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I think this quote really hits the nail on the head and confirms what a lot of people may have intuitively known about the value of cloud providers: But once

I think this quote really hits the nail on the head and confirms what a lot of people may have intuitively known about the value of cloud providers: But once certain startups turn into big companies with hundreds of millions of users, with computing needs that they’ve come to intimately understand, it can be far more efficient to set up computing infrastructure designed exactly with those needs in mind. I think the main advantage of cloud providers is to offset the risk of purchasing equipment that eventually is no longer needed, which is ideal for younger companies that are still trying to reach their market capacity or unsure about whether they'll still be around in a year. Of all the things on a startup's todo list, I can't imagine setting up their own infrastructure is the best way to improve profits or revenue. But once the constraints of a userbase are more established, it should be easier to migrate off these platforms, since their pricing is optimized for users of all business sizes and use cases, whereas your specific hardware can be optimized for your specific users. My biggest question is whether cloud providers could achieve a scale where they are able to offer the most optimal infrastructure costs for specific businesses. Maybe this is the case for smaller or mid-size companies, but I'd be interested to see where the inflection point lies.

wrkronmiller 6y ago
Dropbox is in a relatively specific situation wherein their cloud costs would be extremely high (storage, bandwidth) and their in-house technical skills are probably quite good.
- kyawzazaw 6y ago
  CrowdStrike is building its own servers to move off from AWS as well.
- tinyhouse 6y ago
  Second point is spot on. Not many companies have the engineering capabilities. Dropbox has so much potential, but their business vision wasn't great to say the least.
- wlll 6y ago
  There's a lot of companies that have the scale to benefit from running their own tech, fewer who have the skills and number of people, but it's not a small niche even so.
- ramraj07 6y ago
  Netflix is a counterpoint? A good fraction (though not majority probably) of their cost is probably bandwidth and computation yet they continue to offload that to a cloud provider, who's a direct competitor no less.
  - nopzor 6y ago
    netflix does not serve their bits over amazon. they have their own major infra, and operate a large and distributed cdn, including edge caches colocated within eyeball networks. it would be insane for them to deliver their video content over aws.
  - Groxx 6y ago
    Netflix plays both sides rather strongly, e.g. they run some of their hardware in your isp's buildings: https://openconnect.netflix.com/en/ https://openconnect.netflix.com/en/ By some measures, that's much more extreme than running your own datacenter.
  - deleted 6y ago
    [deleted]
  - gtsteve 6y ago
    Netflix does run their own CDN for video content, presumably to avoid that exact problem. I would imagine that's by far the most expensive part of their business.
- achairapart 6y ago
  Dropbox is itself a cloud provider. A consumer/SMB cloud provider. It makes total sense they build up their own infrastructure, not only from a purely profit/scale point of view. It's about their core values and identity, at least because in this way they are seen in the market as a big player and not just as another AWS reseller with some added benefits.
linuxftw 6y ago
> My biggest question is whether cloud providers could achieve a scale where they are able to offer the most optimal infrastructure costs for specific businesses. IMO, this has happened. AWS GovCloud. Since the USGov has near unlimited spending power, it's better for integrators to just pass the costs along. Compared to certifying your own infrastructure, this will probably be much cheaper for most everybody.
Fumtumi 6y ago
There are not a lot of those companies which are that big. You also might not want to manage that many it experts for your infrastructure or you are not able to get them. Also if your companies product is very technical, i would argue that those companies are much better equiped doing it by themselfs then others. Nonetheless, it also doesn't need to be all or nothing. You can easily combine a MultiCloud approach. Build only the stuff which is easy to build and costs a lot on cloud yourself. I would say Buildsystems or compute instances are good candidates. Like i could imagine putting netflix authentication system on a cloud provider while doing the compute stuff in my own data center and building the CDN myself.
- aaronblohowiak 6y ago
  > Nonetheless, it also doesn't need to be all or nothing. You can easily combine a MultiCloud approach. There may be reasons to go multicloud but ease isn’t one of them. You double your infra support overhead (or more likely, half its quality) and have a “least common denominator” experience. The natural tendencies of large organizations is a diffusion of investment but the cheapest costs frequently come from a concentration of investment.
  - Fumtumi 6y ago
    Bigger you are bigger the differences between teams and products and projects. You can leverage the high quality network infrastructure from Google while using your own DC for Compute Heavy Load. Use Azure for your Windows specific workloads. Go with AliCloud in China. You need to be big enough so that running it yourself is doable with a certain amount of quality. Which does imply many teams and workloads.
