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Follow the CAPEX: Cloud Table Stakes

46 points by wiredfool 9y ago

QuinnyPig 9y ago
This is a personal pet peeve: people classifying the build-out of facilities as "CapEx." You can classify portions of your AWS bill as capital expenditure with a bit of effort, and none of it requires breaking ground on a new facility. It's not entirely clear how much of that type of maneuvering goes into the underlying numbers.
- cloudwalker 9y ago
  Um, what is CAPEX if not the build-out of facilities?
  - QuinnyPig 9y ago
    In some instances, "your AWS bill." See: https://www.quora.com/Back-in-2011-Joe-Weinman-noted-that-Netflix-is-treating-AWS-reserved-instances-as-CapEx-How-are-they-doing-that-What-is-the-accounting-justification https://www.quora.com/Back-in-2011-Joe-Weinman-noted-that-Ne...
- late2part 9y ago
  How do you classify portions of your AWS bill as a capital expenditure? I'm not familiar with this, assuming your context is as a user of AWS?
  - QuinnyPig 9y ago
    Yes, that's the right context. In short form, you have to go with dedicated tenancy on your instances, 3 year RIs, and get your auditors on board with it first. It's not worth the hassle for most shops until they're looking at a seven to eight figure annual AWS spend.
    - late2part 9y ago
      I know lots of folks doing mid to high 8 figures and I haven't heard of anyone capitalizing the leases like that. But maybe. Thanks for expounding.
      - QuinnyPig 9y ago
        http://www.datacenterknowledge.com/archives/2011/03/10/are-there-tax-breaks-in-the-cloud/ http://www.datacenterknowledge.com/archives/2011/03/10/are-t... <-- NetFlix does it, as one of the few public examples of this. If you read the AWS economics page, they go into it slightly, but are quick to defer to the customer's finance and audit teams.
    - hn_throwaway_99 9y ago
      IANACPA, but based on your "In short form" sentence, I guess I see what you mean and how it could be treated as capex. Still, from a layman's point of view, it seems sketchy as hell to me in that the primary goal looks to be making the operating budget look more profitable than it really is if the AWS spend can be amortized over a couple years.
      - QuinnyPig 9y ago
        You're not at all wrong. Changing how things reflect on the income statement is a bit of smoke and mirrors; it doesn't change the underlying truth, but does change how they're represented. It's a weird, weird world.
- iamacynic 9y ago
  he's talking about amazon and other cloud providers classifying their money spent on infrastructure as capex, not their customers.
  - QuinnyPig 9y ago
    Absolutely-- but internally to these providers, the CapEx model doesn't cover what most people think it does. It's a very, very rough analog for infrastructure spend. GAAP is a fun thing to play with...
sengork 9y ago
It will be interesting to see the followup article where the author will focus on IBM and Oracle which are arguably targeting a different market share to AWS, Microsoft and Google.
throwaway-1209 9y ago
Is it just me or the "trillion dollar" figure is completely unrealistic? I mean, even if there are no price wars (and they are inevitable), there isn't any realistic possibility to capture all of IT spend. With price wars in the picture, we'll see a race to the bottom which will erase much of the margin, and make some of the "table stakes" capabilities unprofitable to some of the players, further cutting into the profits.
- jpatokal 9y ago
  This year's market for IT is around $3.5T, and the pie is still increasing. Public cloud grabbing a quarter of that by 2020 seems entirely feasible. http://www.gartner.com/newsroom/id/3482917 http://www.gartner.com/newsroom/id/3482917
  - crypto5 9y ago
    But "datacenter systems" are only 170B out of 3.5T there..
jhspaybar 9y ago
I'm having trouble reconciling him showing Amazon as the lowest spender by far of the three with their place as largest player by far. Are they just tremendously more efficient? I wouldn't imagine so given they're all essentially renting out a physical resource to their customers. Maybe I misunderstood something about the article?
- cloudwalker 9y ago
  Google and Microsoft's infrastructure supports search (which is vast) and other workloads beyond cloud infrastructure services.

