by They are building data centers pretty much everywhere these days. The IS sprawling, windowless buildings they are the physical engines of the internet and the cloud; there are more now being built than ever, and the a new breed is bigger and hungrier. A typical plant used to use 10 megawatts of electricity; now they are being built to pull up 10 times more. Last year all the data centers in the world had space 10.1 zettabytes of information — about 456 billion Wikipedias. And with the rise of artificial intelligence, which requires massive amounts of data and power, the global capacity of the data centers is expected double by 2027. Unless you live near a data center, you will soon.
But cloud computing and AI aren’t the only things driving the push for “hyperscale“data centers. About 65% of the capacity is in global centers owned by three companies alone: Amazon, Google, and Microsoft. Like the old railroad magnets, they are racing to control the market, because they understand something that the rest of us don’t. Data centers are more than vast digital warehouses. They are the necessary infrastructure technology on which almost every other company in the world must run.
When companies need almost any computing service these days – networking, security, data processing, platforms, you name it – it’s easier and cheaper to do it. just rent it from Amazon Web Services, Google Cloud, or Microsoft Azure. The more data centers these companies have, the more services they can offer, and the more storage and number-crunching capacity they can provide. By cornering the market on data centers, they’re not just creating bigger warehouses for data—they’re aiming to be a one-stop shop for all of the technology a company needs.
That’s even more true for AI startups. When an innovative newcomer wants access to the big language models needed to train and run generative AI, they have to go through Big Tech to get them. And now the tech giants are making venture investments in those startups by offering them “credits” for using the company’s cloud. That’s what Microsoft did part of its investment in OpenAI, for example — by giving the startup access to its data centers. It is a profitable incentive to enter a proprietary ecosystem.
“This is where the real business is,” says Cecilia Rikap, an economist who is an author new report called “The Dynamics of Corporate Governance Beyond Ownership in AI.” “The more AI is spent, there is more cloud consumption, so not only more money for these companies but more digital technology that is intertwined and tangled within their infrastructure.”
And it is this engagement that worries many economists and legal scholars. Regulators call the problem “lock-in.” Changing from one data ecosystem to another is not like moving your office to a new building; the programming interfaces between, say, Microsoft Azure are not just transferred to Amazon Web Services. It’s easy to get into one, but like the Hotel California, you can never leave. Once a tech giant gives a startup access to its cloud services and big language models, it’s pretty much guaranteed to dominate a new business that could one day become a competitor. “Market leaders benefit from early-mover advantage combined with network effects and high switching costs that lock customers in,” a congressional subcommittee warned 450 page report back in 2020. The rush to build data centers must be a move by Big Tech to hold the keys to the coming AI kingdom.
In the short term, the rise of data centers is a good thing for startups. “Until recently, the perception among academics was that the rise of cloud computing was great for startups and innovation,” says Matthew Wansley, a law professor at Yeshiva University who studies competition and regulation. “If you were a startup, you had to build your own servers. That’s a big fixed cost up front.”
That is no longer true. The price of cloud computing services has fallen every year since 2006, when Amazon opened its cloud. And it crashed completely in 2014, because noted a team of economists, when Microsoft and Google started advertising their competitive prices. From 2010 to 2014, AWS database prices fell by 11%. Over the next two years, they plunged by 22%.
Cloud computing has also made it easier for start-ups to get funding. Venture capitalists took a “spray and pray” approach to investing, meaning they placed bets on more companies but put less money into each one. They also restored their direct involvement in the running of the companies, trusting the market to sort out the winners from the losers.
The overall scene was especially great for AI startups. “Smaller companies like us could access the computing power and scalability offered by the larger service providers,” says Jonas Jacobi, CEO and co-founder of ValidMind, a fintech company. “You have a few big players that are very influential in the AI space, but there are also startups trying to compete with them. The only reason they are there is because of the cloud vendors.”
The trick, Jacobi says, is to write code that can work with any of the three providers, so you’re not locked into one company. You have to stay “tech stack neutral,” he says. Sure, one of the tech giants can always swoop in and build their own version of your software. There is data that suggests Amazon has a standard operating procedure to “engulf” products of small open source competitors and repackage them as part of their own set of services, as it did with Elastic search engine. “But that’s part of the journey as a startup,” says Jacobi. “It’s just up to us as a company to be faster and nimbler.”
But over time, economists warn, nimble will not be enough. In the battle to create basic high-tech – the “key complementary assets” of business – AI startups are sure to lose out to the tech giants that rule the data centers. “AI is a versatile technology,” says Rikap. “It’s being applied to everything. But what kind of AI we get and what kind we don’t get will be affected by the power of the three companies. It is an intellectual monopoly. What they control is data and knowledge.” By locking startups into their systems, Google and Amazon and Microsoft can effectively play favorites, offering the companies better deals and cheaper services in which they have the greatest stake.
Rikap also found that its increasing control over data centers gives Big Tech an incentive to work together to share information and protect their joint interests. In a paper by Bengt-Åke Lundvall, an economist at Aalborg University in Denmark, Rikap notes that there were consistently articles in technical and academic journals by researchers at Microsoft, Google and Amazon. coauthors employed by their competitors. Now, sure, computer science is a small world. But co-authorship, says Rikap, is “a clear way to tell that they are cooperating and that they know what each other is doing” – a hallmark of anti-competitive behavior.
At the moment, there is still reason to hope that innovation will triumph over monopoly. Amazon, Google, and Microsoft are still competing on price and features, which is good for everyone. And in Europe, where regulators are taking a more aggressive approach to technology in general and cloud computing in particular, the Big Three are busy pointing fingers at each other. Recent Google Cloud implementer criticized Microsoft as a “monopoly” and “walled garden,” and a trade group that includes Amazon an antitrust complaint was filed over Microsoft cloud computing licenses. Competing for market share, the companies are not yet in a green phase – and that creates an opening, albeit a small one, for nimble, faster competitors.
There is also a tendency, over time, for mature technology companies to shift from trying to innovate themselves to charging others to innovate. Among economists, it is called “rent-seeking behavior,” and it looks a lot like what Amazon, Google and Microsoft are doing with cloud computing and data centers.
So what’s the best way to ensure that Big Tech doesn’t use data centers to short-circuit innovation? Researchers point to Google, which is offering a friendlier type of partnership to startups. “Google Cloud Division partners with promising database startups, contributes to open source projects, and collaborates with open source foundations,” two scholars observed recently. It’s a “participatory architecture,” they say, that enables Google to make a profit and foster the growth of new companies and ideas.
More importantly, the Federal Trade Commission, aware of the threat posed by data centers, ordered the Big Tech companies inform about their AI investments. Just as new laws grappled with railroad pricing practices in the 1880s, today’s regulators may be catching up with the futuristic technological grids of cloud computing. One reason to think: A designated lawyer was the lead author of that 450-page House subcommittee report on Big Tech’s anticompetitive behavior. Lina Khan. Today she is the tough head of the FTC.
Adam Rogers is a senior correspondent at Business Insider.
Read the original article on Business Insider
