Live data from Hacker News

Cloud costs are in a bubble

the-investing-desk.com

51–60 of 103 posts

Re: Cloud costs are in a bubble

#51

Earlier quoted context omitted.

This is just incredibly frustrating and disheartening to read. How is one supposed to plan for a future in this career when your lifestyle can just disappear overnight?

One plans by charging a high rate during the good times, to cushion their lifestyle during the bad times. That is why we see those $300k salaries. Given the risk, nobody wants to do the job for less.

The risk of what? Having to make ends meet on a $150,000 one?

You're not exactly risking your life and limb by taking a job at a cloud firm. Demand for software isn't going anywhere, and no hiring manager at any future job will give two cares as to whether or not your previous employer's revenues were inflated or not.

Re: Cloud costs are in a bubble

#52

Earlier quoted context omitted.

Another unhinged HN comment ripped straight from ZeroHedge. Loss making venture funded startups are a small part of cloud revenues. The overwhelming majority of cloud revenue and gross profit comes from stable and profitable enterprise customers who have a 15 year plan to exit the majority of their on prem footprint, and interest rates have little bearing on these plans.

As someone who doesn't understand finance or economics very well, both the parent comment and yours were interesting, but I don't know why you have to use such an adversarial tone. Your point seems like it stands on its own, no need to go into attack mode.

OP probably considers it a compliment to be compared to zero hedge, so I don’t consider my comment to be aggressive

Re: Cloud costs are in a bubble

#53

Earlier quoted context omitted.

As someone who doesn't understand finance or economics very well, both the parent comment and yours were interesting, but I don't know why you have to use such an adversarial tone. Your point seems like it stands on its own, no need to go into attack mode.

OP probably considers it a compliment to be compared to zero hedge, so I don’t consider my comment to be aggressive

There's no charitable way to interpret "unhinged" and "ripped straight from" as anything other than aggressive. Note that I upvoted your original comment despite the hostility because I thought the substance was interesting.

Re: Cloud costs are in a bubble

#54
post #41

Be it VC money, or just general apathy, it seems cloud costs are rarely a priority. My biggest gripe is when see that justification that goes like, "developer's time is $100/hr and better spent elsewhere." Okay, I agree, doing something like self-hosting everything to reduce costs would be a terrible idea, but there's a fine balance. In 2019, Lyft spent $300M on AWS [1]. Sure, it's a big service, but are you seriousl…

Literally from the first line of the article you linked: > Lyft has signed up to pay cloud market leader Amazon Web Services at least $80 million per year for the next three years, totaling at least $300 million. You can launch a massive project, hire dozens of people, buy server and colo space across the globe, rebuild their infra from scratch, and get costs down to – what – $60 million a year? Lyft is closing in on…

If Lyft consistently made money, I'd completely agree with you. That's not the world we live in, though.

Re: Cloud costs are in a bubble

#55
post #19

Earlier quoted context omitted.

Always good advice to budget and prepare for the worst, but wow this is a big stretch from the article. Of the large salary companies - Amazon, Google, and Microsoft are in the cloud space. Google doesn't make most of its profits from cloud. Netflix and Facebook don't sell these services at all. Dropbox and Digital Ocean (and sort of Cloudflare) are also in the cloud space and aren't known for such salaries. It's pos…

Last year I worked as a dev at an ad tech firm that apparently had a money printer. The amount of waste, particularly in their cloud architecture, was staggering. Prestigious office in a very expensive city. I noticed that they hired from big-name companies known for being staggeringly wasteful like Uber. Just one company, sure, but it did make me wonder about adtech in general.

>Just one company, sure, but it did make me wonder about adtech in general.

The margins are so insane that it just doesn’t matter. They are trading engineering time for time to market.

Re: Cloud costs are in a bubble

#56
post #40
post #35

Earlier quoted context omitted.

What makes you think adtech is in a bubble? I only ask because it is has been around for a few decades now, has steadily been on an incline while old advertising methods has slowly been on a decline. Those trends are more likely here to stay… The pandemic fueled weird economics everywhere but I don’t think we will see falls below pre-COVID

Startups have to show growth and/or revenue. They dump most of their funding into advertising. Many are spending more than the lifetime value of their customers (if that can even be calculated at their stage at all). Interest rates go up -> VC Money goes down -> Advertising budgets go down Online advertising is "theoretically" better than other advertising. You can track exactly how it converts to sales or not. It is…

Interest rate increases are causing money to move around for sure. I’m just not convinced startups are the primary buyer of these online ads. Hell I would barely even consider them a drop in the bucket. Im sure basically every Fortune 500 and brick and mortar store have hefty online ad spends now a days. I suppose we will see soon enough

