Affordable cloud infrastructures are changing the way business is done, who can compete and how risk is assessed. A few days ago, GigaOM’s namesake Om Malik wrote a great article about the relationship Amazon Web Services (AWS) has with startups (he focused primarily on Dropbox in his article) and why they need each other. According to Amazon’s estimates, AWS will bring in nearly $10 billion in annual revenues by 2015, up from about $3.5 billion this year. Much of that growth is due to a bet Amazon made on startups a long time ago. The incredible growth rate has allowed AWS to lower prices 38 times since its inception seven years ago while dominating the market (AWS has five times the compute capacity in use than the aggregate total of the 14 other providers). Here are three major advantages pay-as-you-go compute and storage services offer to startups.
Build a business without substantial funding
In the 1990s, during the Internet boom but before cloud computing, Om said that “in order for a web-based company to exist, the table stakes were about $2-to-$3 million.” Much of that was spent on servers, data center space and related costs. Now, take all of that away and all you need is a good idea and a strong team.
There are still plenty of incubators, angel investors and venture capital firms, but minimal, pay-as-you-go IT costs give startups a lot more freedom. An increasing number of startups are self-funded these days (at least in the early years), allowing founders to retain ownership of their businesses and ideas. Some cool ones include: MailChimp, an email marketing service with 3.5 million users and over four billion emails sent a month; GitHub, an online community for sharing and improving code; Goldstar, a company offering discounted tickets to live events; and Carbonmade, a site that helps people with no programming knowledge create online portfolios.
Experiment with more ideas – fail early and often
Because of the reduced costs and risks of launching a company, the number of startups has increased exponentially. “Instead of buying hardware and paying for software licenses, a whole generation of companies are growing up with the idea of paying monthly fees for infrastructure, based on usage and demands put on the infrastructure,” Om added. This benefits all of us because it allows the best ideas to rise to the top, not just those that are heavily funded or belong to well-connected entrepreneurs.
It also allows founders to experiment with ideas they wouldn’t have felt comfortable betting on in the $2-to-$3 million table stakes days. Most startups fail, but now failure doesn’t have to be devastating. “Innovation just doesn’t happen. Failures are a big part of innovation. When you have a technology tool that enables you to fail fast, you can use those failures to understand the successes that you need to drive to the next level,” Teresa Carlson, Vice President, Worldwide Public Sector at AWS, said in an October CityLab interview.
Scale at an incredible rate
When the opportunity presents itself, startups can now grow at will. There’s no longer a need to raise millions of dollars or adjust the whole company infrastructure. “The fact is that because of the cloud, today a young upstart can take market share without an incumbent having time to react,” Amazon CTO Werner Vogels said in an interview a few years ago. Startups can now scale up or down quickly, as needed. This allows them the freedom to grow at the fastest possible rate, while spending their money of designing and monetizing their product or service. It’s also good for the public because it means the best ideas and products reach us faster than ever.