{"id":177321,"date":"2025-09-29T10:41:08","date_gmt":"2025-09-29T10:41:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/177321\/"},"modified":"2025-09-29T10:41:08","modified_gmt":"2025-09-29T10:41:08","slug":"ais-600-billion-blind-spot","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/177321\/","title":{"rendered":"AI\u2019s $600 Billion Blind Spot"},"content":{"rendered":"

Welcome to Big Ideas, a\u00a0Prospect\u00a0survey of next-generation solutions for pressing policy problems.\u00a0Our writers scour the policy landscape to find out how to bring power back to the people and make America successful. Visit prospect.org\/BigIdeas<\/a> for more.<\/p>\n

Perhaps the most overlooked front in the corporate artificial intelligence (AI) arms race is the cloud computing sector, which facilitates the storing and processing of the massive datasets needed for training models. Virtually every publicly traded company uses cloud services (Netflix and Spotify run almost all of their backend infrastructure and streaming on the cloud), and government agencies<\/a> have awarded billions of dollars in contracts<\/a> for such services.<\/p>\n

The market for cloud computing is huge, with revenues exceeding those of smartphones, search engines, and broadband. Global cloud computing revenues reached $632 billion in 2023, and the U.S. accounted for more than half of that total. While slow quarterly earnings growth seems to have shaken investor confidence<\/a>, cloud service providers expect sustained AI-driven demand to boost revenues significantly. Amazon Web Services (AWS), the biggest player in the cloud computing market, is one such provider, and it\u2019s been so successful historically that its profits cross-subsidized the massive investments Amazon needed to dominate e-commerce.<\/p>\n

The AI buildout has cloud companies salivating. \u201cIt\u2019s hard to overstate how optimistic we are about what lies ahead for AWS\u2019 customers and business,\u201d Andy Jassy, president and chief executive officer of Amazon, said in February. \u201cAI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet.\u201d<\/p>\n

More from James Baratta<\/a><\/p>\n

AWS, Microsoft Azure, and Alphabet\u2019s Google Cloud Platform represent roughly two-thirds of the cloud computing market. The trio are known as \u201chyperscalers.\u201d In addition to providing cloud services, hyperscalers operate colossal data center infrastructures to meet their customers\u2019 computing, storage, and networking needs. Hyperscalers have reaped massive profits from cloud services in recent years. Their parent companies, flush with cash, have spent billions of dollars to acquire, invest in, or partner with potential competitors, increasing market concentration at the expense of competition (not to mention innovation).<\/p>\n

In a new report<\/a>, Asad Ramzanali, director of artificial intelligence and technology policy at Vanderbilt Policy Accelerator, offers a detailed blueprint for how to address cloud computing market failures and the national-security risks they create. Ramzanali identifies five factors that have eroded competition in the cloud sector\u2014market concentration<\/a>, vertical integration<\/a>, conglomerate effects<\/a>, opaque and differential pricing<\/a>, and high switching costs<\/a>\u2014before outlining specific actions policymakers can take to correct cloud computing market failures and enhance national security.<\/p>\n

Key among them is structural separation<\/a>, an economic regulatory tool designed to remedy conflicts of interest arising from a single enterprise or parent company acting as the supplier, customer, competitor, and investor in a particular industry. Cloud service providers frequently engage in this. As the report points out, these enterprises offer \u201chundreds of products across dozens of categories,\u201d and hyperscalers in particular have been acquiring startups \u201cat rates comparable to the largest venture capital firms.\u201d Lawmakers have proposed<\/a> bipartisan<\/a> legislation<\/a> to implement structural separation in digital markets, but the momentum has not been enough to pass \u201cthe laws we need,\u201d Ramzanali told the Prospect in an interview.<\/p>\n

Global cloud computing revenues reached $632 billion in 2023, and the U.S. accounted for more than half of that total.<\/p>\n

<\/p>\n

The cloud is a critical layer of the AI technology stack. Every layer of this stack \u201cdepends on the one(s) beneath it while retaining some operational independence,\u201d the report explains. Semiconductor chips are central to cloud computing, which forms the bedrock of AI models like ChatGPT that applications depend on. Ramzanali described cloud computing as \u201cthe invisible digital infrastructure that people don\u2019t pay attention to, but actually is a massive market, and has impacts on so much of what we do online.\u201d<\/p>\n

