An internal AWS document reveals that startups are diverting budgets toward AI models and inference, delaying adoption of traditional cloud services like compute and storage. This suggests AI spend is becoming a substitute for, not an addition to, core infrastructure costs, posing a direct threat to AWS's startup market share.

Instead of selling software to traditional industries, a more defensible approach is to build vertically integrated companies. This involves acquiring or starting a business in a non-sexy industry (e.g., a law firm, hospital) and rebuilding its entire operational stack with AI at its core, something a pure software vendor cannot do.

Bill Gurley argues that a sophisticated defensive move for giants like Amazon or Apple would be to collaboratively support a powerful open-source AI model. This counterintuitive strategy prevents a single competitor (like Microsoft/OpenAI) from gaining an insurmountable proprietary advantage that threatens their core businesses.

Unlike the slow denial of SaaS by client-server companies, today's SaaS leaders (e.g., HubSpot, Notion) are rapidly integrating AI. They have an advantage due to vast proprietary data and existing distribution channels, making it harder for new AI-native startups to displace them. The old playbook of a slow incumbent may no longer apply.

A fundamental shift is occurring where startups allocate limited budgets toward specialized AI models and developer tools, rather than defaulting to AWS for all infrastructure. This signals a de-bundling of the traditional cloud stack and a change in platform priorities.

Despite its market position, Microsoft Copilot has failed to capture user enthusiasm. This creates a strategic vulnerability. A competitor who delivers a superior natural language interface for productivity tasks could disrupt Microsoft's dominance, potentially reducing it to a "data center company."

With partners like Microsoft and Nvidia reaching multi-trillion-dollar valuations from AI infrastructure, OpenAI is signaling a move up the stack. By aiming to build its own "AI Cloud," OpenAI plans to transition from an API provider to a full-fledged platform, directly capturing value it currently creates for others.

AI company Anthropic's potential multi-billion dollar compute deal with Google over AWS is a major strategic indicator. It suggests AWS's AI infrastructure is falling behind, and losing a cornerstone AI customer like Anthropic could mean its entire AI strategy is 'cooked,' signaling a shift in the cloud platform wars.

Recent acquisitions of slow-growth public SaaS companies are not just value grabs but turnaround plays. Acquirers believe these companies' distribution can be revitalized by injecting AI-native products, creating a path back to high growth and higher multiples.