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(Bloomberg View) — These haven’t been the best of times for Clay Christensen’s theory of disruptive innovation. Yeah, it’s more famous than ever, but it’s become so widely used and misused as to invite a major backlash, and occasionally drive even the Harvard Business School professor and his faithful disciples to protest. There is also, for all the talk, little evidence of a wave of disruptive innovation right now in the macroeconomic data. Worst of all, the most remarkable business story of the past decade-plus, the rise and continued supremacy of Apple, has come in the face of repeated warnings from Christensen that this whole iPhone thing was bound to fail.

So it’s nice for those of us who value Christensen’s work to see a market still following the script laid out in his 1995 Harvard Business Review article, “Disruptive Technologies: Catching the Wave,” and subsequent book, “The Innovator’s Dilemma.” It goes like this: an upstart product maker or service provider rolls out a new technology to a low-end or niche market that the incumbents ignore, and steadily moves upstream to eat those incumbents’ lunch. That’s what’s been happening in cloud computing services, with the upstart being Amazon. This is from the fascinating new Bloomberg Business account by Jack Clark and Ashlee Vance (in the following passage “Jassy” is Andy Jassy, head of Amazon Web Services): 

“Amazon began using its improved system internally and saw that it could go after a much wider audience than a handful of retailers. “We wanted to enable any individual, in his or her dorm room, to have the access to the same price and cost structure and scalability and infrastructure as the largest companies in the world,” Jassy says. Other companies ignored this market and instead pointed their products at top executives in large, traditional business organizations.

  “Since Amazon was aiming at developers, rather than CIOs [chief information officers], it felt free to roll out an imperfect service and add new features as it went along. “Large tech companies usually wait to launch until they’ve built all the bells and whistles their development team can imagine,” says Jassy. “We thought it was very important to be first to market.” By July 2006, just four months after launch, Amazon’s S3 storage service held more than 800 million files. The next year, startups such as Dropbox based businesses on cheap Amazon hosting. By 2013, giants like Netflix, which accounts for about one-third of the network traffic in North America on a given night, had committed to the Amazon cloud.Of course, even a giant like Netflix is a new sort of giant. Big, established companies that have been running their own data centers for decades have been warier about making the leap to the cloud, especially Amazon’s cloud. Microsoft, which already had deep ties with enterprise clients, has emerged as Amazon’s main competitor in cloud services.”

Still, Amazon is No. 1 (with 28 percent of the worldwide market for cloud infrastructure services to Microsoft’s 10 percent, IBM’s 7 percent and Google’s 5 percent, according to Synergy Research Group), and its cloud operation “may be the fastest-growing corporate technology business of all time,” Clark and Vance assert. Amazon is planning to break out the numbers for its cloud business for the first time in its earnings report on Thursday. One analyst estimates that Amazon Web Services’ annual revenue will come in at about $6 billion; one presumes there will be no profits yet, because that’s just not the Amazon way.

Those low or nonexistent earnings can be a competitive weapon, though. Shareholders of the giants of enterprise tech — Microsoft, Oracle, SAP, EMC, IBM — are accustomed to comfortable profit margins. Christensen has writtenrepeatedly that an emphasis on such metrics can blind companies to the opportunities and risks posed by technological innovation. Now a fast-growing, upstart competitor is moving into the enterprise computing space with permission from its investors, for now at least, to run at break-even or less. Yes, yes, “ripe for disruption” may be the most hackneyed phrase in business. But it kind of fits here, doesn’t it?

Disclosure: I was until recently an editor at the Harvard Business Review, which publishes most of this work.

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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