Start-ups, Enterprise Companies and The Cloud

June 9, 2010 by Brian Wolff

Ping Li from Accel Partners wrote a very interesting article this week about how some of the companies that his firm have funded are leveraging cloud computing.  He made a couple of points that I find particularly interesting: 

The first is that VC companies are making it a “pre-condition” of funding that the funded company leverage the cloud vs. buying traditional infrastructure. 

Even more interesting and more powerful is his second point: that most of these companies didn’t need that encouragement – there is no way their company could exist if they didn’t launch in the cloud – it just wouldn’t be possible to build the scale, complexity or cost without using a cloud infrastructure provider. 

His article got me thinking about all the other companies in the “universe” and the book by Nicholas Carr, The Big Switch.  In the book, Nick tells the story of Henry Burden and “Burden’s Wheel”.  Burden realized in the late 1800’s that he could locate his manufacturing company next to a river, build a huge water wheel to generate electricity and then automate many of the manufacturing processes, thereby lowering his cost, increasing production and crushing the competition.  Mr. Burden, no doubt, needed a very specialized group of people to build and maintain this elaborate “power system”, however, by the early 1900s, commercial power was introduced that turned his internal power generating systems into an enormous cost that other manufacturers did not have to bear.  Sound familiar?

Many others have done a better job than I could in this post about the difference between power and data – that really isn’t the point.  The point is that there are companies today that have launched very successfully without any internal IT systems – which means no IT capital costs, no/minimal IT labor costs and maintenance costs that larger companies today bear with their own internal IT systems.  There are other differences, of course, namely, that large established companies have huge legacy systems that may not necessarily be appropriate for the cloud, however, they do have very large costs supporting other systems that are considered important but not critical that may be perfect candidates to be migrated to the cloud.  By moving these environments to the cloud they have the opportunity to reduce their overall cost and enable their existing IT departments to focus on building more valuable systems to drive more business value. 

In start-up companies, pure cloud hosting is the preferred route to market – in large companies it’s not going to be an all-or-nothing proposition – it’s going to be a “hybrid” approach. With a hybrid approach, enterprise companies create a secure connection between their private cloud and a public cloud (today a secure VPN or MPLS connection) and then move less critical workloads to the public cloud.

At BlueLock, we like to say that we’ve been in the cloud a “lifetime”, and we have the good fortune to be serving many companies in both of these camps:  start-ups (many that are SaaS companies specifically); and large enterprise clients that sought to leverage the cloud to lower their costs and focus their valuable IT resources on projects and systems that drive more business value. 

In July, I’m going to be presenting to software company CEOs at SaaS University in Washington, DC on the topic of “Infrastructure Choices”, where I’ll put a spotlight on the cost differences between building your own internal infrastructure vs. moving to the cloud.  I will also be discussing many considerations that companies face such as security and SLAs, two issues that should be top of mind when deciding which cloud is right for you.  

If you’re interested in attending the event as BlueLock’s guest – register for the event and use this code:  BLUELOCK100 to receive a $100 discount off the cost of registration.

If you have a comment or would like to contact me, you can reach me at