Netflix, jetting along on Squid Game success, now has nearly 214 million customers within its planet-encircling tentacles.
Telcos that pipe Netflix content to homes are suddenly jealous, even suggesting Netflix should pay them for transport (net neutrality, here we go again).
The Internet firm's trajectory is certainly enviable – its share price has more than quintupled in five years – but its business arrangements are a shocker. Telcos captivated by the public cloud should take more note of that.
Perhaps no other company relies as heavily as Netflix does on Amazon Web Services (AWS), the largest of the three big US public clouds. By its own admission, Netflix now runs "the vast majority" of its computing on AWS, using it for data processing, storage and other services.
No doubt, this deal has brought enormous benefits for Netflix, allowing it to build an Alexandrian empire of video based on low-cost AWS resources. It also means Netflix is not in control.
That much is apparent from filings this year with the US Securities and Exchange Commission (SEC). Netflix starts by noting that "any disruption of or interference with our use of the Amazon Web Services operation would impact our operations and our business would be adversely impacted."
Fair enough, you might think. Disruption faced by any supplier would have an impact. In the telecom sector, that is precisely why operators typically use more than one network vendor and often have multiple IT suppliers.
Then you read the bit that says "the vast majority" of Netflix computing is on AWS and realize Netflix is unusually exposed.
It gets worse, though. Telecom networks are standardized and interoperable, partly so that operators can minimize disruption if they switch suppliers. A desire to make them even more interoperable explains the current obsession with open RAN, an initiative that seeks to improve interfaces and boost competition.
But there is no public cloud parallel, and many public cloud technologies are incompatible. Hence the Netflix acknowledgement that "we cannot easily switch our AWS operations to another cloud provider."
This downplays the risk, but Snap, a smaller tech company behind the Snapchat messaging app, does not. Unlike Netflix, it has made use of both AWS and Google Cloud for "the vast majority" of its computing, ensuring it has alternative vendors in the mix.
Except it doesn't, really. Because, as Snap explains, "our systems are not fully redundant on the two platforms."
In other words: "Any transition of the cloud services currently provided by either Google Cloud or AWS to the other platform or to another cloud provider would be difficult to implement and will cause us to incur significant time and expense."
The money at stake is not insignificant, either. Snap, it turns out, has signed a commitment to spend about $2 billion with Google Cloud over a five-year period. Another $1.1 billion is pledged to AWS over six years. This works out at roughly $583 million a year, a figure that equals 23% of Snap's revenues in 2020, when it also racked up a $945 million loss.
What's more, Snap's expenditure with the public clouds is in lockstep with growth in traffic.
"Hosting costs also have and will continue to increase as our user base and user engagement grows and may seriously harm our business if we are unable to grow our revenues faster than the cost of utilizing the services of Google Cloud, AWS, or similar providers." After all the disclosure, that vague reference to "similar providers" sounds desperately hopeful.
Netflix and Snap are not the only Internet companies dependent on public clouds. Rental-service Airbnb outlines the risks of "interruptions or delays" to public cloud services before pointing out that it relies "primarily" on AWS for them. Travel-site Expedia is currently shifting most of its mission-critical applications to AWS.
"By using AWS, I'm not bound by throughput limitations or CPU [central processing unit] capacity," said Magesh Chandramouli, a principal architect at Expedia. "When I think of AWS, freedom is the first word that comes to mind."
But freedom is the last word that comes to mind when you read Expedia's 2020 filing with the SEC. "Transitioning to these new technologies may be disruptive to resources and the services we provide, and may increase our reliance on third-party providers," it says.
So why do it? The public cloud, unfortunately, has become nearly impossible to resist. Telcos, among other organizations, face a grim choice between long-term survival as a public cloud tenant and the possibility of death by cloud-dwelling competitors.
No company boss wants to be dragged in front of shareholders and told profitability has collapsed because he resisted technological change.
A succession of Internet outages this year has shown two things. The first, with Facebook's recent seven-hour glitch, is that even the biggest companies can fail.
The second is that an outage at Facebook or a large content delivery network affects multiple customers and sites reliant on those platforms. Downtime at AWS, with its $45 billion in annual revenues (and counting), would grow more disastrous with each passing year of public cloud transition.
Outages are not the only concern. Early this year, AWS disconnected Parler, a Twitter equivalent popular with supporters of Donald Trump. The justification provided – that Parler was used to organize the January 6 storming of the US Capitol – is irrelevant in this context.
The point is the immense power that AWS wields over its clients. Parler did eventually bounce back, shifting to a smaller platform called Epik. But judging by all the commentary in SEC filings about switching difficulties, not everyone would manage the leap.
Dish Network, the US firm building America's fourth mobile network, has had little to say about AWS dependency in its own regulatory filings. In a deal announced in April, it is entrusting all its IT workloads and network functions to the public cloud, going further than any telco has before.
If that arrangement proves to be successful, other telcos will find resisting the public cloud even harder. The world should be looking for answers.
- Netflix adds 4.4M subs in Q3, pushes global total to 213.56M
- It's time for telecom to worry about the public cloud
- AT&T has locked itself into a risky affair with Microsoft
- Net neutrality moaning shows telcos are stuck in the past
- Facebook outage should frighten everyone
— Iain Morris, International Editor, Light Reading