Startups & Online Business

Yesterday I got asked by a reporter from Businessweek what I thought services like Amazons EC2 meant for Entrepreneurs and startups.

Here are my comments back.

EC2 reduces one of the major costs and growth issues of building an online business that suddenly needs to scale up.

To understand where EC2 and similar products make a huge difference to an online business, you need to understand what the alternative means of building a highly scalable web serving infrastructure is.

As an example if you were to create a popular Facebook application (a plugin that offers extra functionality to the popular facebook Social Networking site), you will need to deal with massive growth. Some of the Applications have gone from zero to 5 million users in the space of 6 weeks.

Its very difficult and expensive to build out a server and data centre infrastructure that can deal with this sort of massive
growth.

The old way is order a dedicated server from one of the popular hosting companies such as Rackspace, they might provision it for you in 2-5 days, one of my dedicated servers took 2 weeks (I wont name the company).

You have your server in place, you will then need to build the
operating system and the server software you want. Its good bet for a new company this might take 1-2 weeks.

This server might only handle your first 10,000 concurrent users, if you have 100,000 you have to work out how to plug this together, you then start ordering more servers which might take another week to get there.

Stories abound of companies like of Ilike.com who created a Facebook application for their service and ended up running around Silicon Valley all weekend to scrape together enough servers to keep up with the load.

Then you need to work out how to plug them together, as most applications need to combine the serving of both web presentation and database content. So you might decide to use 2-5 front end web servers and 1 or 2 back end servers for the database.

You also then need to work out how to share the incoming load across the web servers.

This might then allow you to scale to 50,000 users.

Somewhere along the way you realise that your application wasn’t built to deal with this many people and make a few architectural changes to the way it works (EC2 doesnt eliminate this problem but it does make it easy to reconfigure quickly compared to working with dedicated servers)

If you get massively popular you end up with 100s of servers,
as an example one of the Digg guys have quoted over 100 servers to run their system.

So how do we deal with this with EC2.

EC2 allows you to turn on the equivalent of a low spec server (Instance) and pay for it by the hour.

In my view including data costs included it is more expensive
than one of the dedicated server deals that you get from one of the
Dedicated Server companies but here are the advantages.

• You can turn on your first Server or Instance in 10 minutes and its ready to go (you will need to read the instructions first and this is not a walk in the park but its no harder than provisioning a dedicated server)
• As your load increases you can add more Servers to your
  cloud. Also assuming you have a variable load you can add and delete servers from your Cloud and only pay for them by the hour. So assume all your traffic happens at night, 10 times as much as daylight, just turn on more instances during the evening and then shut them down when
  the traffic/load subsides. Or you have a big event like an election or some event, just turn on as many instances as you need to handle the load and then shut them down when it dies down.
• You can have instances doing different jobs in the infrastructure ie web or database server.
• You can implement clustering across all the instances and group them altogether
• You can have an instance load balancing to all the other instances
• If your business model isn’t working, don’t worry about being
  stuck with 20 dedicated servers and a one year contract, just turn off your instances.
• You don’t need a dedicated Systems Admin to run these as you don’t have to worry about the underlying infrastructure

One of the biggest hurdles an unfunded startup faces is funding this sort of growth in Infrastructure. Typically using dedicated servers the massive growth in traffic would have them heading for the nearest Venture Capitalist to raise cash to fund the costs of rolling this out and a really successful site will have trouble keeping enough servers up to the traffic.

The implications for a small startup with a few smart programmers is that it has never been easier and cheaper to start an online company.

I recently met with a company that has built a world class back-end system for managing large libraries of digital items, they had built a great front end as a demonstration of how you could build on their back-end.

In my opinion the front-end was better than the back-end and would have been extremely successful in the online video space. They had held off doing this as they didn’t believe that they had the funding to launch the infrastructure.

These guys could have had and may still end up being a niche competitor to Youtube or Revver if they had put it out there on EC2 and experimented with it.

My view is that a product like EC2 means that entrepreneurs
building web applications can get to market faster, with less cash and hold onto their equity longer. They can take more risks and experiment where they might not have been able to before.

Whilst EC2 looks more expensive than the best deals you can
get on dedicated servers this pricing will probably come down and the amount of hassle it reduces and the speed to market means that you could start out on EC2 and then as you proved your model and were looking for ways to reduce cost you could migrate onto your own infrastructure when it made sense from a cost perspective.

Ultimately EC2 makes life easier and faster for the Online Entrepreneur and its worth experimenting with.