Decades of “massive growth” ahead in the cloud 

Martin Casado, a GP at Andreessen Horowitz, explored the history (and the potential future) of digital infrastructure this week in a conversation with Patrick O’Shaughnessy. It’s no exaggeration to say that a vast amount of our lives are already enabled by the cloud—everything from streaming entertainment, online banking, to this very email you’re reading is made possible by cloud infrastructure. And yet, Casado makes a compelling case that we’re still in the early stages of what cloud computing will make possible over the next few decades. “The three big cloud providers are going to continue to grow and continue to preserve margins,” Casado says. “And the reason is the following: We’re still in relatively early innings for the cloud. There’s a lot of workloads that should be in the cloud that are not, [and] that are going to continue to move there.”

“Here’s where I’m the most bullish… I think we’re just getting started. I literally think that the infrastructure is basically the beginning and the end of technology. Honestly, I believe that the future vertical SaaS ends up becoming horizontal thin layers on top of core infrastructure components. And if infrastructure unlocks the capability of these apps to do new things, I just feel like we’re in early innings of this. I think we’ve got decades of massive, massive growth. And I think a lot of the value is that most of the value will accrue to the infrastructure. So I just think on the entire space, [I’m] hyper bullish.”


Business risk ≠ quote risk

A couple of weeks ago I convened a Q&A with Arne Alsin, our firm’s CIO and founder, for the benefit of our partners—now, we’d like to make the Q&A available to The Nightcrawler readers. In the conversation, Arne shares his thoughts on a number of subjects:  market cycles, the importance of focusing on business fundamentals in periods of volatility, the key to outperformance over a period of years (not months), the noise of daily stock prices, and much more. “If I’ve learned anything from 30+ years of doing this,” Arne tells me, “it’s that there’s always a reason to be afraid in markets. There’s always a boogeyman. ‘But this time is different.’ Nope – it’s not. The key to investing is simple – stay focused on the winning businesses. That’s all that matters in the long-run.” 

“If you have a multi-year time frame and you want to beat the market, this is the only way to invest. In fact, I think being concentrated in a select group of winning businesses in this environment actually lowers our risk. I know that’s not how Wall Street thinks—that’s okay. I embrace the day-to-day quote risk, but I absolutely will not tolerate business risk. I don’t invest in story stocks. I tell my team constantly—we need “wheels on the ground.” The best way to lower risk is to own the best businesses. Owning a small grouping of these businesses that are beloved by customers is the best way to mitigate risk over the long run.”


“The downside to optimism is limited, the upside is uncapped”

“Pessimists sound smart. Optimists make money.” I always liked this quote by GitHub’s Nat Friedman. In my experience, Wall Street culture tends to lionize the brash cynics as intelligent heroes, while optimists too often get portrayed as naive and hapless chumps. Ultimately, narratives don’t matter. What matters is the scoreboard: Who puts up the numbers over a period of years? And how do you optimize for performance? Packy McCormack’s latest essay, Optimism, hits on some of these core themes, using the concept of optimism as a heuristic for achieving forward progress. “It’s about more than money, though,” Packy writes. “Optimists move the world forward. There’s something deeply optimistic about entrepreneurship, the idea that it’s possible to create things that have never existed, and find a market for them. Science, too, is optimistic: to run experiments in order to better understand the universe assumes a belief that we can discover more than we already know, and use it to improve the world.” He continues:

“I was hesitant to write a piece on optimism because it seems like the obvious position to take – who would argue against optimism? – but this section shows that optimists are fighting an uphill battle in winning hearts and minds despite the evidence in their favor. But I don’t think it has to be that way. In fact, I think the status quo is actively and incredibly harmful, and that fighting for more optimism is a worthy cause, because optimism impacts outcomes.”

A few more links I enjoyed: 

“This is the business playbook of our time. First build a minimum viable platform (which involves most of the capex) and then gradually enhance its utility and resulting earning power via the gradual deployment of additional software modules, that incrementally solve problems for platform participants. We have seen this with Amazon, Facebook and more. This thesis is potentially another instance of the very abstract idea that business problems are becoming networking problems. Increasingly, business is about first laying down an infrastructure that makes electron management possible in the given scope of business (goods, Amazon; social, Facebook) and then get very good at it and expand the scope.”
“Satoshi Nakamoto had presented the currency as anonymous: For Bitcoin transactions (buying, selling, sending, receiving et cetera), users employ pseudonyms, or addresses — alphanumeric cloaks that hide their real identities. And there was apparent confidence in the anonymity; in 2011, WikiLeaks announced that it would accept donations via Bitcoin. But over time, research revealed data leakage; the identity protections weren’t so watertight after all.”

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