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    Forget stocks and bonds: Sachin Duggal is making millions trading Amazon’s Cloud

    Synopsis

    Sachin Duggal says cloud must not only be viewed as a technology as it has capacity, different pricing based on commitments, and it’s becoming a commodity.

    Sachin Duggal
    “You have to think of the cloud as a financial-service or a monetary instrument and not just as technology,” says Duggal.
    By Edward Robinson

    Sachin Duggal looks pretty chipper for a man who works in three time zones simultaneously. After arriving in London from San Francisco at dawn this December morning, the entrepreneur attended a meeting for startups at the U.K. Treasury, then he communicated over Slack with his colleagues at a cloud-computing company he manages in Delhi. Now, ensconced at his usual table in the polished marble brasserie at the Arts Club in London’s Mayfair district, he’s taking a dinner break before he has to hop on a call with investors in California.

    Clad in a white T-shirt, jeans, and a hoodie, he looks out of place in a members-only establishment favored by gallery owners and international financiers. But Duggal, a British-born man of Indian descent who built and sold his first company (and made millions) before he was 30, enjoys geeking out amid the Champagne and chatter of the jet set. Sipping sparkling water as his two smartphones chirp with messages from afar, he warms to his favorite topic: the cloud, or more precisely, how on-demand computing provided by the likes of Amazon.com Inc. has become a burgeoning market in its own right.

    His company, Engineer.ai, is one of the top brokers of Amazon Web Services (AWS) in India. “You have to think of the cloud as a financial-service or a monetary instrument and not just as technology,” says Duggal, who turns 35 in April. “It has capacity, different pricing based on commitments, and it’s becoming a commodity.”

    Ever since Seattle-based Amazon leveraged its titanic technology capabilities into a separate cloud-computing business 12 years ago, numerous players have been angling to trade those services in ways similar to how energy brokers buy and sell oil or electricity. They range from global giants, such as International Business Machines Corp. and Accenture Plc, to smaller players in specific markets, such as Duggal’s Indian venture.

    As cloud computing has grown into a $160 billion global industry in little more than a decade, the so-called cloud-service brokerage market has soared as well. It’s projected to hit $9.5 billion by 2021, more than twice the $4.5 billion in 2016, according to MarketsandMarkets Research Pvt. Ltd., an Indian research firm. Every day, traders in New York, London, Singapore, and beyond make a market in what they call “reserved instances,” a phrase that may sound like something science fiction author Philip K. Dick dreamed up but simply means blocks of cloud capacity.

    Duggal and his co-founder, Saurabh Dhoot made a good call by hitching their company to AWS in 2012. Initially dismissed by analysts as a potential misstep, Amazon’s cloud service has become a juggernaut that’s provided Jeff Bezos with a war chest to finance his expansion into new territory, such as the supermarket business and, most recently, health care. In 2017, AWS generated $4.3 billion in operating income on $17.5 billion in net sales, eclipsing the $2.8 billion in profit produced by Amazon’s core North American online retail division. Comcast, Netflix, and Unilever, as well as NASA and the CIA, all use AWS to handle some of their computing needs. So do countless startups. With a 34 percent market share in the fourth quarter, AWS dominates the so-called public cloud, according to Synergy Research Group. Runner-up Microsoft Corp., with its Azure services, has 13 percent.

    Duggal says something bigger is at stake than Amazon’s business fortunes: The advent of cloud computing is spurring entrepreneurship in India and other developing economies by making it far more affordable for small businesses to run software applications and store data. By dispensing with the need to buy, maintain, and replace machines and software programs, companies can reduce their IT expenses by more than a third, according to TSO Logic Inc., a Vancouver-based consulting firm. “One day there won’t be data centers at companies,” Dhoot says.

    Still, making this happen in a nation as vast and complex as India is daunting. The government has been slow to build extensive digital infrastructure, roll out broadband, and address chronic corruption, according to the Asia Cloud Computing Association, a trade group based in Singapore. Moreover, India remains so impoverished that its gross domestic product per capita ($1,709) is running far behind China’s ($8,123). “Whichever way you look, it’s a hard place to do business,” says Umang Bedi, a former managing director for Facebook Inc. in India and South Asia who now sits on Engineer.ai’s board.

    That appears to be changing amid recent digital breakthroughs in the country of 1.3 billion people. In 2016 the Jio mobile network, controlled by the conglomerate Reliance Industries Ltd., swept the market by offering consumers about six months of free fourth-generation internet access and underpricing rivals offering 2G bandwidth. That same year, AWS opened data centers in the country and immediately saw a 60 percent increase in customers.

    Today, AWS has more than 75,000 clients in India, including satellite television business Tata Sky and Hotstar, an entertainment streaming service that draws hundreds of millions of viewers to cricket tournaments and other programming. Spending on all cloud services in the country is forecast to reach $2 billion by 2020, a pace that’s outstripping the rest of the world, according to the U.S. International Trade Administration. “India is a big priority,” Andy Jassy, chief executive officer of AWS, told the Hindu newspaper at a conference in Las Vegas in December. Amazon declined to comment for this article.

