Utility computing for the web and startups

There is a great BusinessWeek article outlining Amazon's ambition to be a utility for web businesses.  This reminds me of a conversation I had last month with a founder and former CTO of one our of our prior portfolio companies who said his goal was to have a highly successful SAAS play with 1 operations guy instead of 20.  When I asked him how he would do it, he quite simply said Amazon - Amazon EC2 (Elastic Compute Cloud) and Amazon S3 for storage.  Sure, I had heard about this before when Amazon launched it during the summer, but what really got me thinking was that here was a guy who had been there and done it - scaled a SAAS business to incredible numbers and he had been playing around with Amazon's infrastructure and was willing to offload a majority of his new startup's business on the Amazon infrastructure.  When we talk about the commoditization of technology and how cheap it is to launch a new business on the web, we think open source and commodity servers. Now think about being able to launch a new web-based business and only paying for what you use.  If it takes you awhile to scale you don't have to burn alot of capital upfront and only pay for minimal usage.  If you are hugely successful, then you don't get caught with your pants down because you have the opportunity to quickly load a few more virtualized images on the Amazon EC2 infrastructure and pay more for that usage - bandwidth, storage, and compute time.  Think about it -  the upfront cost of starting a new web-based business if you went the Amazon route (when it is ready for primetime) has been driven down another order of magnitude as you can get started with little to no capital expenditures. The numbers are pretty incredible too - $0.15c per GB per month for storage or $150 per terabyte per month, $0.20c per GB for bandwidth, and the use of a pretty standard server (1.7Ghz x86 processor, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth) for $0.10c per hour or $72 per server per month.  Not too bad when you think that you can scale up or scale down pretty easily.  It will be interesting to see how many startups look to use the Amazon infrastructure after it gets more publicized at the Web 2.0 conference.  As a startup, your job is to allocate your scarce resources as efficiently as possible - time and money.  If you can stretch either of these and give your company more of an opportunity to hit critical milestones or get better product out the door, then it is a huge win for you to spend your dollars on making that happen, rather than on capital equipment.