Re: Cloud costs are in a bubble

#57
Many truths are admitted in a downturn. The cost of the cloud is that it clogged young engineers' brains with knowledge of multiple proprietary systems that are incompatible with each other, not open source, and bound to become useless knowledge as soon as the cloud companies ditch their offerings to chase the next profitable thing. That's why open systems and standards, despite their imperfection, are so much more valuable

Re: Cloud costs are in a bubble

#59
post #5

The most valuable information for the average HN reader, especially younger colleagues who have only been in the workforce for the last decade, is that the ~70% gross margins of the hyperscalers, and by extension the $300k+ salaries for early career software developers, has been fueled by a temporary era of low central bank interest rates and an excess of VC capital. This era is almost certainly coming to a close. We…

Lol, so many doomers around at the moment.

Central bank interest rates don't really matter much for investors or borrowers. Typically investors would use the 10y treasury yield as an approximate risk free rate and apply a risk premium to that calculate their required ROI. Central bank interest rates only matter to banks.

For the last decade 10y treasury yields have ranged from around 1.5% - 3%. And as recently as 2018 they were around 2.8% - 3.1%. Today the 10y treasury yields around 4.2% which is meaningfully higher, but I think people are vastly over stating the impact of this. It's also quite possible the 10y yield is currently peaking and will move down over the next year. The long-end of the yield curve typical moves with inflation + economic growth expectations. I'm not committed to any side of this argument but I will say there is good reason to believe inflation pressures are likely to trend lower globally over the next several decades because of global demographic trends and slower rates of productivity growth. This is why interest rates probably haven't been as recklessly low over the last decade as many people in 2022 like to suggest - they've needed to be as low as they have been to prevent deflation and economic contraction.

Similarly to investors, companies don't borrow at the Fed funds rate, they borrow at a premium to what the treasury market yields. So while corporates will need to borrow at a slightly higher rates to fund growth going forward, I again think people are vastly over stating the impact of 1-2% higher borrowing costs.

That said, it's totally reasonable to expect margins to fall as industries mature - especially when there is a lot of competition in that industry. I do believe cloud margins will contract slightly over the next decade, but I'm not convinced pricing is in a bubble either. Firstly, investors (collectively) are far from stupid. If you think the market is wrong and that you're the only one to see these risks then you probably haven't been humbled by the wisdom of markets enough. Cloud company will be growing for many years to come and valuations today imo do already allow for some margin contraction. But we've seen this all before... As OP mentioned SSL certs used to be ridiculously expensive, now you can get them for free. I personally remember having to pay several hundred dollars a year for a VPS, dedicated IP and SSL cert back in the mid 2000s. Hell, it cost about a $100 a year just for a domain + decent webhosting back then. I mean if pricing is in a bubble today then you should have seen it a decade ago...

Finally, when it comes to mortgages obviously it's important to ensure you can afford your repayments even if the unexpected happens, but as a long-term borrower inflation is your friend. Even if real wage growth for software engineers decline the likelihood of significant nominal wages declines for software engineers is practically zero. As an example while the real wages of cleaners and factory workers may have declined in real terms over the last few decades, in nominal terms they're making more than ever, and that's really all that matters in terms of servicing debts.

Re: Cloud costs are in a bubble

#60
post #51

Earlier quoted context omitted.

One plans by charging a high rate during the good times, to cushion their lifestyle during the bad times. That is why we see those $300k salaries. Given the risk, nobody wants to do the job for less.

The risk of what? Having to make ends meet on a $150,000 one? You're not exactly risking your life and limb by taking a job at a cloud firm. Demand for software isn't going anywhere, and no hiring manager at any future job will give two cares as to whether or not your previous employer's revenues were inflated or not.

> You're not exactly risking your life and limb

You are risking opportunity elsewhere.

Let's say your options are working as a developer for a random Fart App startup or a government job sweeping floors that has been around for centuries. Which are you going to choose? If they both offer $50,000 per year, the choice is clear: The government job. It is the one that is almost certain to have more longevity.

But if the Fart App startup increases their offer to $300,000, well, now it's a harder choice. The startup still isn't likely to last, but with $300,000 in your pocket you're not so concerned about it disappearing into the void on a whim. And if on the unheard of chance they do make it as a lasting company that spans centuries then you're in a really great position.

> Demand for software isn't going anywhere

Thing is, it does crater approximately every 10 years, as we've observed since software first became a thing. It is more entrenched now than it ever was, so there is some reason to think this time is different, but the market is pricing in the risk regardless. The market can be wrong, but the market likes to be prepared.

Post reply on HN