The fallacy is comparing hardware costs to services cost. The hardware is the cheap part.
When you run your own system, you have to develop the entire system up front and maintain it on the backend. The hardware is cheap by comparison to the salaries and development costs you pay.
> $2 million should get you a team of 10 sysadmins and devops engineers.
Probably double that once you add in fully-loaded costs as well as the compensation for ~2 managers to manage them.
The development costs are OTC that are amortised during the life of the solution. Whereas in xAAS, they are MRC. The longer your tech refresh cycle, the cheaper it is. It's inherent to the pricing model.
Also when you get down to the cruz if it, these solutions (like openstack or vSphere), are software platform that provides similar features. There's not much development costs, it's just software licensing and PS.
In terms of operations, it's not like you can get rid of sysadmins, they just morphed into DevOps.
>Probably double that once you add in fully-loaded costs as well as the compensation for ~2 managers to manage them.
You might as well add all sorts of additional costs such as egress charges on exit and cloud consultancy.
Yes, you have to manage the hardware, and Y doesn’t automatically go to zero for year two, but the convenience of the cloud isn’t always cost effective. Don’t get caught up with the details. The 2 million figure doesn’t matter as much. It’s finding that inflection point and making the better business decision.
It seems like you are glossing over the other costs: staff to implement and manage, development time and maintenance for automation to re-implement everything that AWS includes, data center costs (not clear if you were thinking of hardware ownership only or data-center also).
I'm not saying you didn't think about those things just saying that they can't be ignored in these types of comparisons.
If it is your core business to provide that thing? Sometimes or even often worth it. Otherwise, often not.
My sense that in the last decade startups have not lost the skills to do Co-Location setups as they did in 2000s and think it is more complex than actually is. Co-Lo hardware management is hard yes, but if it not even worth doing 10+ million /year budgets we would never have SaaS companies pre-cloud at all.
Hypothetically if you are spending $50 Million+ / Year on the cloud a dedicated team of even 10 senior engineers to setup your co-location with your hardware to consider migration of your costliest and also least cloud native components would maybe cost $2-5M more. With attractive debt financing that is readily available these days you can easily amortize your purchase expenses over the 2-3 year hardware lifecycle and realize savings, there is not much justification not to also pursue this along with all other features you are also pursuing.
The cost is a very low investment compared to your costs with potential for very high saving ROI, so even if the chance of success is low you should give it a shot. i.e. If you can save say $10 Million on the $50 Million, your $2 Million investment needs only 20% probability of success to have expected value in the green.
[1] I don't think there should be only one core (the) business problem for a startup, there are always few critical problems startups have to solve for at any given stage.
Their core business problem is providing databases, and apparently they see leveraging the huge VM and storage pools available at AWS as a major advantage here (and I for one can’t blame them), over hardware spend absolute efficiency.
Being able to providing a couple hundred TB of extra SSD with a config file change (or return it and stop paying for it almost immediately), has real advantages over rolling it yourself, especially if you only have a 10 person ops team or the like.
Considering the apparent business model, I can see their point.
This project being discussed on the thread is likely a couple folks for a few months - low hanging fruit to save millions. What you’re referring to is a major business effort, if not doubling of headcount, for such a company with at best similar payoff. Running their own colos also means a lot of thinking, planning, and lifecycle management when it comes to equipment generations, upgrades, making sure you’ve got the right amount of spare capacity but not too much, etc.
Also, let’s not forget geo/availability zones.
Not saying co-located hardware is not always worth it - rather they seem to be aware of the trade offs, and are making a rational decision based on their business model.
Later, if they have switched from ‘rapid growth and adjustment’ to a more stable state where they can predict things more in advance, maybe they’ll switch. Maybe they won’t.
Like a large energy consumer, running on utility grid at a certain size in a certain area is often much better than rolling your own generation capacity. Sometimes it’s impossible or less cost effective. Sometimes it doesn’t make sense to even try to do the math, and just get hooked up to the grid.
Regarding being the core business, in this regard, that doesn't matter that much. You'll either pay amazon or hire your own team. In either case you'll be spending money in something that's not your "core" product. If you can replace amazon with a bespoke system for a fraction of the price and same resilience, why not?
Someone have said in this thread before, managing those things is not really rocket science. You can have a small, focused team who's able to manage a lot of resources and that can and often is cheaper than outsource. Obviously, it depends in a number of factors. Whether or not it's your core business doesn't seem a decisive one.
If something is a core part of the business, 1) it’s something they either already have a demonstrated level of competency in, or they wouldn’t be in business, and 2) efficiencies and improvements here should make them more money in a direct and measurable way, and 3) attempting to outsource it exposes them significantly to counterparty risk that can put them out of business, which is generally not considered a good thing.
In some ways it’s like a factory that uses a lot of power. Should they build their own power plant or use the utility. That depends on many factors. Using the utility is often the better choice and works out better, but not always.
If the quality and price of the power is a core part of what makes the company competitive, probably - and that is going to be a key factor in where the factory is located, when it operates, etc.
The devil is in the details, and I wouldn't say that it never makes sense to bring operations in-house, but your post didn't make a clear case from my point of view.
Or you could spend half the budget and in my opinion still be way ahead, but that depends on your execution and the talent pool that's available to you of course.
In my experience, doing things in the cloud is about as expensive per 12-18 months as buying the hardware up front is. That's super interesting for a fast growing startup that could go bust any minute and wants to spend every second of their time on growing, expanding and marketing.
But when you're spending so much on AWS you can save millions just by reducing filesystem overhead by 20%, it should have stopped making sense a while ago. $2 million should get you a team of 10 sysadmins and devops engineers. Sure automation would be more difficult, but you'd have the manpower to achieve it. Isn't that what running a business is about?
Flexibility, when you're growing quickly it's nice that you can provision new hardware instantly, but AWS is so expensive you could continuously over provision your hardware by 50% and still always be ahead of the AWS price curve. And as I said, you could fully swap out your hardware every 18 months and be at the same price basically. You could even hire a merchant to offload your old hardware and recuperate 50% of those costs.
And I'm not saying to throw AWS overboard altogether, that you have your core business outside of AWS's datacenter doesn't preclude you from buying into RDS, Kinesis, S3.
Is AWS just cutting you more financial slack than we're getting as a tiny company? Or am I underestimating the costs of getting that sysadmin team on board?