AppFog: Entrepreneur Enabler

From the desk of AppFog’s Director of Marketing, Chris Tacy….

I think everyone understands that PaaS solutions like PHP Fog and AppFog (and, for that matter, all core cloud technologies) are enabling technologies. I do not, however, think that most folks understand exactly what is being enabled. I think people tend to have a very narrow view – and consider that the only thing being enabled is more tech.

While it is true that AppFog does enable other forms of technology (apps in our case), I feel that the bigger picture is that core cloud tech like AppFog also enables start ups.

Over the last year or so, there has been a lot of talk about the Entrepreneurship Boom. More and more start ups are being created – and at an increasing velocity. People have, rightly, identified the decreased barrier to entry for starting such a company as a major driver for this change, and the employment market in the US as a secondary driver. What has been largely ignored in this conversation, however, is the role that core Cloud technologies have played in creating this decreased barrier to entry.

While some folks have, in fact, identified core Cloud tech as a driver, this has largely been lost in the froth and link-bait and sensationalism. For every Chris Sacca that sees the underlying changes driving this Boom (“The biggest line item in these companies now is rent and food…  A decade ago, I don’t think you could write a line of code for less than $1 million.”) there are a thousand Pei-Wing Tams and Jason Calcanises.

I’m hoping that this piece will cut through the Boom vs. Bubble distractions to uncover what is really going on, what has created this Boom, and why it’s causing the changes we are seeing.

To provide a little context, I will walk you through a little bit of the history of the Cloud – from a perspective of how the changes have impacted start ups.

In the 90s, we saw the introduction of managed datacenters, providing hosting and connectivity related services. The shift to managed datacenters created exponential savings in both cost and time for internet technology based start ups. This accelerated the start of a boom in early stage investing due to the decreased risk profile that was created. Many of the largest dot-com wins were fueled by this dynamic.

As we entered the 21st century, the introduction of virtualization created another round of exponential cost and risk reduction. By de-coupling physical hardware from the resources represented, start ups were able to not only decrease upfront costs, but were able to scale in a more agile manner.

In 2006 these exponential savings passed a tipping point in the early stage start up environment.  With the launch of Amazon Web Services (AWS) we saw the development of APIs built on top of this virtualization layer.

By using AWS, developers were able to more completely abstract the IT / resources aspects of creating software. The exponential savings in time and cost (as compared to working directly with virtualized resources) from using these APIs is one of the largest drivers for the recent boom in the internet tech market.

As compared to even the risk profile of doing a start up in the 90s using managed datacenters, doing a start up was suddenly dramatically less difficult and scary.

So, now that we have the historical context – let’s look at the numbers behind this so-called Entrepreneurship Boom.

Looking at combined seed deals (Angels plus VCs) using data from the National Venture Capital Association and the Center for Venture Research we see the above results. When we graph this data, we see something very interesting.

As you can see, deal size and deal volume are coupled until 2006. At that point, they (rather suddenly) become de-coupled. Hmmmm…..

So what happened in 2006? Oh yeah… AWS launched and suddenly developers were able to quickly and easily launch products with dramatically reduced upfront (and CapEx) costs – and were able to adjust product and business direction in a highly responsive and agile manner as a result of this core Cloud tech.

Launching a start up in 2007 was suddenly a ton cheaper, easier and less risky. Planning for success and scaling was moved to a “nice to have” problem that you’d deal with when it became a problem (witness the myriad success-created fails at this time – the Twitter Fail Whale is a great example).

So, AWS decoupled funding size and volume of deals. Why? Because doing a start up was cheaper (resulting in decreased funding size), but also had a decreased risk profile (resulting in increased volume). Increased agility meant we all became far too familiar with the word “Pivot” (decreased risk to investors). First mover advantage largely disappeared with the exception of hyper-growth companies (hard if not impossible to plan for), resulting in tons of “fast follower” clone start ups appearing (and becoming successful). This again decreased investor risk.

