Jerry Chen | How to Break Up Big Cloud's Dominance

TL;DR

Greylock's essay explores strategies for startups to compete with big cloud providers in the ever-evolving cloud computing world.

Transcript

hi everyone welcome to gray matter the podcast from greylock where we share stories from company builders and business leaders i'm heather mack head of editorial at greylock this is an audio version of greylock general partner jerry chen's essay entitled how to break up big cloud this is part two of our essay series based on our castles in the clou... Read More

Key Insights

• 😶‍🌫️ Avoiding direct competition with big cloud providers by targeting different users and developing on top of foundational cloud offerings is a successful strategy for challenger companies.
• 🙃 Owning the community and catering to specific user personas allows startups to achieve product-led growth and reduce friction in trials and product usage.
• 👾 White space opportunities exist in niche markets, vertical markets, compliance, security, and AI/ML.
• 😃 Building deep IP and leveraging AI/ML are effective strategies for creating differentiation and competing with big cloud providers.

Questions & Answers

Q: How can challenger companies compete with big cloud providers?

Challenger companies can avoid direct competition by targeting different users and developing on top of existing cloud offerings. By identifying different APIs and atomic units, startups can thrive in areas that big cloud providers may have overlooked.

Q: What are some examples of successful challenger companies in the cloud market?

Companies like Shopify, Stripe, and Twilio have achieved relevance by targeting developers and specific use cases. By focusing on e-commerce payments, communication, and other essential functions, these companies have been able to carve out their own space in the market.

Q: Why is owning the community important for startups?

Owning the community allows startups to shape their go-to-market strategy and cater to specific user personas. By developing products for practitioners within the company, startups can directly reach users with low friction and achieve product-led growth.

Q: What opportunities exist in niche markets within the cloud ecosystem?

Startups can focus on niche areas, such as vertical markets or focused technical and business problems. Examples include companies like Samsara and Keep Trucking in the IoT fleet management space, or Pragma in gaming. The key is understanding the specific needs and buying behaviors of these niche markets.

Summary

This article discusses strategies for startups to compete with big cloud providers like AWS, Google, and Microsoft. It highlights different approaches such as avoiding direct competition, owning the community, finding niche markets, building deep IP, and leveraging AI and machine learning. The article emphasizes the importance of identifying areas where startups can thrive and innovate within the cloud ecosystem.

Questions & Answers

Q: What are some strategies for startups to compete with big cloud providers?

Startups can employ various strategies to compete with big cloud providers. One approach is to avoid direct competition by going up the stack and targeting different users or developing APIs, tools, and applications on top of the foundational services offered by big cloud providers. This strategy has been successfully adopted by cloud API-based businesses like Shopify, Stripe, and Twilio. Another strategy is to own the community, which involves focusing on building an open source project and engaging with the developer community. Startups can also find opportunities in white spaces by offering niche or focused solutions that address specific vertical markets or technical/business problems. Building deep IP and leveraging AI and machine learning are additional strategies that can help startups differentiate themselves and compete effectively in the cloud market.

Q: How have challenger companies achieved relevance despite competition from big cloud providers?

Challenger companies have achieved relevance by implementing various strategies. One common approach is to avoid direct competition with big cloud providers and instead focus on developing APIs, tools, and applications that target different users or go up the stack. This enables challenger companies to carve out their own niche and provide unique value to specific user segments. For example, companies like Shopify, Stripe, and Twilio have thrived by targeting developers and building atomic units of applications related to e-commerce, payments, and communications. By identifying and addressing the unmet needs of specific user personas, challenger companies can differentiate themselves and establish a competitive advantage.

Q: How can startups own the community and target specific users within companies?

To own the community, startups need to identify the user personas and communities that align with their product offerings. In the cloud market, the persona of the cloud user is shifting from developers to data scientists, revenue ops managers, business analysts, and other practitioners. Startups should focus on building products that meet the needs of these specific users, rather than targeting enterprise CIOs as the gatekeepers of technology adoption. By narrowing their go-to-market strategies and tailoring their products to the needs of practitioners within companies, startups can create awareness and reduce friction in the selling motion. This product-led growth strategy enables startups to reach users directly and establish strong relationships within the community.

Q: What are some potential areas where startups can find white space and thrive?

While big cloud providers dominate the common infrastructure services like storage, there are still opportunities for startups to find white spaces in more focused or niche markets. Startups can focus on vertical markets or address more specific technical or business problems that are not fully served by big cloud providers. For example, in the IoT space, companies like Samsara and KeepTruckin have successfully focused on fleet management. In the security market, which is constantly evolving, there is always a demand for new tools and solutions to combat cyber threats. Startups can also explore adjacent markets like compliance and governance, where there is still untapped potential. By understanding the specific needs, buying behaviors, and channels in these white spaces, startups can position themselves strategically and thrive.

Q: How can startups build deep IP and differentiate themselves from big cloud providers?

Building deep IP is a crucial strategy for startups to compete effectively with big cloud providers. Startups can focus on developing proprietary methods, technologies, or algorithms that solve novel or existing problems in innovative ways. One notable example is Snowflake, which built a $70 billion market cap company by rethinking the entire data warehousing process and separating storage from computing. Startups can also leverage adjacent markets or technologies to build deep IP. For example, in the data market, the move to real-time data and streaming is creating opportunities for startups like Rockset, which combines search engine capabilities with a database. By identifying areas where deep IP can be built, startups can differentiate themselves and create sustainable competitive advantages.

Q: How are startups leveraging AI and machine learning to compete with big cloud providers?

AI and machine learning have become buzzwords in the cloud market, with significant investment from big cloud providers and venture capital. Startups can leverage AI and machine learning by either owning the end-to-end experience for the ML user or going deep in specific areas and building deep IP. Owning the end-to-end experience involves providing comprehensive solutions like SageMaker or DataRobot, which simplify the ML process for users. Going deep in specific areas allows startups to apply AI and ML techniques to solve complex business problems in focused markets. Examples include Instabase, which uses ML to transform how enterprises work with documents and complex workflows, and Abnormal Security, which employs ML techniques to prevent business fraud in email and communication channels. By applying AI and ML deeply in specific markets, startups can create significant value and establish themselves as leaders.

Takeaways

The cloud market is dominated by big cloud providers like AWS, Google, and Microsoft, but there are strategies startups can employ to compete and thrive. By avoiding direct competition, owning the community, finding white spaces, building deep IP, and leveraging AI and machine learning, startups can differentiate themselves and offer unique value to specific user segments. Understanding the needs and behaviors of different user personas, targeting niche markets, and focusing on areas with untapped potential are keys to success. Building deep IP and developing proprietary methods or technologies are crucial for startups to establish sustainable competitive advantages. As the cloud market evolves, startups need to continuously adapt their strategies and find new ways to break up the dominance of big cloud providers.

Summary & Key Takeaways

• The essay introduces Greylock's "castles in the cloud" project, which aims to identify areas where startups can thrive in the cloud market.

• Challenger companies utilize strategies such as avoiding direct competition with big cloud providers, targeting different users and developing on top of foundational offerings.

• Startups can own the community, focus on niche areas, build deep IP, leverage AI and machine learning, and find white space opportunities.