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MVPs and $100k AWS Bills: Reflections on our launch

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Re: MVPs and $100k AWS Bills: Reflections on our launch

#61

Post by paulstovell »

matthewaveryusa wrote: post #45
LeonM wrote: post #28

Earlier quoted context omitted.

Even without the free trial, how on earth can you burn $100 in cloud resources in a month if you plan to resell it for $10?

I think the basic idea is 'you need money to make money.' The hope is that with scale and engineering they can burn less. It is dubious that anyone can reduce from 100 to 10 -- 90% reduction would be an incredible feat, and this is why: AWS has something like profit 25% margin. Therefore assuming that AWS is within 15% of doing a half-decent job at controlling costs, that's still max 40% profit margin if you were run…

We’re confident our v2 architecture can. Current costs are between $10-15 per trial. Future posts will go into detail around how it works.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#62

Post by tapatio »

staticautomatic wrote: post #57
ignoramous wrote: post #43

Earlier quoted context omitted.

That's the lesson: The most obvious advice isn't obvious. If one goes through https://startupschool.org/library one realises how much of the advise ought to be common knowledge and common sense, but that's the thing, folks ignore it all the time . Another mistake, it was pointed out by Kevin Hale, iirc, this year at startupschool, that founders make is they think their pricing model (or their UX) is a key differentia…

What part of spending $100 to get $10 being a bad idea is not obvious?

Amazon was built doing just that.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#64

Post by jiveturkey »

matthewaveryusa wrote: post #45
LeonM wrote: post #28

Earlier quoted context omitted.

Even without the free trial, how on earth can you burn $100 in cloud resources in a month if you plan to resell it for $10?

I think the basic idea is 'you need money to make money.' The hope is that with scale and engineering they can burn less. It is dubious that anyone can reduce from 100 to 10 -- 90% reduction would be an incredible feat, and this is why: AWS has something like profit 25% margin. Therefore assuming that AWS is within 15% of doing a half-decent job at controlling costs, that's still max 40% profit margin if you were run…

You're not including the scale factor in your reasoning.

AWS has (taking your number as correct) 25% margin at immense scale. Hardware is cheap at this scale. unit pricing for power and space is cheap at this scale. But labor cost is enormous at this scale. Even factoring in leverage of automation, at this scale there is just enormous bureaucracy. One guy or just one team just can't "do something". Anything worth doing will have enormous repercussions across many areas and needs to go up and down the chain. Stuff still gets done, because impact is large at this scale.

> 90% wasted ec2 cpu cycles/db requests,

So then, my point is, if you are just using EC2 and egress, AWS is very expensive. You don't need all the big scale engineering they have, to launch an MVP. Of course, you need to be able to hire the type of people that can manage in-house compute, and that may be hard to find these days, at any price. But taking labor shortage out of the calculation, it's vastly better to DIY.

If you are using PaaS features, that's the sweet spot where you get tremendous value out of AWS.

> profit 25% margin. Therefore assuming that AWS is within 15% of doing a half-decent job at controlling costs, that's still max 40% profit margin.

Getting back to this, even if you dispute all of what I've said, your basic math is wrong. 15% short on 25% is 29.4%. (25/.85, not 25+15).

Re: MVPs and $100k AWS Bills: Reflections on our launch

#66

Post by tills13 »

shiftpgdn wrote: post #50
bronco21016 wrote: post #40

Earlier quoted context omitted.

Why would cloud go away? If you’re a team of 3-4 people and have a startup idea what’s easier? Create an AWS account and smartly spin up required servers? Or find a location (rent$), get fiber($$) to that location($$), find hardware($$), install said hardware. Now you’re back to where you were with AWS. For larger already established businesses on prem is probably a setup you should explore but on day 0 of a new busi…

I can purchase and then colocate 2x Dell R640s (8c/16t, 64gb of ram, as much NVMe storage as I can stomach) with tier 1 bandwidth billed at the 95th percentile and 24/7 remote hands support for about $150/month. The purchase price on the Dells is about $3500/ea. Total first year cost on this setup: $8,800 Total three year cost on this setup: $12,400 2x m5d.4xlarge EC2 instances (this isn't counting ingress/egress rat…

> For the cost of using EC2 you could hire an extra person to help grow your company.

You _will_ be hiring an extra person to manage these machines. That's the beauty of The Cloud (tm). Need more compute? You got it. Provisioned too much? Get rid of it. If you're a startup, you don't have time nor money to be managing your own infra.

Not to mention the ability to deploy to _any_ region within minutes. Now you're talking $8,800 / region + someone to maintain other regions.

> ingress/egress rates

unless you're also using S3 or CloudFront, this doesn't really mean anything. Put a free CDN in-front of S3 or your instances if you're worried about load or cost of IO.

> You also get the bonus of being out of the watchful eye of Amazon's profitability team looking to see if they can copy what you're doing

Ok now you're reaching.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#67

Post by paulstovell »

teddyuk wrote: post #2

"To bring Octopus Cloud to market quickly, we did the simplest thing possible; we took our self-hosted Octopus Server product and bundled it into an EC2 instance for each customer that signed up. We had to make changes to the product, but mostly around permissions." I have used octopus and I could have told them that they can't lift-and-shift. The amount of requests the app makes is ridiculous, the way they wrote the…

None of this had anything to do with how the database is used.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#68

Post by notyourday »

tapatio wrote: post #63
notyourday wrote: post #6

Pardon me for asking a really dumb question: but do you have a positive item charge - CGS? Because I'm sure one can get a great demand by selling a $1.00 for $0.90 but that's not a business model.

That is Amazon's business model.

Amazon business model:

$cost_of_a_thing $cost_of_a_thing + $additional_expenses_allocated_to_ thing could be > $charges_of_customer

Described business model:

$cost_of_a_thing > $charges_of_customer.

hence $cost_of_a_thing + $other_expenses_allocated_to_thing is > $charges_of_customer

First one can be profitable via scale. Second cannot.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#69

Post by paulstovell »

notyourday wrote: post #6

Pardon me for asking a really dumb question: but do you have a positive item charge - CGS? Because I'm sure one can get a great demand by selling a $1.00 for $0.90 but that's not a business model.

The post didn't make this very clear. $10 was the starting price - at the time it was for 5 users. Similar to Confluence or Jira with a very cheap (in this case loss-making) starting tier. Once a customer got to ~10 users it became profitable.

What we didn't know if whether there'd be enough customers for us to care about the loss on those $10 tiers. E.g., if only 100 customers signed up a month, the costs would have been around $10K/month - enough to write off as a marketing expense. Once it got to $100K it became something we needed to fix.

Re: MVPs and $100k AWS Bills: Reflections on our launch

#70

Post by paulstovell »

blantonl wrote: post #37

The architectural decision to deploy each customer on their own segmented components to make sure that "no one user’s data to mingle with another" seems to me like a solution in search of a problem. First, the deployment was on AWS (EC2 and RDS among other services) which was probably already co-mingled with other AWS customers. Second, when you are selling a SAAS offering, the assumption is already there that you'll…

The issue here is Octopus is like a CI server - customers can run arbitrary code in the instance (not a problem most SaaS apps have). So a VM per customer was almost the bare minimum.

Cloud CI platforms typically solve this by timesharing build agents, but that takes engineering effort, which is a waste of effort if there's not a lot of demand in the first place. That's why we started with the MVP.

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