    By reselling AWS to more than 500 customers, including Tata, Duggal has helped Engineer.ai sidestep the trouble and expense of managing myriad accounts. With about 140 employees, his company makes money through arbitrage—it buys future capacity from AWS in bulk and then, using artificial intelligence algorithms to manage the flow, parcels out blocks to clients for higher rates. Customers save an average of 7 percent of what they’d pay if they went to Amazon directly, Duggal says. In 2017, Engineer.ai recorded $22.5 million in sales. This year, he says, it’s on course to more than double that performance. It’s been profitable since 2015.

    With AWS, Engineer.ai is after more than just a commodity to peddle. Duggal’s company uses the service as a springboard for selling businesses other products. In 2017, for example, Engineer.ai introduced an offering called CloudOps.ai designed to help customers manage their IT costs. Many newbies to the cloud don’t realize that you need to turn it on and off like a tap. Failing to hit the switch is like leaving all the lights on in your house when you go on vacation. To help clients prevent overspending, Duggal and his team provide their customers with an online wallet that warns them when they’re hitting their limit. It also issued a prepaid card for buying AWS capacity that can be topped up if there’s a sudden surge in demand. Now the company’s product development team is collecting financial information it can use to create new offerings. “The data accumulation part is analogous to banking and trading,” Duggal says. “We can see the aggregate data for all our customers, so we’re getting valuable trends and color in the market.”

    In Duggal’s thinking, finance and technology have been twinned ever since he worked as a tech intern at Deutsche Bank AG when he was 17. The geeky kid from North London whose idea of fun was assembling his own computers arrived at Deutsche’s investment banking hub in the City at a heady moment. It was the early 2000s, and Anshu Jain, the company’s global markets chieftain, was determined to make it a force in investment banking. Noting Duggal’s resourcefulness, he made the tech whiz part of a squad tasked with using cutting-edge technology to give the bank’s traders an advantage. Duggal worked on a lightning-fast arbitrage system for the foreign exchange desk and an on-screen toolbar that showed sales teams their clients’ trading positions in real time. “I remember Sachin’s time at the bank well,” Jain writes in an email. “He stood out for his youth and his ceaseless enthusiasm.”

    Years later, Duggal’s ebullience hasn’t abated. He has an engineering degree from Imperial College London and a master’s in entrepreneurship from MIT. At the Arts Club, he holds forth on subjects as diverse as the strengths of Japan’s education system and the efficiency of white tequila (it doesn’t cause hangovers). Yet it’s the cloud, with its omnipresence and utility, that truly gets him going. Duggal’s not shy about pointing out that he was someone who saw its potential as early as 2004, when he formed his first company, Nivio, in Switzerland with his college friend Dhoot. The company offered customers in India a way to remotely access Microsoft Windows programs on any computer.

    In 2008 the World Economic Forum awarded Nivio a Technology Pioneer Award. Duggal gave speeches on cloud computing at the organization’s elite annual gathering in Davos in 2009 and 2010. “You know we trademarked the word ‘cloud’ back then,” he says. Sensing skepticism, he taps his iPhone and unearths an image of a document showing Nivio did indeed own the word “cloud” in India and “CloudPC” and “CloudBook” in the U.S. (The trademarks have since expired.) “We just knew it was going to change everything,” he says.

    Nivio raised more than $25 million from investors, but after Duggal and Dhoot clashed with their backers in 2012 over the company’s strategic direction, they cashed out, and Nivio was eventually folded into other enterprises. The two friends formed a company called SD 2 Labs and later changed its name to Engineer.ai.

    Their timing was good. By 2015, AWS was proving that cloud computing was becoming a necessity for organizations in business, government, and other sectors. But often its capacity would lie untapped. This opened up opportunities for resellers. Chris Wegmann, the head of Accenture’s AWS business group, says he was struck by the parallels to the energy industry, where fossil fuels or electricity routinely sat idle until sudden surges in demand. Buying cloud services from AWS is pretty simple—it’s like shopping on, well, Amazon—but managing a commodity with spot prices and futures prices and the ebb and flow of a dynamic marketplace isn’t easy. “To get the most value, you have to be an active manager of your capacity,” says Wegmann, who oversees a cloud trading desk in New York with a half-dozen traders.

    Duggal is rolling out a new venture now—a cloud for developing software applications under the brand name Builder. The new Engineer.ai platform enables budding entrepreneurs to order their own app at a guaranteed price from a network of 50 software firms and 10,000 developers. He calls the coders “bench capacity” and says their handiwork can be packaged and sold in the same on-demand method that cloud-computing services are.

    Software development, long a pricey and opaque process, should become a utility, just like cloud computing, Duggal says. “What we’re trying to do is create an assembly line for software development,” he says, finishing off a plate of sautéed cod. “It won’t be a black box anymore.” With that, he excuses himself to jump on his conference call to his investors in California. It seems there are some things he still can’t leave to the cloud.
    (With Saritha Rai)
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