Internet Infrastructure and Business Strategy in the Digital Era

I've been meaning to write something about the way the architecture of the internet has changed in recent years and the implications on business strategy. This is particularly relevant for those who are undergoing digital transformations, cloud migrations, data centre rationalisations and other similar business case buzz phrases.

I hadn't intended to go into much technical detail and tried to look at this through a more philosophical lens... I don't think I completely succeeded! There is a key point I want to make, however, to start we should level set and provide some context with a few of the key architectural building blocks of the internet. Maybe we could start with a picture, then define some terms:

Internet service providers (ISPs)

Telecommunications Companies "Telcos" have traditionally provided the pipes that allow the data to flow around the planet. Growing out of ARPANET and open standards for Internet Protocols, the early internet was open with few restrictions from the data transport perspective. Private telcos were important to scale the network globally and arranged themselves in a tiered structure:

Tier 1: In practical terms, a tier 1 network is large enough so that it does not need to pay other Tier 1 providers in order to use their networks and charge smaller ones for access to their network. These Tiers are also large enough to support peering agreements between themselves so that internet traffic can go across any of their networks. Tier 1 networks provide global network coverage.

Tier 2: A provider that connects between Tier 1 and Tier 3 internet service providers. Tier 2 providers exchange internet through peering agreements, as well as purchase internet transit from Tier 1 providers.

Tier 3: A stub network, typically without any transit customers, and without any peering relationships. They generally purchase transit Internet connection from Tier 2 Service Providers, sometimes even from the Tier 1 Providers as well.

A few additional elements just to mention:

Internet exchange points exist as not-for-profit entities for the most part, but peering arrangements mean commercial agreements between private businesses (ISPs)
Content delivery networks such as Akamai help move lots of data around the internet by storing large volumes of regularly accessed content nearer to the end user in global Points of Presence (PoPs).

Domain Name System (DNS)

A hierarchical naming system that translates the URL in your browser to an IP address. At the internet service level it relies on private domain registrars to administrate things like WHOIS data, but is still largely an open decentralised system. An ISP usually provides name resolution services to its customers, though companies such as Google provide a very widely used DNS.

Data centres

Latterly, sometimes referred to as "private cloud", data centres are where business kept all of their (unsurprisingly) data. In the early days, they might have dedicated IT teams that built and looked after this technology, later they might outsource it to specialist hosting providers with complicated private network services to fence off a businesses IT systems from the rest of the world for security.

Attached to this approach was quite a substantial price tag however and as data and digital services became more prevalent, the industry began to provide newer and more innovative solutions. At the earlier stages, systems integrators might look to rationalise an ever increasing IT sprawl and companies would look to outsource staff and business functions in order than they could focus on their core business.

"Digital transformation" became synonymous with these projects and as "the cloud" was born business transformation continued at pace.

Public cloud / "as-a-service"

Cloud services are now more or less taken for granted; most of us use them on a daily basis for services like email, movies, music, photo sharing, data storage, the list is endless. It is changing the business environment too with cloud service providers like Amazon Web Services and Microsoft Azure becoming the go to companies for hosting. Their impressive rate of innovation and scale, coupled with on-demand access and cost models that mean no large upfront capital expenditure is incredibly alluring. As your competitors move (and new ones emerge) the pressure to move to cloud becomes greater for organisations too; not to do so eventually becomes a disadvantage.

Within these cloud service providers are entire internet ecosystems; from DNS to compute and storage, to internet connectivity security services. The notable difference is that these ecosystems have centralised the internet meaning that a handful of tech giants have a disproportionate involvement in the flow of data and information. To labour the point a little, AWS's global network is a "purpose-built, highly available, and low-latency private global network infrastructure":

Microsoft's global network is much the same; these companies are moving so much data around the planet, it makes commercial sense to have their own infrastructure rather than relying on ISPs any longer.

So, the trend would appear to show a convergence on a handful of competing private internet-like ecosystems, interconnected by the pre-existing infrastructures.

The digital shift

Platforms

The digital era has seen a huge increase in services, some of which I hinted at in the previous section. The cloud service provider ecosystems have enabled massive innovation; platforms we use for communication, entertainment, payment, shopping, digital services are now ubiquitous and is a bustle industry with start-ups and VC being perhaps one of the defining characteristics of the modern business landscape.

APIs create ways in which these platforms can be integrated with other systems inspiring more creativity and innovation. The platform and application space has subsequently become the focus of businesses as this is where the value lies.

Implications on business strategy

It's a cliché but nonetheless true that technology is moving at an incredible pace. It can be difficult for organisations to keep up with the rate of progress, never mind consider the wider implications and even unintended consequences. With all this said, I really wanted to share some thoughts and perhaps pose some questions or start a conversation. Most of these are just things that I see as plausible and worthy of some consideration; opinions that might give pause for though.

When the conversation on net neutrality was at its peak back in 2017/18 in the US, many wondered what the implications might be. In the context of business and the context I set in this post, I began wondering if businesses started moving their services to a cloud service provider could it have implications on which one I should select? Say for example my has a key partner or customer, I run services in AWS but they are using Azure, what are the potential issues? A large institutional customer may consume Google services, but your eggs could all be in the Amazon basket; might this lead to the necessity to duplicate services or risk a degraded quality of service?

Back in the old days, "vendor lock-in" used to be considered a negative; the general thinking being that if you didn't diversify, you could be taken advantage of due to the typical corporate inertia and complexities of change. The term data gravity emerged a few years ago, suggesting that as your data grew it would attract more applications and services.

If I can build it in a cloud service provider then, since I have exactly the same toolbox as everyone else, anybody can. Some of the old competitive advantages you may have enjoyed will erode and will need to be compensated for. Some of these advantages may be be very subtle and hard to foresee. This isn't necessarily a bad thing of course, change can be very positive! A related question that is worth pondering is in the context of competition, what market is Amazon not in?

We can't ignore the external social and political environment now of course. As we outsource more control of the fundamental architectures of the internet to private technology companies, to what extent is your business more vulnerable to significant geo-political events?

The power of the internet

The internet has been a catalyst for progress; with significant benefits for the world, productivity, connectivity, the flow of information. The digital era has seen previously unimaginable improvements in quality of life for all of humanity. There is still a way to go of course, but with increasing complexity in society, what is the right path? This societal perspective is too big for this blog post and hardly my area of expertise, so I'll leave that to your better judgement.

I happen to believe the key infrastructure should be as democratised and open as possible to allow for even greater progress and ensure we don't stifle innovation. It seems to me that there is an inward centralising trend at the moment as business transform, but with blockchain and crypto there is a growing decentralising outward pressure which seems welcome.