Andreessen Horowitz partner Martin Casado wrote in a debate about whether to build applications upwards or infrastructure downwards: Amazon Web Services started with machines, storage, and queries, then moved to higher-level services. He also listed exceptions: Microsoft, AWS, Oracle, SAP, Databricks, and Palo Alto Networks; once in an oligopoly, moving upwards becomes possible, which was nearly impossible before.

The debate was initiated by entrepreneur Ivan Burazin. He believes that OpenAI's foray into vertical industries like law, finance, and healthcare will fail, and that Anthropic's Claude Design is rarely mentioned anymore; moving upwards is extremely difficult as each vertical industry has its default incumbents, and the switching cost is social habits rather than price or functionality. He then added that almost no company has succeeded by moving upwards; successful ones have all moved downwards; when moving downwards, you are the customer, understanding constraints, primitives, and physical limits, allowing for deep exploration; when moving upwards, you are a visitor, unaware of workflows, politics, switching costs, and tastes, which leads to failure.

Casado used the history of cloud platforms as a counterexample. AWS launched its simple storage service S3 in 2006, with objects, buckets, and keys, starting at about $0.15 per GB per month; months later, it introduced Elastic Compute Cloud EC2, followed by block storage, databases, and over 200 services, evolving from "renting a machine and storing a file" to deploying agents capable of reasoning, planning, and executing tasks. The original words from Andy Jassy's team were: first do the undifferentiated hard work of setting up data centers, fixing hard drives, and networking, then let developers request servers, storage, and databases. Storage was designed as building blocks for subsequent services, rather than a monolithic solution that does everything.

Casado himself started with software-defined networking, co-founding Nicira, which was sold to VMware for about $1.3 billion in 2012, later leading its networking and security business, and then joining a16z to invest in digital infrastructure. His caveat is that moving upwards is not absolutely prohibited, but one must first become a platform oligopoly. Microsoft moved from operating systems into office and cloud, Oracle and SAP horizontally consumed modules from databases and ERP, Databricks moved upwards from data lakes to intelligence and governance, and firewall companies are moving towards platforms; the path is always to lock in the lower layer before selling the upper layer.

In market mechanisms, this is a territorial division between model laboratories and industry software. Buyers are vertical software and system integrators in law firms and hospitals who fear being replaced by generic chat windows; sellers need to prove they can also create industry suite model companies. Capital is being repriced between "platform premiums" and "industry defaults." Beneficiaries are incumbents who already have workflows and compliance licenses, as well as cloud and data platforms identified by Casado as oligopolies; those under pressure are laboratory products that rely solely on clever models without foundational primitives or industry default positions. The social switching cost is written as a moat harder than a feature list: the stack pulls down from where the user begins to express intent.

Source: Public Information