    - aaronblohowiak 6y ago
      My employer does have a luxury of focus in its product offering, though we do have a moderately heterogeneous approach in development, certainly compared to many of the peers that operate at similar scale. Heterogeneity in compute location has a multiplicative effect on accounting, security, capacity management, network management and is dilutive in terms of expertise -- instead of being able to justify the worlds leading experts in one system, you now need more staffing to cover a wider surface area (and they all need to have collaboration overhead to ensure they arent working at cross-purposes in strategy or tactic.) I think this belief in marginal benefit from "right tool for the job" is a local-optimization where the costs of coordination and overhead are not borne locally and so are generally undervalued/discounted. My employer runs on a single cloud provider, but -- do to its scale and closeness to core competency of our business -- we do operate our own CDN infrastructure, and this is a decision I happen to agree with. As a result of this division, I am acutely aware of the impact it can have on an engineering organization and only in certain specialized use-cases would advise considering DIY or multi-cloud.
marcosdumay 6y ago
IT infrastructure costs scale down very badly. It's not to offset risks, if you have very little load (a site with 10k visits a day, for example), you can share the costs on the cloud and save nearly the entire bill. Companies with a high revenue/load ratio tend to stay at the cloud even after they get big. That is because even though the cloud is very expensive for their needs, it adds speed on their internal processes by saving the time to decide and buy equipment. But when that ratio is small, they just can't afford it.
cat199 6y ago
all clouds are not equal either.. colo'd datacenter or 'off brand' cloud provider can easily be much cheaper than the big 3, still get you out of 'dealing with hardware' and either way you are still 'setting up infrastructure' in terms of developing software management tools for your system
ericbarrett 6y ago
You’ve described the historical value of cloud computing perfectly. That said, I think the days where all but the largest or most stubborn companies run their own datacenters are coming to a close. The problem will be finding skilled labor. Short-haul networking, power configurations, thermal load, hardware maintenance; these and many more are specific skills that can’t be learned overnight. Data center work used to be a viable middle-class career, but the pay scale for it has gone down and down. Companies that do run their own DCs like Google and Facebook have a few centralized experts, a thin professional staff on-prem, and an army of minimum wage disk swappers who are told what to do by a ticket system, just like an Amazon warehouse worker. The knowledge of how to build and run these things is all at the top now. I’m not saying the jobs or talent pool are gone. Just that they’re shrinking, and will continue to shrink. Like the manufacturing industry, the fewer people there are who are comfortable working with real hardware, the harder it will be to start anew.
- betaby 6y ago
  There is a lot of spectrum in the middle between AWS micro and your own datacenter(s). One don't have to jump from the cloud to datacenter - just rent/buy a server or two, or rack of server or two.
  - blackaspen 6y ago
    Sure, but the management overhead from 1 server to 20 racks scales, at best, linearly. I've seen a lot of places just past the point where a single sys-ad person with a thumb drive is viable, yet they choose to not invest here and instead spend 2-5x on going to the cloud.
- PopeDotNinja 6y ago
  Basically it makes sense to set up your own infrastructure when your business IS your infrastructure.
  - mooreds 6y ago
    Same as lawyering or accounting, right? I don't do contracts regularly unless my business in contracts. Same with taxes. Just another form of specialization. MSPs and data center companies have been doing this since the 1990s at least, this is just the next evolution.
ProAm 6y ago
> I think the main advantage of cloud providers is to offset the risk of purchasing equipment that eventually is no longer needed, Every corporate use case I have seen is labor based. They dont want the overhead of salary and healthcare for the IT department. Even if long term they end up paying more, they always view it has pay for it now or pay for it later. And they always choose later because they dont know better. (none of these have been the scale of dropbox, that is different)
- oblio 6y ago
  > And they always choose later because they dont know better. This is a dangerous assumption to make. Delaying payments and going with the crowd are both safe decisions. Safe decisions are smart decisions under normal circumstances.
  - ProAm 6y ago
    True there is not one answer for everyone. I just know Ive been a part of companies where we go IAAS, get rid of the people that have the knowledge to manage infrastructure and when it comes time to need the knowledge again we either need to get consultants or hire at a much more expensive rate as for infrastructure management talent pool is getting smaller everyday. To be fair I deal with the headaches more than the everything is fine and dandy so my views are skewed as a result.
  - santoshalper 6y ago
    Especially when IT is not your strategic differentiator.
deleted 6y ago
[deleted]
dangus 6y ago
