The Sky Is The Limit: How The Cloud Is Changing The Way People Build Startups

by Joseph McKeating

Affordable cloud infrastructures are changing the way business is done, the structure of competition and how risk is assessed. GigaOM recently published an article by Om Malik about the symbiotic relationship Amazon Web Services (AWS) has with startups and why they need each other.

According to Amazon’s estimates, AWS will bring in nearly $10 billion in annual revenues by 2015, which is up from about $3.5 billion this year. The incredible growth rate has allowed AWS to lower prices 38 times since its inception seven years ago. Here are three major advantages that pay-as-you-go services offer to startups.

Build a business without substantial funding

In the 1990s, during the Internet boom and before cloud computing, Malik said that “in order for a web-based company to exist, the table stakes were about $2 to $3 million.” Much of that money was spent on servers, data center space and operational costs. 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. These days, an increasing number of startups are self-funded, which allows founders to retain ownership of their businesses and intellectual property.

Some cool examples 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 that offers 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

Due to 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 is growing up with the idea of paying monthly fees for infrastructure, based on usage and demands put on the infrastructure,” Malik said. 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.

This 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,” Teresa Carlson, a vice president  at AWS, said in an October CityLab interview. “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.”

Scale at an incredible rate

Now, when the opportunities present themselves, startups can grow at will. There’s no longer a need to raise millions of dollars or to 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.

And today it’s more evident than ever. Startups can scale up or down quickly, and as needed. This allows the businesses the freedom to grow at the fastest possible rate, while spending money on designing and monetizing the product or service. It’s also good for the public because it means the best ideas and products reach us faster than ever.

What impact has the cloud had on your startup?

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