AI applications and chips represent the top and bottom layers of the tech stack, respectively. Both have been at the center of press and policy attention\u2014and for good reason. Deepfakes<\/a> and other issues<\/a> related to AI applications are \u201cmost visible to end users,\u201d Ramzanali told the Prospect. In 2022, Congress passed the CHIPS Act<\/a> in response to pandemic-related supply chain shocks, providing $52 billion for domestic manufacturing and research.<\/p>\n

Although Ramzanali was encouraged by broad bipartisan interest in these issues, he maintains that it\u2019s past time to pursue policy that can keep pace with the rapidly evolving cloud industry. \u201cThis is a looming crisis, at the end of the day,\u201d he told the Prospect. \u201cNow is the time to regulate.\u201d<\/p>\n

The report includes sample legislative text, which Ramzanali says is intended to serve as a \u201cstarting point\u201d for policymakers, \u201cto show that this is doable.\u201d<\/p>\n

Oftentimes, policymakers \u201cdon\u2019t have the time to spend two months getting into the weeds\u201d of which terms they should use in draft legislation and assessing the trade-offs among different definitions. That reality is not lost on Ramzanali, who previously served as legislative director for former Rep. Anna Eshoo (D-CA). \u201cMy job as an academic is to do that analysis,\u201d he told the Prospect.<\/p>\n

Performing that analysis led Ramzanali to recommend that policymakers apply neutrality rules to the cloud sector. The concept of neutrality dates back to the Roman Empire, and essentially provides for an equal-access obligation to \u201cserve all comers.\u201d In modern history, the railroad-focused Interstate Commerce Act of 1887\u2014which established the first regulatory agency in the United States\u2014and the Communications Act of 1934 are rooted in this concept. Implementing neutrality rules in cloud computing would restrict preferential treatment for favored customers by eliminating discounts and resource prioritization. It would also end the practice of bundling cloud and non-cloud products together.<\/p>\n

Additional recommendations include capping egress fees, which users incur when they move data from one provider to another. This creates lock-in for individual cloud companies. The report also calls for imposing \u201cknow your customer\u201d requirements to prevent illegal activity that cloud computing could facilitate.<\/p>\n

Cloud computing market failures also present \u201csignificant national security risks.\u201d Outages, whether orchestrated by malicious foreign actors or merely the outcome of human error, have the potential to trigger widespread financial and operational disruptions, given how much is now hooked up to the cloud. Designating the cloud as critical infrastructure is one way to make it more secure. The Department of Homeland Security (DHS) defines critical infrastructure as assets \u201cconsidered so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, national economic activity, national economic health, or any combination thereof.\u201d<\/p>\n

Think of it like a dam. \u201cIf you live in a town that is downstream from a dam, your dependency on that dam is really high,\u201d Ramzanali told the Prospect. \u201cThat\u2019s why [DHS] closely tracks threats towards dams.\u201d<\/p>\n

The designation is not a panacea, but would force DHS to track threats to data centers and other critical infrastructure assets, likely enhance interagency and law enforcement coordination, and in the event of a national-security emergency, allow the federal government to allocate cloud capacity for defense.<\/p>\n

Cloud computing is also at the center of geopolitical competition between the U.S. and China. The U.S. has long restricted foreign ownership<\/a> and control of various industries, dating back to the days of Alexander Hamilton<\/a>. Congress could require the Committee on Foreign Investment in the United States (CFIUS) to perform mandatory reviews of cloud service providers.<\/p>\n

As the report suggests, shoring up national-security gaps and cultivating the competitive forces needed for a healthy market would do much to ensure the integrity of the cloud sector.<\/p>\n

\u201cWe\u2019re all paying a little bit of a tax; we\u2019re all paying a little bit more for our digital goods and services than we should be,\u201d Ramzanali told the Prospect. \u201cWe have dealt with these kinds of problems in other markets, and we know how to think about these kinds of policy questions, so that\u2019s part of my rationale for bringing precedents into each section.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Welcome to Big Ideas, a\u00a0Prospect\u00a0survey of next-generation solutions for pressing policy problems.\u00a0Our writers scour the policy landscape to…\n","protected":false},"author":2,"featured_media":177322,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[254,64,63,3654,10826,512,2575,257,9338,10832,114759,114760,36204,105],"class_list":{"0":"post-177321","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-computing","8":"tag-artificial-intelligence","9":"tag-au","10":"tag-australia","11":"tag-big-ideas","12":"tag-big-tech","13":"tag-china","14":"tag-cloud-computing","15":"tag-computing","16":"tag-congress","17":"tag-data-centers","18":"tag-dhs","19":"tag-james-baratta","20":"tag-national-security","21":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/177321","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=177321"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/177321\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/177322"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=177321"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=177321"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=177321"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}