I wonder if Dropbox is an outlier. Their product is extremely close to basically just reselling storage space. Of course it makes sense for them to build their own infrastructure. For a company whose product is a saas application (business logic in code) with users spending hundreds or thousands of dollars per month, those cost savings may never materialize relative to the amount of infrastructure each customer is using per dollar. Dropbox is essentially buying a barrel of gasoline and selling it in gallons. Their product can never be profusely more valuable than the underlying infrastructure. As I recall there are giants like Netflix that still run on AWS...which brings up another point! If you’re large enough to consider your own data center, you’re large enough to negotiate contracts with cloud providers at below-retail rates.
chris11 6y ago
> it should be easier to migrate off these platforms, since their pricing is optimized for users of all business sizes and use cases Isn't the financial implications of capex vs opex a huge consideration? I've heard that opex is is a lot simpler to account for. Technically once you get big enough cloud becomes more expensive. But hiring people to manage both your own datacenters and cloud services does complicate things. I find it understandable that companies are willing to pay more for cloud providers if their core business doesn't require expertise in cloud computing.
filmgirlcw 6y ago
> My biggest question is whether cloud providers could achieve a scale where they are able to offer the most optimal infrastructure costs for specific businesses. Maybe this is the case for smaller or mid-size companies, but I'd be interested to see where the inflection point lies. Disclosure: I work at Microsoft on Azure, but I’m on the product/dev tool side not on infra. I think this is already happening to a certain extent and will happen more in more verticals as time goes on. There are massive government use cases for the cloud and it isn’t as if governments and agencies haven’t been maintaining their own datacenters and servers before. Clouds optimized for healthcare are also a thing and are only becoming bigger — again, industries that have long maintained their own infra. You also have the private cloud model, which OpenStack pioneered but Azure Stack and AWS Outpost have put their own spin on, which essentially lets you host specific cloud services and tools on your own infrastructure. There are always going to be some businesses that reach a size and scale where it doesn’t make sense to offload to the cloud, where paying for people to do maintenance and support, build out monitoring, handle everything soup to nuts makes sense. I think Dropbox, which is a storage provider, is a key example of that. I talked with the then CTO of Dropbox right after it finished moving from AWS to it’s own datacenters and the process was extraordinary and really impressive. For what Dropbox is doing, it makes sense that it owns and operates its own infrastructure and storage and tooling. Of course, you can also have the inverse. Zynga famously moved off AWS as its demand peaked and it saw the cost savings, and then had to move back to it, after demand died down and the numbers of owning and maintaining its own infrastructure no longer made sense. Netflix has moved much of its stuff in-house, but still relies on AWS and likely will for quite some time. But on the whole, yes, I absolutely see cloud providers moving to offer specific business and business vertical centric solutions with pricing that is lower than what those businesses could achieve on their own, even if you take some of the “services” stuff out of it snd are just looking at raw infrastructure costs.
peterwwillis 6y ago
Why do people buy coffee from Starbucks? Is it because Starbucks has the most efficient cost outlay for long term investment in a user's needs? Or is it because people just want some damn coffee and there's one on every corner? Or is it because, in a world full of places to buy coffee, one place gives you everything you could ever dream of in a coffee place? That is what the big cloud providers are. They are Starbucks. They are not the cheapest. They aren't even the best. But they are everything you want. If your company gets Starbucks-huge, you don't need to buy your coffee from Starbucks. You have your own deals with roasters and your own supply chains and baristas and coffee logistics experts. That's why some companies build their own. Not because it's a better idea (it's not), or because Starbucks costs too much (compared to the investment in re-creating Starbucks?). It's because they are a business that effectively makes their own coffee already, so it makes no sense to pay Starbucks for it. Of course, they won't have a Starbucks once they make their own coffee, but they will have served their needs well enough.
- georgyo 6y ago
  This is not a great analogy. Sure people go to Starbucks for one off coffees and sure some do that exclusively. But almost every startup to enterprise company has an expresso machine in the kitchen. So in most cases, if I want a coffee I don't go to Starbucks. They I go to the kitchen, it's faster, cheaper, and more convenient than going to Starbucks. However, if I'm out and about it doesn't make sense for me to invest in temporary coffee infrastructure. In those cases it's easier to go to a cafe like Starbucks. This matches the idea of the article. If you have consistent demand it makes sense to buy infrastructure to meet that demand. But if the project is temporary or extremely bursty it may make sense to have someone else do it for you.