“We’ve long argued that what open source did for software in terms of democratizing access and availability, the cloud would do for hardware. When you can get ten nodes and a terabyte of storage for a ten dollar bill, that’s transformative. This research suggests that that conclusion is indeed correct, with the number of deals spiking shortly after the creation of the cloud market.” – Stephen O’Grady, Co-founder RedMonk

And as you can see from the chart… this has continued to accelerate.

Why?

More core Cloud Tech of course.

In 2011, start ups saw another round in exponential savings-creating technologies as products like Chef and Puppet increased their marketshare. By adding a layer on top of APIs that handled SysOps in a more systematized manner, the cost of managing software built in the cloud was again exponentially decreased. In addition, these technologies gave developers the opportunity to shift their time away from doing IT work and towards writing code (what they are supposed to do).

At this time we had, as a result, reached the point where it was realistic to form a start up and launch an internet tech based product (using this full cloud stack) for less money (and in less time) than it would have taken to simply launch the website for such a company in 1997. Hacker News started to promote more and more stories of folks creating a start up from inception to launch in a month. Then in a week.

At this point the discussion of Boom or Bubble started. The volume of start ups was simply too large to ignore.

In my opinion, this is a Boom (not a Bubble). There has been a paradigm shift in the cost and risk associated with doing an internet start up. A Bubble, by it’s nature, is based on fantasy and speculation. A Boom, however, is based on underlying changes to fundamentals. This, then, is a Boom.

Will it continue? All signs point to the answer being yes if we look at the sort of Cloud tech that’s coming in the next year or two.

As we enter into 2012, the cutting edge of Cloud tech lies in App Lifecycle Management. And once again, the savings derived for a start up are exponential in nature. By moving the human costs of setting up and managing Apps on the SysOps layer, velocity is increased exponentially as well – and on-going costs decreased be a commensurate amount.

So where does this all lead? In our opinion the end-game is NoOps. NoOps is where building and running an app is purely a developer process – and where developers are not having to spend (much) time doing Ops work. Where instead of spending ⅓ of their time doing Ops or DevOps work, developers are spending 5% of their time managing Ops-related systems and tools.

This does not mean that there will be no Ops, at all. It’s just that for developers, Ops will mostly be handled through services, systems and products. And it doesn’t mean that there won’t be Ops jobs – just that most start ups won’t need as many Ops people. The big exception, of course, will be in the core Cloud tech space – where companies like VMware, PuppetLabs, MongoLab and AppFog will be the primary employers of Ops folks.

NoOps is the future. But it’s a very near future. What we’re doing here at AppFog is, in fact, building this future. We are committed to taking all of the exponential gains from each layer of this Cloud 2.0 pyramid and passing them along to developers and entrepreneurs as one, rolled-up, massive reduction in cost, time and risk.

By freeing developers to focus on what they want to do – and on what they do best – we are enabling them to even more easily start companies and build products. And that is why we are start up Enablers.

To provide a personal example, my first start up was founded in the early 90s. We raised millions of dollars in seed funding and spent a year building and launching a proof-of-concept. Our hardware budget for this proof-of-concept alone was almost $500k. Our IT staff when we launched the proof-of-concept (in Alpha) was ¾ the size of our dev team. And that was the standard.

If I were to recreate that start up today, using these core Cloud technologies and following a NoOps approach, it would take probably 2 months to get to proof-of-concept (with the same dev team), would require no IT staff, would require $0 in hardware budget, and would cost a couple hundred dollars a month for Cloud services to start. Once launched, iteration on the product would be quicker, easier and cheaper by orders of magnitude. Scaling would occur only as needed (so we only would need to pay when we were successful). Total funding required would be roughly 1/10 of what was required at that time.

For your average entrepreneur, this is the difference between “I wish I could do that” and “screw it, let’s just try it.”

And that’s what we live for – making everything a little less scary and a lot easier.

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