Why Would a Startup Want to Compete with Amazon, Google, and Microsoft?
“Don’t let the door hit you on the butt on your way out,” was essentially the message I got a couple of years ago when I told a VC acquaintance about my new proposed company, Wasabi. Half way into my presentation, he had asked about competition, and I had said “We will compete directly with cloud storage from Amazon, Google, and Microsoft. Wasabi is identical to Amazon S3, except we’re 80% cheaper and 6x faster.” “All they have to do is drop their price to match yours and you’re out of business,” he said. “No way I’m going to present that to my partners.”
No worries, I had plenty of money to finance Wasabi without this guy, but his sentiment made me realize how many people shake in their boots at the prospect of competing with an industry giant like Amazon. Me, I like competing with big companies in markets that are well established and bordering on commodity so long as I have a real technical advantage. I’d rather pick a fight with some big, lumbering company than worry about whether there’s going to be a market for my product. Big companies like Amazon AWS and Microsoft have hundreds of cloud products, and they can’t be best at everything. And public companies in particular are under constant financial scrutiny by investors, so their ability to take a temporary hit in order to gain some long-term advantage is limited.
When Jeff Flowers and I started Carbonite, we had some pretty big competitors in the consumer and SMB backup space, namely Mozy (EMC), HP, and Iron Mountain. We had far superior technology that allowed us to offer the industry’s first “all you can eat” pricing plan. Customers loved it. Meanwhile, the big guys were telling people that there was no way we could do what we were doing and still make money, so just wait and Carbonite will be out of business in a few years. Today, Carbonite trades on the NASDAQ and is worth over a billion dollars. HP and Iron Mountain folded their products, and Carbonite ended up buying Mozy from EMC.
Think about this: Amazon’s S3 cloud storage business is probably in the range of $4-5 billion. Wasabi is 80% cheaper than S3, Wasabi offer free egress, and Wasabi is 6 times as fast. Yes, Amazon could drop their price by 80% to compete with Wasabi, but I wouldn’t want to be the guy who walks into the CFO’s office and says, “I think we should wipe $3-4 billion off the bottom line because some little company in Boston is running annoying advertisements.” They’d be better off buying us for a billion dollars and then shooting us.
Here’s another piece of my thinking: IDC thinks that worldwide there will be 163 zetabytes of data stored by 2025. At Wasabi’s current price of .49 cents/gb/mo, that represents a $7.8 trillion dollar potential market. I wouldn’t mind winning a piece of that pie! Better than being a big fish in a tiny pond.
American industrial history is rife with examples of little guys who went up against giants and won. When I was growing up, AT&T had 90% of the US long distance market. Then a startup called MCI found that they could use microwave repeaters placed along train tracks to connect cities without stringing wires and digging up streets. They offered generic long distance – the exact same product as AT&T – for half the price. It took 11 years before AT&T decided to cut their price and compete. Meanwhile, their market share plummeted from 90% to 40%.
Also, back then US Steel was not only the largest steel producer in the US, but it was the largest company in the world, period. That didn’t scare a little company called Nucor that pioneered the concepts of the steel mini-mill and the electric arc furnace. They figure out how to make plain old sheet steel for less than US Steel could with its big hulking Bessemer furnaces. Today, Nucor is the largest steel producer in the US and US Steel was delisted from the S&P 500.
In the computer business, IBM used to dominate the market. A company in my backyard, EMC, came along and started making IBM-compatible disk drives. Their pitch was simple: “Unplug the IBM drive, plug in the EMC drive, and save 30%.” Who would have thought IBM would stand for that? But EMC was a billion-dollar company before IBM decided they couldn’t stand it anymore. But it was too late for them to dominate the storage business. Then Dell came along and creamed them in PCs.
Tesla’s another good example. If someone came to you and said, “We’re going to take on GM, Ford, and Toyota,” you might be tempted to show them the door. But big companies have their limits, and with all the resources in the world, GM is losing the EV war to Tesla. And the world isn’t expecting GM to catch up. Today the two companies have almost identical market caps, $54B vs. $55B despite GM have 11.5x the revenue.
There are lessons to be learned here. There are incredibly successful companies like Google, Apple, and Facebook that do something nobody has ever done before. But there are thousands of failed companies whose products never gained traction or where an anticipated market never emerged. At Wasabi, we’re not asking you to do anything differently. People are already using a ton of cloud storage. We’re like Nucor – we’ve figured out how to do something people are already doing in great numbers, but cheaper, faster, and simpler.
I can understand why people would look at me like I have two heads when I tell them who we’re competing with. But we’re better at cloud storage than any of them. We’ve been doing nothing but cloud storage for 15 years. We’re not distracted by a hundred of other projects. We’re free to just concentrate all our engineering brainpower, finances, and marketing on being the best damn cloud storage in the universe.