wrkronmiller 6y ago

Dropbox is in a relatively specific situation wherein their cloud costs would be extremely high (storage, bandwidth) and their in-house technical skills are probably quite good.

kyawzazaw 6y ago
CrowdStrike is building its own servers to move off from AWS as well.
tinyhouse 6y ago
Second point is spot on. Not many companies have the engineering capabilities. Dropbox has so much potential, but their business vision wasn't great to say the least.
wlll 6y ago
There's a lot of companies that have the scale to benefit from running their own tech, fewer who have the skills and number of people, but it's not a small niche even so.
ramraj07 6y ago
Netflix is a counterpoint? A good fraction (though not majority probably) of their cost is probably bandwidth and computation yet they continue to offload that to a cloud provider, who's a direct competitor no less.
- nopzor 6y ago
  netflix does not serve their bits over amazon. they have their own major infra, and operate a large and distributed cdn, including edge caches colocated within eyeball networks. it would be insane for them to deliver their video content over aws.
- Groxx 6y ago
  Netflix plays both sides rather strongly, e.g. they run some of their hardware in your isp's buildings: https://openconnect.netflix.com/en/ https://openconnect.netflix.com/en/ By some measures, that's much more extreme than running your own datacenter.
- deleted 6y ago
  [deleted]
- gtsteve 6y ago
  Netflix does run their own CDN for video content, presumably to avoid that exact problem. I would imagine that's by far the most expensive part of their business.
achairapart 6y ago
Dropbox is itself a cloud provider. A consumer/SMB cloud provider. It makes total sense they build up their own infrastructure, not only from a purely profit/scale point of view. It's about their core values and identity, at least because in this way they are seen in the market as a big player and not just as another AWS reseller with some added benefits.

linuxftw 6y ago

> My biggest question is whether cloud providers could achieve a scale where they are able to offer the most optimal infrastructure costs for specific businesses. IMO, this has happened. AWS GovCloud. Since the USGov has near unlimited spending power, it's better for integrators to just pass the costs along. Compared to certifying your own infrastructure, this will probably be much cheaper for most everybody.

Fumtumi 6y ago

There are not a lot of those companies which are that big. You also might not want to manage that many it experts for your infrastructure or you are not able to get them. Also if your companies product is very technical, i would argue that those companies are much better equiped doing it by themselfs then others. Nonetheless, it also doesn't need to be all or nothing. You can easily combine a MultiCloud approach. Build only the stuff which is easy to build and costs a lot on cloud yourself. I would say Buildsystems or compute instances are good candidates. Like i could imagine putting netflix authentication system on a cloud provider while doing the compute stuff in my own data center and building the CDN myself.

aaronblohowiak 6y ago
> Nonetheless, it also doesn't need to be all or nothing. You can easily combine a MultiCloud approach. There may be reasons to go multicloud but ease isn’t one of them. You double your infra support overhead (or more likely, half its quality) and have a “least common denominator” experience. The natural tendencies of large organizations is a diffusion of investment but the cheapest costs frequently come from a concentration of investment.
- Fumtumi 6y ago
  Bigger you are bigger the differences between teams and products and projects. You can leverage the high quality network infrastructure from Google while using your own DC for Compute Heavy Load. Use Azure for your Windows specific workloads. Go with AliCloud in China. You need to be big enough so that running it yourself is doable with a certain amount of quality. Which does imply many teams and workloads.
  - aaronblohowiak 6y ago
    My employer does have a luxury of focus in its product offering, though we do have a moderately heterogeneous approach in development, certainly compared to many of the peers that operate at similar scale. Heterogeneity in compute location has a multiplicative effect on accounting, security, capacity management, network management and is dilutive in terms of expertise -- instead of being able to justify the worlds leading experts in one system, you now need more staffing to cover a wider surface area (and they all need to have collaboration overhead to ensure they arent working at cross-purposes in strategy or tactic.) I think this belief in marginal benefit from "right tool for the job" is a local-optimization where the costs of coordination and overhead are not borne locally and so are generally undervalued/discounted. My employer runs on a single cloud provider, but -- do to its scale and closeness to core competency of our business -- we do operate our own CDN infrastructure, and this is a decision I happen to agree with. As a result of this division, I am acutely aware of the impact it can have on an engineering organization and only in certain specialized use-cases would advise considering DIY or multi-cloud.

