Outsmarting the Cloud Giants: How to Avoid Getting Crushed by AWS, Azure, and Google

Strategic Planning and Innovation to Thrive in a Cloud-Dominated Red Ocean Market

Building products and applications in a world dominated by cloud providers (AWS, Azure, GCP) is tough. For startup founders in these spaces, this should be the thing keeping you up at night. The risk of cloud providers building a "me too" product and branding you as a "middleman" is all too real.

Why should a customer using one of the cloud stacks buy your product when the cloud provider offers something similar that’s "good enough"? Sure, your product might be better, but it's often considered both a capital and operational expense. Why take on that risk when the cloud provider offers a competing product, allowing customers to build what they want as a purely operational expense?

This is the siren song of cloud providers—consume what you need and turn it off when you’re done. Why buy something else when the cloud has a plethora of tools in an ever-expanding toolbox?

Take AutoML, for example—once the darling of the machine learning world. Early entrants in this space did relatively well until cloud providers built or acquired their own "me too" products. Customers could simplify and replace any subscriptions or licenses from a vendor (you) with what their cloud provider offers.

The first sign that the cloud providers are taking your market share is churned customers and declining revenues. By the time you realize that the cloud providers are slaughtering you, your marketplace may be awash with the blood of your competitors. This is what professors W. Chan Kim and Renée Mauborgne call a Red Ocean in their book "Blue Ocean Strategy." The major market participants (cloud providers) eat up the smaller competitors, consolidating the market space.

Here’s a great primer on Red vs. Blue Ocean markets:

The answer to surviving in a Red Ocean is to find a Blue Ocean—where the competition is irrelevant. It's about creating a new market space that didn’t exist before. But how do you do that? Do you need to pivot? The answer lies in starting at the beginning.

Start at the Beginning

Do you need to pivot? Not necessarily. Pivots are painful, costly, and exhausting. Before considering one, step back and conduct a strategic planning brainstorming session. The goal is to move from a Red Ocean environment to a Blue Ocean by pursuing value innovation. You need to differentiate your product in a way that provides superior value to customers while keeping your internal costs low.

Think of something better and completely novel. For example, Cirque du Soleil didn’t reinvent the circus or theatre—they created something entirely different and cut costs by removing animals and big-ticket actors, offering a unique experience with lower overhead.

Cloud providers operate similarly. They offer you "use only what you need" along with a suite of tools—often open-source—to let you build anything. If a cloud provider has a "me too" product like yours, think hard before competing with them.

Strategic Planning

The first critical step is sitting down with your team and being upfront about your organization’s situation. Often, we focus on immediate competitors but forget to look beyond the horizon for looming threats.

A simple SWOT analysis can help frame the conversation. Bring hard data, and avoid letting egos or gut feelings drive the discussion. The goal is to identify the market boundaries everyone is observing.

In the AutoML example, competitors in the space traded off between value and cost. Everyone focused on features—"Does it support this algorithm? Can it run on GPUs? Does it handle ETL?" Meanwhile, the cloud providers took over the market by offering competitive features at lower costs.

Be Brutal in Your Strategic Planning

Customers have checklists and RFI/RFQ processes where they compare your product to what the cloud offers. Since the cloud operates as an expense, your product, viewed as a capital expense, is already at a disadvantage. Hiring additional employees or system integrators to build a "me too" product on their cloud is often a more attractive option from a budget perspective.

The goal of your strategic planning is to honestly determine whether your product is just "middleware" and where the true value lies.

Value Innovation: Redefine Your Product

If your AutoML product has the same features as your competitors but with a few extras, that’s not true differentiation. What if you used your AutoML technology as the engine behind something entirely different, like a lead generation application?

The following table shows what a Red vs. Blue Ocean strategy looks like. In a Red Ocean market, differentiation and costs are traded off—more features mean higher costs. In a Blue Ocean, costs are reduced by redefining what your product is and does.

If Amazon, Azure, and Google offer competing AutoML products (and they do), why compete in that market? Why not strip out the core engine of your AutoML product and create a solution that none of the clouds have? Then integrate it into the cloud infrastructure to make it easy to use and deploy.

Plan Your Go-To-Market (GTM) Strategy

The Red and Blue Ocean analogy highlights differentiation and costs but not execution. Your GTM strategy is crucial to confirming whether your Blue Ocean strategy is working. As I’ve written in "10 Laws for Starting a Successful Startup," your revenues should start increasing if the strategy and GTM are successful.

One effective GTM method is to offer a "T-shirt sizing" subscription model. For example, with your lead generation application powered by AutoML, sales leaders could sign up for different subscription tiers (e.g., small, medium, enterprise).

While AutoML-to-lead generation might not be the best idea, if your internal costs are low enough, you can outcompete even the small players.

Execution and Success

I have a friend whose engineering startup captured 20% of the US solar engineering market by automating and streamlining internal processes. His value proposition? A fast turnaround. He found a Blue Ocean in a crowded market and, for the last five years, has outperformed all his competitors.

In his case, the simple differentiation was speed, and his internal value came from automation. He’s winning in a Blue Ocean and has made his competition irrelevant.

End Notes

No founder enjoys feeling the walls close in on dwindling revenues. No one wants to be out-competed in a market they helped create. Careful strategic planning, differentiation, and keeping internal costs low can set you apart. Consider these things before pivoting—your new market may be right under your nose.