Infrastructure Costs
I've explained to many, many people why now is an excellent time to start an internet business, but the anecdote from Mark Suster below about the drop in cost is an awesome articulation of the point. Costs fell by an order of magnitude from 1999 to 2005. They have fallen by AT LEAST another order of magnitude from 2005 to today. From Mark:
When I started my first company in 1999 we spent more than $2 million on technology infrastructure including Sun servers & Solaris operating system, Oracle databases, EMC storage, load balancers, app servers, back-up devices, disk mirrors and on and on. That is excluding a single line of code or paying any salaries. No wonder people had to raise $5 million just to get started back then. We raised $16.5 million in our A round. Hardware ate just over 10% of the round.
We put all of this infrastructure in an Exodus web hosting facility and had to pay for rack space, bandwidth and some management services if a disk failed, for example.
When I started my second company in 2005 we decided to do everything differently. By then the open-source movement had really developed. We were able to use an open source database (Postgres), open source search (Lucene) and a host of other free components including Apache Tomcat, JBoss. We still bought our own physical infrastructure: horizontally scalable application servers, load balancers, etc. So I still had to outlay $50-80k for hardware costs. So we only had to raise $500,000 to get going and again hardware ate just over 10% of the round.
And further down:
Imagine that you can develop software on your local computer but the entire service is delivered virtually through a partner in the same way people consumer energy with all of the scale benefits that go with that. They deal with energy management, security, physical device failures, etc.
This has allowed people to get started for $50,000 and spend just $5,000 on hardware – again around 10%.