marcosdumay 6y ago

IT infrastructure costs scale down very badly. It's not to offset risks, if you have very little load (a site with 10k visits a day, for example), you can share the costs on the cloud and save nearly the entire bill. Companies with a high revenue/load ratio tend to stay at the cloud even after they get big. That is because even though the cloud is very expensive for their needs, it adds speed on their internal processes by saving the time to decide and buy equipment. But when that ratio is small, they just can't afford it.

cat199 6y ago

all clouds are not equal either.. colo'd datacenter or 'off brand' cloud provider can easily be much cheaper than the big 3, still get you out of 'dealing with hardware' and either way you are still 'setting up infrastructure' in terms of developing software management tools for your system

ericbarrett 6y ago

You’ve described the historical value of cloud computing perfectly. That said, I think the days where all but the largest or most stubborn companies run their own datacenters are coming to a close. The problem will be finding skilled labor. Short-haul networking, power configurations, thermal load, hardware maintenance; these and many more are specific skills that can’t be learned overnight. Data center work used to be a viable middle-class career, but the pay scale for it has gone down and down. Companies that do run their own DCs like Google and Facebook have a few centralized experts, a thin professional staff on-prem, and an army of minimum wage disk swappers who are told what to do by a ticket system, just like an Amazon warehouse worker. The knowledge of how to build and run these things is all at the top now. I’m not saying the jobs or talent pool are gone. Just that they’re shrinking, and will continue to shrink. Like the manufacturing industry, the fewer people there are who are comfortable working with real hardware, the harder it will be to start anew.

betaby 6y ago
There is a lot of spectrum in the middle between AWS micro and your own datacenter(s). One don't have to jump from the cloud to datacenter - just rent/buy a server or two, or rack of server or two.
- blackaspen 6y ago
  Sure, but the management overhead from 1 server to 20 racks scales, at best, linearly. I've seen a lot of places just past the point where a single sys-ad person with a thumb drive is viable, yet they choose to not invest here and instead spend 2-5x on going to the cloud.
PopeDotNinja 6y ago
Basically it makes sense to set up your own infrastructure when your business IS your infrastructure.
- mooreds 6y ago
  Same as lawyering or accounting, right? I don't do contracts regularly unless my business in contracts. Same with taxes. Just another form of specialization. MSPs and data center companies have been doing this since the 1990s at least, this is just the next evolution.

ProAm 6y ago

> I think the main advantage of cloud providers is to offset the risk of purchasing equipment that eventually is no longer needed, Every corporate use case I have seen is labor based. They dont want the overhead of salary and healthcare for the IT department. Even if long term they end up paying more, they always view it has pay for it now or pay for it later. And they always choose later because they dont know better. (none of these have been the scale of dropbox, that is different)

oblio 6y ago
> And they always choose later because they dont know better. This is a dangerous assumption to make. Delaying payments and going with the crowd are both safe decisions. Safe decisions are smart decisions under normal circumstances.
- ProAm 6y ago
  True there is not one answer for everyone. I just know Ive been a part of companies where we go IAAS, get rid of the people that have the knowledge to manage infrastructure and when it comes time to need the knowledge again we either need to get consultants or hire at a much more expensive rate as for infrastructure management talent pool is getting smaller everyday. To be fair I deal with the headaches more than the everything is fine and dandy so my views are skewed as a result.
- santoshalper 6y ago
  Especially when IT is not your strategic differentiator.

