Who uses cloud computing? Startups do, VCs don’t

June 25, 2009 | Anthony Ha | Comments |

cloudCloud computing is a trendy term right now, but how widely is it actually used? During the venture capital panel at today’s Structure 09 conference in San Francisco, VCs offered two pieces of anecdotal data that create a nice contrast between who is and isn’t on the cloud.

First up were the VCs. Moderator Paul Kedrosky (a former VC himself) asked the panelists if their firms use cloud computing — i.e., if they run their software and store their data remotely, on another company’s infrastructure. Only a few VCs raised their hands, and even then it was only half-hearted (presumably because they use a few cloud services, and but do most of their work on traditional software and IT) — and keep in mind these are VCs who have invested in cloud computing startups. When Kedrosky asked why, the panelists repeated many of the common reservations about the cloud.

“We do have a lot of confidential information,” said Accel’s Ping Li. “There is fear of data leakage.”

On the other hand, when asked about whether there’s data showing real cloud adoption, Benchmark’s Peter Fenton offered the startups that Benchmark has invested in as evidence. Every company in Benchmark’s portfolio uses Amazon’s cloud infrastructure in some way, and about one-third of them operate entirely on web-based services and infrastructure. Billing startup Zuora, for example, is doing well despite having “not a single IT guy, not a one,” Fenton said –  and that’s more meaningful than an analyst’s report.

“By the time Forrester’s got a report in a category, we better be long gone,” he said.

[photo:flickr/akakumo]

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About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • I was going to say that VC's who don't mind wasting money will let their startups use Amazon's or whoever's cloud. But then I gave it another thought and actually as a startup that's fine, to use the cloud to prove out what you are doing, but eventually the cost of that service is WAY more than doing it yourself. Using the cloud makes sense when you don't have IT expertise in house, but then are you really a hightech startup if you don't have that? Using the cloud makes sense to absorb extreme growth while you catch up by building it out yourself.

    Give this some thought. Cloud isn't spreading the cost of one computer over many, unless you aren't using much compute power. Cloud is adding cost/profit between you and your compute power. It just doesn't make sense if you are semi stable and need full compute power. If you either aren't very stable, or you don't need a whole compute power to yourself then yeah it makes some sense.

    But let's not forget Amazon and others are making a profit off of your inability to run your own Data Center.

    By the way... I DON'T run a data center, nor do I want to, but I did look into moving our services off to a cloud (Amazon) and given our traffic it just didn't make sense, it would cost me more to use them monthly than to add a server a month that I am currently adding to keep up with growth. And when the growth stops (and eventually it will, even for Facebook), the costs just keep rolling in every month. With the model I looked at, when our growth stops our costs drop, when that happens our profit goes up. So why would I continue to pay my profit to another company to pad their profit? Just really doesn't make sense.

    Wake up and Smell the Coffee...
  • Greg
    Thats a very simplistic way of looking at things. I do agree that as you scale the logic behind having your own infrastructure becomes more obvious. In the beginning though if you want scaleability, load balancing, redundancy, backup.. etc cloud offers that at pennies vs investing in your own infrastructure. There of course is a breaking point, how else would the cloud make any money.

    The grass is always greener on the otherside. 5 engineers coding away don't need an IT guy, they're all very knowledgable with technology. However, someone within those say 5 people owns the cloud and manages it.. so saying they don't have an IT guy is stretching it.
  • Timmy
    Venture capital is the only profession where amateurs routinely outperform professionals. And that's despite the huge advantage the professionals have.
  • Examples?
  • Geoff H
    @firebranded

    The biggest advantage of the cloud is that you dont have to care if a particular machine dies. If it dies, release it and bring in a new machine with the same image.

    Another secondary good is the ability to scale up for several hours, instead of several months.

    This is in comparison to leasing machines that are in someone else's care. You still have full root access over the machines, and no one else can log into them.

    There are advantages for buying/leasing machines and hosting them in a colo, but in both of those cases, the machines show up slower than rented machines (by hour or month), and turn over on fixes is slower, but you can vary the hardware more and have ability to add more sophisticated storage and other options.

    I can and have run colocation facilities, and would make different decisions for different circumstances, but the cloud is not a losing proposition in a number of cases, and the cost is competitive with leased machines in a number of circumstances.

    Theres no coffee to wake up to, there are options that work better or worse in different circumstances.
  • JasonBrett
    "Fenton said – and that’s more meaningful than an analyst’s report."

    No. No it's not. Anecdotal evidence does not make a trend or a market. This is an amateurish mistake that so many entrepreneurs make it's not even funny. Anecdotes are for examples, not for proofs.

    That said, cloud makes sense in some cases, and not in others. The value of cloud computing is not a debate. It's a numbers and risk game. I would expect a publication catering to VCs and entrepreneurs to take a more practical approach to the question than this.
  • I'm not sure what your objection to this post is. I think it's pretty clear that I'm not trying to offer definitive proof about how cloud computing used, just sharing two interesting anecdotes from a panel. Would you rather we just didn't cover these events at all?

    In that same vein, I think you're misreading my last two paragraphs. I'm not saying that anecdotal evidence offered by a VC means more to me than an analyst's report -- that's Fenton's assertion, which he elaborates on in the final quote.
  • Yes it does make sense for startups to use cloud computing. The upfront costs are less. But as the startup start growing (in terms of everything) two things happen, both of which are psychological:
    a) they have more money and they want more control
    b) they start thinking (somewhat unreasonably maybe) that they can do better

    Few startups make it so big that it becomes cheaper to host on your own servers.