5. The cost advantage only lasts so long
Despite dealing with security and compliance issues, the cost savings of being able to tap into computing like a utility are enormous and something that startups will likely not give up anytime soon, says Nanda Kishore, CTO of ShareThis, which allows people to share links to sites.
Since its founding in 2005, ShareThis has grown to serve 150,000 sites and processes 1 terabyte every day. Last year, the company had 30 to 50 virtual instances serving up links and information, which has grown fivefold today. The flexibility of the cloud has allowed it to grow quickly with no capital costs.
"That notion of dynamic provisioning is a serious advantage of the cloud," says Kishore. "It is like a utility, you provision it when you need it and release it when you are done. That's a big cost advantage."
Yet, as companies grow, the cost advantage declines, argues YouSendIt's Kumaran.
"Eventually, you get to a point where you get those economies of scale, and you move your bandwidth-intensive stuff over to your own infrastructure," he says. "We have done the math: Best case, it is a wash if we move to Amazon. The worst case, it could be 2.5 times our cost to run it in the cloud."
ShareThis has already run into that problem as well. Dealing with bandwidth costs became a major challenge. The company's solution? Push that portion of the service to the edge using Akamai.
"Because bandwidth is what you pay based on consumption, it was a significant portion of our costs," ShareThis' Kishore says. "So we solved the problem by moving our data to the edge where it is cheaper."
Kishore estimates that ShareThis saves 30 percent on bandwidth costs compared to Amazon.
Yet, such growth issues are problems that most startups would love to have. For most small companies providing online services, the cloud's advantages vastly outweigh the disadvantages, says Right90's Wong.
"I don't know of a startup in Silicon Valley that has servers anymore," says Wong. "I know ten CEOs of startups in the Valley and none of them have servers, maybe a mail server at most."
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