Virtualized Data Centers – A Practical Example from a Startup Perspective
It was only 20 years ago when the dot-com era ruled that virtualized data centers became accessible and over time started to be used by companies all around the world. As a fresh-of-the-ground-company before the dot-com era, your only option for storing, computing and manage your technical product information was by purchasing your own hardware, which was a big investment. In business, we call that a barrier to entry (from Porter’s Five Forces (1980)). Having a barrier to entry means that new companies trying to enter a market have a hurdle before they can compete on the same level as the other players in the market. The accessibility of virtualized data centers changed this, and allowed companies to try out their product without making big investments into hardware and the maintenance of it. The landscape of cloud solutions is overwhelming and my points here will focus on the full solution service provided by companies like Azure (Microsoft), Amazon Web Services and GCP (Google Cloud Platform).
I wanted to put cloud computing and virtualized machines into a context to better allow for an understanding of the benefits, by giving an example I am very close to. 2 years ago, I founded a startup where this technology was one of the core reasons we were able to grow like we did.
The company is called Simply Events and it is an event ticketing platform for managing everything related to your event’s online presence. Most importantly, we facilitated the ticket sales for events. The problem we were trying to solve in the beginning was about ticket capacity, not in the venues but in the sales channels. Online sites would regularly crash when there would be a lot of people trying to purchase tickets at the same time. This is still a recurring problem for huge festivals like Tomorrowland, ticket platforms like Splash, and funny enough even for my student association at my old university. To solve this problem, one of our biggest assets was our servers at Amazon Web Services. Big ticket releases like Tomorrowland’s and our student association’s big events didn’t happen often. We would be using 1% of our first server on average but then there were these spikes where Amazon were able to smoothly just scale up with more server capacity for our product in that moment, and we would only pay for what we used.
We wouldn’t have been able to add this kind of value to our customers if it wasn’t for the technology barrier in this area being as low as it is. And that’s what enabled us to be as good as we are.
What other barriers to entry can we remove to make it easier for companies to try out their product or their business? Can we add an abstraction layer on top of research facilities, allowing one research facility to be the hub for companies in need of research all around the world? Anything that is not used to its full capacity today could be next. What would you bet it to be?
If you want to read more about Simply Events, you can do that here: https://simplyevents.io
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6 comments on “Virtualized Data Centers – A Practical Example from a Startup Perspective”
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Hello Julia Thanks for the informative blog, first I would like to congratulate on the success story of how you overcome the barrier you faced with internet traffic issues by using cloud computing. I would like to share my personal opinion on barriers to entry.
Any barriers we face while we establish a new business is always an obstacle, we can differentiate this obstacle In two categories.
1. Natural Obstacle: nature of the product we are trying to bring into the existing market, and targeting market we are planning to introduce our new product
2. Artificial Obstacle: This obstacle we face after we enter the market. How good is our product to compete against the existing products from dominant players, this includes pricing of our product, managing the resources in a smart way, advertising, litigations, customer switching costs, technology involved etc
And I feel, these barriers must be overcome for any successful business to establish, and we need to decide what barriers exist in the way before we enter into market at very early stage of product design and development process and understand we are planning to overcome such barriers
Like one you already mentioned “technology Barrier “ and how you overcome with that by using Amazon cloud, I would like to share some more potential barriers which we may have to think in advance about how to tackle them
Advertising and Marketing Barrier:
Establishing brands often have large budgets allocated for advertising their products, this will definitely crush small business firms which are just at entered into the market, so it is important for a start-up to seriously think about how to plan their marketing strategies against the large firms before they enter into market
Cost Advantage:
Bigger firms who are already established have better connections to purchase the raw material across the globe, they may get cheaper production goods because they already exist in the market and have good credit history, this intern reduce the production which new entrant may lack. So new entrant should plan on how to tackle the productions cost
Taxes
Tax regimes offered by some governments may be highly beneficial only for large established firms and cannot be exploited for smaller and newer firms, so it is important to plan on how to manage the taxes
Entry Cost
If you have invested lot of money to enter the market, and if the money cannot be recoverable should we try to leave the market – I feel it is also an important barrier as it involved risk to enter market
I found below paper has more useful information on barriers to entry
http://www.jstor.org/stable/3592928?seq=1#page_scan_tab_contents
https://pdfs.semanticscholar.org/7ea3/30177cf9515d380c7be78d07e17b6971b6fc.pdf
One last thing, Kudos for your great idea of bringing an abstract layer on top of the research facility. This will definitely help new entrants, small startups.
Interesting! Thanks for your addition to this, Ramdev. Here’s another great summary of different entry barriers from Porter’s work, which could complement your ideas in this comment.
https://www.marsdd.com/mars-library/barriers-to-entry-factors-preventing-startups-from-entering-a-market/
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Thanks for the interesting post Julia! I was wondering what Amazon’s pricing structure was when they scaled server space as per your business needs? Do they implement an Uber-like surge pricing system or was it more consistent with their standard rates?
Hey Sid, thanks for your comment. As far as I know, they didn’t have any surge pricing, the price would be proportional to the server space you used, regardless of the time 🙂
Cool Julia, I like your view on this topic. We’ve also been working with AWS and my experience is that they’re truly adjusting to the market demand and solving real problems, bringing down barriers in the market. Will be interesting to see how they keep innovating their product offerings.
Hi Raphael, definitely agree with you! Great addition 🙂