46 points by wiredfool 9y ago

This is a personal pet peeve: people classifying the build-out of facilities as "CapEx." You can classify portions of your AWS bill as capital expenditure with a bit of effort, and none of it requires breaking ground on a new facility. It's not entirely clear how much of that type of maneuvering goes into the underlying numbers.

cloudwalker 9y ago
Um, what is CAPEX if not the build-out of facilities?
- QuinnyPig 9y ago
  In some instances, "your AWS bill." See: https://www.quora.com/Back-in-2011-Joe-Weinman-noted-that-Netflix-is-treating-AWS-reserved-instances-as-CapEx-How-are-they-doing-that-What-is-the-accounting-justification https://www.quora.com/Back-in-2011-Joe-Weinman-noted-that-Ne...
late2part 9y ago
How do you classify portions of your AWS bill as a capital expenditure? I'm not familiar with this, assuming your context is as a user of AWS?
- QuinnyPig 9y ago
  Yes, that's the right context. In short form, you have to go with dedicated tenancy on your instances, 3 year RIs, and get your auditors on board with it first. It's not worth the hassle for most shops until they're looking at a seven to eight figure annual AWS spend.
  - late2part 9y ago
    I know lots of folks doing mid to high 8 figures and I haven't heard of anyone capitalizing the leases like that. But maybe. Thanks for expounding.
    - QuinnyPig 9y ago
      http://www.datacenterknowledge.com/archives/2011/03/10/are-there-tax-breaks-in-the-cloud/ http://www.datacenterknowledge.com/archives/2011/03/10/are-t... <-- NetFlix does it, as one of the few public examples of this. If you read the AWS economics page, they go into it slightly, but are quick to defer to the customer's finance and audit teams.
  - hn_throwaway_99 9y ago
    IANACPA, but based on your "In short form" sentence, I guess I see what you mean and how it could be treated as capex. Still, from a layman's point of view, it seems sketchy as hell to me in that the primary goal looks to be making the operating budget look more profitable than it really is if the AWS spend can be amortized over a couple years.
    - QuinnyPig 9y ago
      You're not at all wrong. Changing how things reflect on the income statement is a bit of smoke and mirrors; it doesn't change the underlying truth, but does change how they're represented. It's a weird, weird world.
iamacynic 9y ago
he's talking about amazon and other cloud providers classifying their money spent on infrastructure as capex, not their customers.
- QuinnyPig 9y ago
  Absolutely-- but internally to these providers, the CapEx model doesn't cover what most people think it does. It's a very, very rough analog for infrastructure spend. GAAP is a fun thing to play with...

sengork 9y ago

It will be interesting to see the followup article where the author will focus on IBM and Oracle which are arguably targeting a different market share to AWS, Microsoft and Google.

throwaway-1209 9y ago

Is it just me or the "trillion dollar" figure is completely unrealistic? I mean, even if there are no price wars (and they are inevitable), there isn't any realistic possibility to capture all of IT spend. With price wars in the picture, we'll see a race to the bottom which will erase much of the margin, and make some of the "table stakes" capabilities unprofitable to some of the players, further cutting into the profits.

jpatokal 9y ago
This year's market for IT is around $3.5T, and the pie is still increasing. Public cloud grabbing a quarter of that by 2020 seems entirely feasible. http://www.gartner.com/newsroom/id/3482917 http://www.gartner.com/newsroom/id/3482917
- crypto5 9y ago
  But "datacenter systems" are only 170B out of 3.5T there..

jhspaybar 9y ago

I'm having trouble reconciling him showing Amazon as the lowest spender by far of the three with their place as largest player by far. Are they just tremendously more efficient? I wouldn't imagine so given they're all essentially renting out a physical resource to their customers. Maybe I misunderstood something about the article?

cloudwalker 9y ago
Google and Microsoft's infrastructure supports search (which is vast) and other workloads beyond cloud infrastructure services.