Today’s startups have a distinct advantage when it comes to launching a company because of the public cloud. You don’t have to build infrastructure or worry about what happens when you scale too quickly. The cloud vendors take care of all that for you.
But last month when Pinterest announced its IPO, the company’s cloud spend raised eyebrows. You see, the company is spending $750 million a year on cloud services, more specifically for AWS. When your business is primarily focused on photos and video, and needs to scale at a regular basis, that bill is going to be high.
That price tag prompted Erica Joy, a Microsoft engineer, to publish this tweet and start a little internal debate here at TechCrunch. Startups, after all, have a dog in this fight, and it’s worth exploring if the cloud is helping feed the startup ecosystem, or sending your bills soaring, as they have with Pinterest.
For starters, it’s worth pointing out that Ms. Joy works for Microsoft, which just happens to be a primary competitor of Amazon’s in the cloud business. Regardless of her personal feelings on the matter, I’m sure Microsoft would be more than happy to take over that $750 million bill from Amazon. It’s a nice chunk of business; but all that aside, do startups benefit from having access to cloud vendors?
OpenStack’s attempt at an open cloud
There have been multiple attempts to break the Amazon hegemony around the cloud market, including the aforementioned competition from Microsoft and others. Perhaps the most visible open-source attempt was OpenStack, which was launched as a joint open-source project between Rackspace and NASA in 2010. The mission was to come up with an open-source way to manage public and private clouds. One of the primary motivations for this was that companies were looking for a way to take advantage of the public cloud without getting dependent on these commercial systems, which primarily meant AWS at the time.
While OpenStack worked in its own way, it never really gained as much traction as was hoped at the time, beyond some high-profile customers like the telecom market, along with Walmart and Comcast. OpenStack was a great idea in theory (and remains so to this day), but in practice, it turns out that it’s hard to run your own platform, even if you have an open-source project behind you to help. What companies found was that in spite of a strong desire to find an open-source alternative to companies like AWS, public cloud vendors actually do a pretty good job of simplifying the complex act of setting up your own cloud, while keeping prices reasonable enough to keep the majority of companies coming back.
It’s also worth noting, as I did in my Salesforce twentieth anniversary retrospective, that Salesforce was able to launch and grow the company in the days before infrastructure services. Back in 1999, there were far more challenges for a company just starting out, and as the company scaled in the 2006/2007 time frame, it did begin to feel growing pains — ones that companies launching today simply wouldn’t have to deal with because infrastructure is cheap and abundant.
Pinterest’s choice
Going back to Pinterest, what options did it have besides that hefty cloud services bill? Well, it could have decided to build its own data centers and all that entailed in terms of management, buildings and staffing. It’s also possible that without infrastructure services, Pinterest wouldn’t have thrived at all.
I like to think of it this way: Let’s suppose a company like Uber were to try to launch back in 1999 at the same time as Salesforce, instead of 2009 when it actually launched. Let’s put aside, for the sake of argument, that we also didn’t have smartphones, which also helped make a company like Uber possible.
Uber would have gone to an investor and asked for a large chunk of money. It would have built a data center and hired a bunch of people to manage all of that. Now let’s suppose that Uber became as wildly successful as it did, and it realized it was running out of capacity in its data center. What would it have done next?
It would have gone back to investors and asked for more money to build more server capacity to handle its growing business. The investors, who might have liked the business idea, might have been reluctant to keep giving this fledgling startup money to keep growing its infrastructure capacity. Yet without that, it would have been impossible to succeed, leaving the company in a difficult predicament.
Instead, it had the advantage of both mobile phones and infrastructure services, and it could scale quickly without regard to that key aspect of its business. It’s an advantage that every startup has today.
DIY doesn’t usually make sense
Most startups today would never choose to build their own data centers unless their business model specifically requires it. There are no absolutes, but on balance companies like AWS, and yes Microsoft, Google, IBM and others have made it possible for a generation of startups to launch without worrying about infrastructure growth.
It may be that at some point, there is a tipping point, where it might make sense for a company like Pinterest to invest in its own data centers and find a way to run its own infrastructure more efficiently. It’s a move that Dropbox made a few years ago when it realized it was spending too much on outside services and it wanted more control over its equipment.
While the cloud certainly has made it a much simpler matter to launch a business, it doesn’t come without trade-offs. It requires you to rely on a third-party to run your servers. It doesn’t allow you to get inside that equipment and understand it deeply in the way that a company like Facebook or Dropbox or any large-scale vendor can, but it does give you the freedom to launch a business with very little friction, and that is a huge advantage.
Companies like Dropbox and Salesforce take a pragmatic approach today, running their own data centers, but also using cloud services when it makes sense for them to do so because of distance, local laws or just convenience.
As a colleague stated in our internal debate, there could come a day when some other cheaper, more efficient approach beyond cloud computing comes along and upends the AWS apple cart, but until then, startups will continue to benefit from having cloud services, and yes, cloud vendors will continue to make money doing it. On balance, that seems like a win for everyone.