Thread by @martin_casado

➡️margin directly drives valuation
➡️cloud spend is increasingly contributing to margin
➡️cloud stacks are *horribly* inefficient
➡️I suspect there are hundreds of billions of dollars of market cap being depressed layer of inefficient layer in the public cloud

Take standard compute in the cloud ...

- Code written in high-level language
- Language libraries
- Language runtime
- Userspace OS libraries
- Guest kernel
- Hypervisor
- DMA

So many redundant memory managers and networking stacks alone ...

There are basically four numbers that contribute to valuation
- TAM
- Growth
- Net Dollar Retention
- Margin <---- lots of money to be saved here

🤔I wonder if there is a PE play here similar to buying slowing companies and reducing CAC through sales efficiencies.

The idea would be to to buy slow growth SaaS companies and drive down AWS cost ... 🤔

Investors (public and private) value growth and NRR above all else. I suspect that's a major force driving this inefficiency.

But as a company's growth slows, or the macro economic environment slows, I suspect this will change.

There is a *lot* of market value at stake.

It's interesting to think of the current cloud stack as another artifact of private market largesse. VC's pour in money, drive growth, and worry about margin later.

It's the B2B version of what we see in consumer companies such as ride sharing, real estate sharing, etc.