How Tech Startups Can Crack the Code of Cloud Infrastructure Costs

With the explosion in Fintech, AI, IoT, and other technologically driven solutions, the number of tech startups is expected to grow significantly in the next few years. The tech startup world is notoriously rocky terrain, with a 50 percent failure rate, one of the highest among startup sectors. The cost of running a tech startup is extremely high, from software development to staffing, but one of the most unexpectedly demanding costs that tech startups have to grapple with is the cost of cloud computing, which is rising steadily every year. 

According to Gartner, annual cloud spending has surged to an astounding $600 billion, emerging as the most rapidly expanding expense category for tech companies. Effectively managing these costs demands considerable time and effort from DevOps teams, with up to half of companies admitting they have not fully optimized their cloud expenditures. 

Startups and The High Costs of Cloud Computing

Tech startups often find themselves restricted by budget constraints when accessing the full suite of features offered by cloud storage providers. The entry-level plans may not encompass the advanced functionalities necessary for streamlined operations, leaving startups with a limited toolkit. 

For many startups, the plan is to grow in offerings, size, and revenue before acquiring more comprehensive cloud computing services, but then again, they soon realize that their cloud bill continues to grow the bigger the company gets. 

I chatted with Spandana Nakka, CEO and Founder at Pump, and she shared her experience as a serial entrepreneur in the tech space, “As a repeat founder, I’ve been utterly astounded at how much a cloud bill can spiral out of control. At my previous company, which was R&D and AI heavy, we were on every cloud provider to utilize free credits from each. Most startups start this way, on $100K free credits that expire in a year, but at that point, they’ve gotten used to freely spending instead of being cost-effective from day one.”

This experience highlights an even deeper issue, one of cost-effectiveness. Tech founders are discovering that in the bid to cut down their initial cloud bill by all means possible, they are not solving the problem but postponing it for a time when they are least prepared to deal with the enormity of it. 

To get an idea of the enormity of these costs, in 2018, Snap Inc., the company behind Snapchat, revealed their plan to buy $1 billion worth of Amazon cloud services from 2018 to 2023. Google, on the other hand, spends $30 million on AWS services every month. This does not reflect directly on entry-level startups, but it does show a glimpse of the exorbitant costs of maintaining cloud infrastructure. According to a 2020 study by Harness, the average SaaS startup (up to 100 employees) spends a staggering $1.16 million a year on the cloud. Clearly, even if this startup is already profitable, it may still struggle to cover these costs in addition to the other enormous costs. 

Navigating the Cloud Storage Challenge: Solutions for Startups

A common sense approach for startups would be strategically allocating their budget based on the plans that offer features essential to their business. They can achieve this by thoroughly assessing the required functionalities and aligning them with the available budget to ensure they make the most out of their investment.

Taking advantage of free credits across many suppliers is also a brilliant way for startups to get by in the short term, the problem arises when they approach this as a medium to long-term strategy. Many startups overlook the potential of free and open-source cloud storage alternatives. These solutions often provide basic functionalities without the hefty price tag, making them ideal for startups in their early stages. Open-source options also allow for customization, catering to specific startup requirements.

Group Buying is another solution popularized by Pump, a US-based Y Combinator company that recently launched an AI-powered cost-savings solution to help businesses optimize their cloud infrastructure and reduce costs. 

Group buying capabilities enable automated cost-savings without any engineering by facilitating immediate purchase and sale transactions for savings products (including Reserved Instances and Savings Plans) on behalf of customers, resulting in potential AWS savings of up to 60 percent. 

Scalability is at the core of cloud storage benefits, but startups must approach it with a purpose. Instead of opting for blanket scalability, startups can analyze their growth trajectory and choose scalable plans that align with their anticipated needs. This prevents unnecessary financial strain while ensuring the flexibility to expand when necessary.

 A Strategic Path Forward

While cloud storage challenges may loom large for tech startups, strategic planning and informed decision-making can pave the way for a smoother journey. By addressing access and affordability issues through strategic budgeting, exploring cost-efficient plans, embracing purposeful scalability, and integrating open-source solutions, startups can confidently navigate the multifaceted landscape of cloud storage.