, CloudFront isn’t super competitive with CDN focused vendors. It’s basically the “well you’re already on AWS so may as well just use this” play.

This. When AWS was 10 solid core services it made sense and was exciting. It’s now a bloated mess of 200+ services (many of which almost nobody uses) with all that complexity starting to create headaches and cracks.

AWS needs to stop trying to have a half-arsed solution to every possible use case and instead focus on doing a few basic things really well.

As the author points out AWS can provide a few things that you wouldn’t want to try and replicate (like CloudFront) but for most other things you’re very much correct. AWS is ultimately very expensive for what it is. The complicated billing that’s full of surprises also makes cost management a head-banging experience.

Depending on the use case you very much could just use Herzner. A simpler and more transparent customer experience than trying to navigate the mass complexity of AWS for basic stuff.

For smaller operations I’d still go with a rent-a-server model with AWS. Theirs is a critical mass though where roll your own makes sense.

The long term app model on the market model is shifting much more towards buying services vs renting infrastructure. It’s here where the AWS case falls apart with folks now buying Planet Scale vs RDS, buying DataBricks over the mess that AWS puts for for data lakes, working with model providers directly vs the headaches of Bedrock. The real long term threat is AWS continues to whiff on all the other stuff and gets reduced to a boring rent-a-server shop that market forces will drive to be very low margin.

Yes a lot of those 3rd party services will run on AWS but the future looks like folks renting servers from AWS at 7% gross margin and selling their value-add service on top at 60% gross margin.

The “full” prices are basically just made up. If this was like the insurance company negotiates a 15% discount than OK. But the reality is crazy stuff like the “full price” is $7,623 but “your insurance company paid” $34.12. It’s totally bonkers and should be illegal.

1. Lots of cracks showing in AWS before he took the big job, lack of focus, bloat of too many services with too few users

2. He then hired Adam to take over AWS which didn’t work out well

3. Good to see he’s cleaning things up, but we’re past the “clean things up” phase for a CEO. He’s been in role for a while now. That should have been the first few years of his tenure.

4. Anthropic was a good investment, but Amazon is just one of many investors. It’s nothing like the partnership that MSFT and OpenAI have, which was further strengthened with today’s announcements there. Amazon has nothing comparable to counter that.

I’d say leadership should be fired for having so little to show for it

Too little too late