deleted 6y ago

[deleted]

dangus 6y ago

I wonder if Dropbox is an outlier. Their product is extremely close to basically just reselling storage space. Of course it makes sense for them to build their own infrastructure. For a company whose product is a saas application (business logic in code) with users spending hundreds or thousands of dollars per month, those cost savings may never materialize relative to the amount of infrastructure each customer is using per dollar. Dropbox is essentially buying a barrel of gasoline and selling it in gallons. Their product can never be profusely more valuable than the underlying infrastructure. As I recall there are giants like Netflix that still run on AWS...which brings up another point! If you’re large enough to consider your own data center, you’re large enough to negotiate contracts with cloud providers at below-retail rates.

chris11 6y ago

> it should be easier to migrate off these platforms, since their pricing is optimized for users of all business sizes and use cases Isn't the financial implications of capex vs opex a huge consideration? I've heard that opex is is a lot simpler to account for. Technically once you get big enough cloud becomes more expensive. But hiring people to manage both your own datacenters and cloud services does complicate things. I find it understandable that companies are willing to pay more for cloud providers if their core business doesn't require expertise in cloud computing.

filmgirlcw 6y ago

> My biggest question is whether cloud providers could achieve a scale where they are able to offer the most optimal infrastructure costs for specific businesses. Maybe this is the case for smaller or mid-size companies, but I'd be interested to see where the inflection point lies. Disclosure: I work at Microsoft on Azure, but I’m on the product/dev tool side not on infra. I think this is already happening to a certain extent and will happen more in more verticals as time goes on. There are massive government use cases for the cloud and it isn’t as if governments and agencies haven’t been maintaining their own datacenters and servers before. Clouds optimized for healthcare are also a thing and are only becoming bigger — again, industries that have long maintained their own infra. You also have the private cloud model, which OpenStack pioneered but Azure Stack and AWS Outpost have put their own spin on, which essentially lets you host specific cloud services and tools on your own infrastructure. There are always going to be some businesses that reach a size and scale where it doesn’t make sense to offload to the cloud, where paying for people to do maintenance and support, build out monitoring, handle everything soup to nuts makes sense. I think Dropbox, which is a storage provider, is a key example of that. I talked with the then CTO of Dropbox right after it finished moving from AWS to it’s own datacenters and the process was extraordinary and really impressive. For what Dropbox is doing, it makes sense that it owns and operates its own infrastructure and storage and tooling. Of course, you can also have the inverse. Zynga famously moved off AWS as its demand peaked and it saw the cost savings, and then had to move back to it, after demand died down and the numbers of owning and maintaining its own infrastructure no longer made sense. Netflix has moved much of its stuff in-house, but still relies on AWS and likely will for quite some time. But on the whole, yes, I absolutely see cloud providers moving to offer specific business and business vertical centric solutions with pricing that is lower than what those businesses could achieve on their own, even if you take some of the “services” stuff out of it snd are just looking at raw infrastructure costs.

peterwwillis 6y ago

Why do people buy coffee from Starbucks? Is it because Starbucks has the most efficient cost outlay for long term investment in a user's needs? Or is it because people just want some damn coffee and there's one on every corner? Or is it because, in a world full of places to buy coffee, one place gives you everything you could ever dream of in a coffee place? That is what the big cloud providers are. They are Starbucks. They are not the cheapest. They aren't even the best. But they are everything you want. If your company gets Starbucks-huge, you don't need to buy your coffee from Starbucks. You have your own deals with roasters and your own supply chains and baristas and coffee logistics experts. That's why some companies build their own. Not because it's a better idea (it's not), or because Starbucks costs too much (compared to the investment in re-creating Starbucks?). It's because they are a business that effectively makes their own coffee already, so it makes no sense to pay Starbucks for it. Of course, they won't have a Starbucks once they make their own coffee, but they will have served their needs well enough.

georgyo 6y ago
This is not a great analogy. Sure people go to Starbucks for one off coffees and sure some do that exclusively. But almost every startup to enterprise company has an expresso machine in the kitchen. So in most cases, if I want a coffee I don't go to Starbucks. They I go to the kitchen, it's faster, cheaper, and more convenient than going to Starbucks. However, if I'm out and about it doesn't make sense for me to invest in temporary coffee infrastructure. In those cases it's easier to go to a cafe like Starbucks. This matches the idea of the article. If you have consistent demand it makes sense to buy infrastructure to meet that demand. But if the project is temporary or extremely bursty it may make sense to have someone else do it for you.