Hardware Manufacturers Getting Squeezed By Cloud Service Providers

Throughout the computing revolution that began in the 1980s, hardware manufacturers like Hewlett-Packard and IBM have long been considered the industry’s pioneers. For the first in 30+ years, many of the world’s top manufacturers are finding themselves faced with the possibility of being on the outside looking in based on the latest step in information evolution.

In a recent interview with Business Insider, Amazon CTO Werner Vogels sat down to discuss his company’s Amazon Web Services (AWS) cloud platform. The way he describes this new industry’s evolution, it would appear that hardware designers and manufacturers have plenty to be concerned about.

According to Vogels, both large and small businesses are shifting away from making big investments in hardware and network infrastructures. Instead, they are choosing to rent needed equipment from cloud providers like Amazon, Facebook and Google. By choosing to rent said equipment, business owners and managers are able to save capital resources and simply treat IT costs as normal monthly operating expenses.

Now logic would dictate that leading manufacturers like Dell, Cisco, HP and IBM would simply shift sales targeting from individual business customers to the cloud providers. However, major cloud providers are well ahead of the game. They are in fact designing and manufacturing its own IT infrastructure. By doing so, they are essentially building cost-effective systems that will allow them to pass along a portion of the savings to clients in the form of lower rental prices.

That is exactly what Vogels has his people doing in the AWS group. He stated, “To be able to operate at scale like we do, it makes sense to start designing your own server infrastructure as well as your network. There are great advantages in [doing so].” He later added, “to be able to create network layouts that are unique for our particular business” is extremely useful.