a16z Podcast | Datacenter of the Future

Transformation Drivers

• The "mobile supply chain" is eating the data center, as massive user bases on mobile and IoT devices force backend infrastructure to evolve.
• Innovation is now driven by consumer internet giants (Facebook, Google, Twitter) rather than traditional enterprise vendors like Cisco or EMC.
• These giants design new infrastructure to support billions of independent users, surpassing the networking sophistication of traditional hardware vendors.
• The architectural shift moves from custom, proprietary hardware to aggregating inexpensive commodity components (e.g., ARM chips, flash memory) managed by sophisticated software layers.

Investment Philosophy & Strategy

• A16Z views Facebook and Google as the blueprint for future data centers, shifting the startup model from replicating legacy enterprise stacks (e.g., Fidelity) to commercializing open-source-based commodity stacks.
• Investments span storage, networking, compute, databases, analytics, and security, all focused on unlocking value from commodity hardware via software.
• Peter Levine estimates that roughly one-third of A16Z's portfolio is dedicated to data center technology.

Key Technology Shifts & Decisions

• Networking:
  • Nicira pioneered software-defined networking (SDN) and was acquired by VMware to decouple networking from hardware silos.
  • Cumulus Networks is investing in replacing proprietary switches with commodity servers running open/closed-source software to match Cisco/Juniper performance.
• Storage:
  • Commodity flash memory is replacing traditional spinning media; costs are projected to parity soon, offering higher speed and reliability.
  • The trend mirrors the shift from x86 mainframes to PCs, now advancing toward mobile-grade components (ARM) which optimize power and cooling—critical constraints in data centers.
• Virtualization vs. Containers:
  • Virtual machines (VMs) are described as a "kludge" or "hack" requiring duplicate operating systems ("dream within a dream"), consuming excessive resources.
  • The industry is shifting to containers, which run on a single OS layer (Linux), reducing overhead and simplifying deployment.
  • Mesosphere (Mesos) is a key investment acting as the "operating system" for the data center, aggregating resources and scheduling them across the infrastructure like an OS does for a single server.

Future Market Outlook

• Infrastructure Model: Every data center of the future will be "scale-out," whether public or private; the distinction will be based on security, regulatory compliance (e.g., HIPAA), and corporate DNA rather than the feasibility of cloud adoption.
• On-Premise Decline: Traditional on-premise data centers are expected to disappear as economics drive everyone toward private or public cloud models.
• Provider Maturity: Google and Facebook infrastructure is considered more advanced than AWS, which relies on older VM-based architectures rather than modern containerization.
• Open Source Business Model: The future of monetizing open source lies in "SaaS-ifying" hosted instances (e.g., hosted Docker, databases) rather than selling on-premise licenses, a model successfully validated by GitHub and Red Hat.
• Developer Tools: DigitalOcean exemplifies the shift toward providing hosted, managed instances of open-source tools to developers, removing the need for on-premise configuration.