Cloud is one of the most significant platform shifts in the history of computing. Not only has cloud already impacted hundreds of billions of dollars of IT spend, but it’s also still in early innings and growing rapidly on a base of over $100B of annual public cloud spend. This shift is driven by an incredibly powerful value proposition — infrastructure available immediately, at exactly the scale needed by the business — driving efficiencies both in operations and economics. The cloud also helps cultivate innovation as company resources are freed up to focus on new products and growth.

However, it’s becoming evident that while the cloud clearly delivers on its promise early on in a tech start-up’s journey, the pressure it puts on margins can start to outweigh the benefits, as a company scales and growth slows.

As the cost of cloud starts to contribute significantly to the total cost of revenue (COR) or cost of goods sold (COGS), some companies have taken the dramatic step of “repatriating” the majority of workloads (as in the example of Dropbox) or in other cases adopting a hybrid approach (as with CrowdStrike and Zscaler). Those who have done this have reported significant cost savings: In 2017, Dropbox detailed in its S-1 a whopping $75M in cumulative savings over the two years prior to IPO due to their infrastructure optimization overhaul, the majority of which entailed repatriating workloads from the public cloud.

The exact savings obviously varies company, but several experts we spoke to converged on this “formula”: Repatriation results in one-third to one-half the cost of running equivalent workloads in the cloud.

How the industry got here is easy to understand: The cloud is the perfect platform to optimize for innovation, agility, and growth. And in an industry fueled by private capital, margins are often a secondary concern. That’s why new projects tend to start in the cloud, as companies prioritize the velocity of feature development over efficiency.

 

Source: https://a16z.com/2021/05/27/cost-of-cloud-paradox-market-cap-cloud-lifecycle-scale-growth-repatriation-optimization/

Michael Conlin

Michael Conlin​

Chief Technology Officer​
Phone: (703) 216-5856​
michael.conlin@definitivelogic.com​

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