This is the quote Anand Rajaram, one of the co-founders of Pixily, used when being interviewed by Mass High Tech for their weekly journal. Christopher Calnan, the staff writer at Mass High Tech wanted to know how Cloud Computing was impacting hardware infrastructure for his article Cloud computing bursting on the corporate scene.
I think this quote captures the essence of what cloud computing is doing to hardware costs. I strongly believe cloud computing should be part of every entrepreneur’s technology strategy. Let me start by summarizing how open source has become part of a startup’s strategy before making a case for cloud computing.
Open source software has made it possible to launch companies for less than $50K
In the last eight years, many startups have employed open source software to bring products to the market by investing little or nothing in software. This is in direct contrast to what was happening in the dotcom boom of the late 90s. In the 90s, startups had to spend 100s of 1000s of dollars on web and database software just to get their product into the market forcing them to raise money at the cost of huge equity.
With open source software alternatives, startups are now able to launch the product, test it in the market, and figure out how big the market is even before knocking on the doors of venture capitalists. Youtube, Twitter, Facebook and thousands of startups have leveraged open source software, built large businesses and some of them have managed to not raise significant capital.
Rent CPU by the hour and storage by the gigabyte
A startup needs to be capital efficient, scale operations up and down to meet customer demand and work much harder than established companies to excel at customer experience. Cloud computing makes it all possible and Amazon Web Services is one of the best implementations of this concept.
In 2006, Amazon introduced Simple Storage Service and brought Cloud Computing to the masses. Until that time, cloud computing was available to only large companies. You could now rent highly-available storage at 15 cents a gigabyte. Beginning 2007, you could even rent computing power or servers for 10 cents an hour. With these offerings and other complementary services, you could build website infrastructure as reliable and as fast as that of Google’s.
Amazon with its cloud computing initiative eliminated all limitations of traditional hosting providers and introduced capital flexibility to companies, especially, startups.
Low capital outlays: Renting a low-end server at Amazon costs only 10 cents an hour or $75 a month. Compare that with $300 a month at reliable hosting providers like Rackspace.
No long term contracts: With Amazon, your contracts last just one hour for servers and one month for storage. On the other hand, the traditional data centers require you to sign up for at least one year. For a startup a year is an eternity and long term contracts tie up much needed financial resources.
Scale up and down on a whim: If your product got great reviews in the WSJ or NY Times, no need to panic. Just bring up additional servers in 30 minutes or less. When the traffic goes down, you can bring down the extra servers.
High availability, security and reliability: Since Amazon is renting out the same data centers they use to host their public site, namely, Amazon.com, you get the same availability, reliability or security. You have little or no excuse to blame the hardware for compromising the customer experience.
If you are a startup or a growing company, I strongly urge you to consider cloud computing. It has worked wonders at Pixily and I hope it will do the same for you.
Are you a startup considering cloud computing? Have you using it? I would love to hear your thoughts.
August 6th, 2008 at 8:13 am
Prasad,
Cloud computing is truly a revolution – it is driving crazy innovation. Most of that innovation seems to have started with consumer apps/services (think of many of the early Facebook apps; some of them went from zero to millions of users in less than a month. Can’t do that when you have no budget and have to buy your own hardware!). More and more I’m seeing technologists coming up with ways to use AMZN’s services to attack the b2b market. Your company, Pixily, is a great example… there are others out there as well. Very exciting times.
I’m also very curious about what companies do when they reach the scale where they could potentially switch from cloud computing to doing it in-house. I know there is point where it makes sense (at least on paper) to make this switch… I wonder if AMZN/others try to keep the company on the cloud by talking about pricing for heavy users?
Healy
August 6th, 2008 at 11:12 am
Thanks for the comments Healy!
The only reason I can think of why I would switch from cloud computing as we become bigger is cost. Today Amazon and others do not have volume pricing that is priced competitively. I hope that changes. It is hard to justify paying retail prices when your spending 100s of thousands of dollars per month.
As to other factors like control, security and flexibility, you already get with Amazon (but not Google’s AppEngine).
September 18th, 2008 at 12:45 pm
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October 29th, 2008 at 1:23 pm
You mentioned security as a positive aspect of using a cloud like Amazon’s EC2, but IMHO the ability to secure cloud-based services is going to be directly proportional to enterprise adoption.
I agree Amazon’s security policies are probably sufficient if I’m only using their cloud, but if I am running my business on multiple clouds, or in a hybrid cloud/in-house datacenter model (I believe this is how enterprises will use the cloud), than there will be much more complexity involved.