Has Cloud Computing Boosted The Next Generation Of Startups?

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Has Cloud Computing Boosted The Next Generation Of Startups?Two main problems faced by startups today are cash and cash flow management. On top of that, all startups nowadays require compute power, no matter the nature of their business which adds to the strain on cash…until recently.

That’s where Cloud Computing comes in.

“Before cloud computing, compute power could only be solved by buying your own equipment and that means capital expenditure on something that is not necessarily core to your business,” said Bernino Lind, CloudSigma COO. “Because cloud computing is an ‘-as-a-Service,’ or rental model, this capital expenditure has been turned around to become operational expense, which has less impact on cash flow and can be modeled to fit with the exact needs of a startup and its revenue. In this way the barrier to entry to start a new company has gone from tens of thousands of dollars in capital expenditure to hundreds of dollars in operational expense.”

Rackspace Hosting and Manchester Business School in the U.K. recently conducted a survey of 1,300 U.S. and U.K. executives and found that cloud computing had a significant impact on the success of startup companies over the past few years. An article in Forbes Magazine stated, “Sixty-two percent of respondents either agreed totally or somewhat with the statement that ‘cloud computing is a key factor in the recent boom of entrepreneurs and start-ups,’ the survey finds. Twenty-five percent agreed strongly with this idea. Many respondents are speaking from experience – 43 percent of the group, in fact, say their businesses were launched just within the past three years. A majority of respondents with startups in the survey, 52 percent, said they would have not have been able to afford on-premises IT resources, or would have had difficulty acquiring computer systems, if it weren’t for cloud computing.”

However, Lind isn’t sold on the idea that the cloud was the sole reason for the success of these burgeoning businesses. “It is not likely that startups would be more successful just because their cost is more aligned with their revenue. There are many other factors that determines success.”

Raj Kadam, CEO of Viralheat, a social media marketing firm, agreed. “Cloud computing is not a magic bullet. It all depends on the startup. Some startups will not benefit from cloud computing. However, there is an entire slew of startups that have benefited from cloud computing. These startups bandwidth and number of instances are proportional to how many users they are servicing. A lot of consumer facing startups benefitted greatly.”

And whenever startups benefit, so does the economy, especially in this current “Do It Yourself” economy, where new entrepreneurs are creating new companies and jobs to replace the jobs they lost. The cloud has been a significant player in this DIY economy. “Cloud computing is a great tool for founders who are looking to bring their product to market faster. In the past, setting up and managing an infrastructure was a deal breaker in getting off the ground. Founders now do not have to worry about forking out the cost for servers and networking equipment and focus on tweaking their idea in the marketplace,” said Kadam.

The cloud greatly helps startups with a multitude of communication resources, Heddi Cundle, who runs the site myTab.co, which provides travel gift cards. “Using the resources around that builds the cycle of startups using startups is a credit to entrepreneurs that don’t need to pay large retainers to still get the job done. It’s the epitome of DIY,” Cundle said.Cundle’s company relies on the cloud to keep the site operating, and because of that has found using the cloud has simply proven to be time and cost effective. “We see the impact of our business growing in a structured format so this equates to a great ROI,” she added.

But executives still aren’t totally sold on the ROI of the cloud, and it may be because there is still a learning curve with the cloud. Lind suggested, since IaaS is still a relatively immature market, one of the keys to correctly measuring the ROI of IaaS cloud computing is to look at actual performance of specific workloads to do a price-performance comparison. “The issue in the IaaS market right now is that popularly said, a GHz is not a GHz, so what you get on AWS is different from Rackspace is different from CloudSigma and right now customers need to run their specific workloads and measure actual price performance.”

Cloud computing has allowed startups to bring their ideas to market faster by allowing startups to focus on their product, and it will continue to be a major player in the DIY economy.

Sue Poremba is a freelance writer focusing primarily on security and technology issues and occasionally blogs for cloud service provider Rackspace Hosting.