GPU Moves Show "Channel Conflict" and "Frenemy" Behavior

“Channel conflict,” where suppliers compete with their customers, has a long history in the computing industry. These days we tend to call this a “frenemy” dynamic, where partners or suppliers become competitors or competitors become partners. 

The latest version is the move by Nvidia to get into the business of “GPUs as a service” while big cloud services and device suppliers look to build their own GPUs. 

The motivation is simple enough: a single Nvidia H100 GPU now lists for $57,000 on hardware vendor CDW’s online site. And cloud computing as a service firms buy thousands of such units or their equivalents. 

Google has invested significantly in its in-house Tensor Processing Unit  chips, while Amazon and Microsoft are building their own custom AI accelerators as well. OpenAI and Meta also are developing their own in-house GPUs. 

It is not clear how many Nvidia GPUs were sold to cloud computing as a service suppliers in 2023. But based on Nvidia’s second quarter 2024 earnings call and press reports, as many as 50,000 to 85,000 Nvidia GPUs might have been sold in 2023. 

Estimated Percentage of Total Nvidia GPU Sales	Units	% of Nvidia GPU sales
AWS	20,000 - 30,000	20% - 30%
Microsoft Azure	15,000 - 25,000	15% - 25%
Google Cloud	10,000 - 20,000	10% - 20%
Other Cloud Providers (Oracle, Alibaba, etc.)	5,000 - 10,000	5% - 10%
Total Estimated Purchases	50,000 - 85,000	50% - 85%

The "frenemy" dynamic, also known as channel conflict, has seemingly always been part of the computing industry, though muted in the pre-1970 period as the industry was virtually a monopoly held by IBM. 

But channel conflict increased between the 1970s and 1990s in the PC era, as independent software vendors developed and hardware sales channels multiplied.

During the Wintel period (1990s-2000s), channel conflict arguably declined, but the frenemy pattern seems to be increasing in the cloud era. 

Participant Taking on New Role	Former Supplier Role
Cloud Provider: Building custom hardware	Hardware manufacturer
Distributor: Offering managed services	Software vendor
Reseller: Developing their own software applications	Cloud provider
End-user: Self-provisioning cloud infrastructure	IT service provider