Optimizing Infrastructure Costs With Your SaaS Business Model Andrew Schroepfer for ProfitBricks The IaaS Company 1
Table of Contents Executive Summary... 3 Chapter 1 Launching Is Easy Right?... 4 Chapter 2 Ramping Up Is Fairly Simple Too... 5 Chapter 3 Test/Dev Needs Differ From Production... 6 Chapter 4 So, You Think You Are Big Enough For Colocation... 7 Chapter 5 Now You Have International Customers... 8 2
Executive Summary If you work for a B2B SaaS application firm, you should be smiling. Businesses of all sizes are on a path to embrace SaaS apps in every possible part of their business. You want to be able to match your cloud infrastructure spending to the growth of your business. However, the same cloud provider you develop on may or may not be the same provider you will need/want as you grow and scale. If you aren t convinced, this white paper is for you. If you agree and want a more detailed understanding, this paper is also for you. The paper explores the different needs of your SaaS infrastructure at the launch phase, the maturing phase, and those in between. Whether you are a start-up SaaS application with big aspirations or an emerging success story looking for your next Fortune 100 client to adopt your application in lieu of legacy ERP modules, this paper is for you. 3
Chapter 1 Launching Is Easy Right? The cost to launch a web-based business has been declining for a decade. Using Google Apps, 99designs, Mail Chimp, Zoho apps, etc. has made it simple to look professional and act professional. Even the cost model of powering your core application from day one has aligned with your needs. Ah, yes, cloud computing Pay for what you use, and only what you use. Said differently, these firms essentially tell you that if your business model fails, you will be able to cancel your account and have no servers to dispose of on ebay and no sunk costs on Oracle database and Microsoft OS licenses. This elimination of out-of-sight downside cost risks is a nice new normal in the world of cloud. Whether you have experience launching code on Amazon, Rackspace, or others, you know how simple it can be. This author used to joke that Amazon s EC2 service stood for an E mail C redit card and 2 minutes as all it took to get your compute instance launched on their platform. If no one visited your site/app, you paid only for the idle Extra Small compute instance and data storage. If you got mentioned on TechCrunch or GigaOm, your site was able to scale effectively with a few clicks and you would be paying for valid traffic such that you could apply the rising cost spike as a customer acquisition expense. All is right with the world Right? Of course, even in those early days, there are still cost concerns. However, this is the stage where developers rule. Most developers have their infrastructure preferences, and rarely is their preference based on the cost model of the provider. There are things a developer can do to understand the cost implications of their initial choice of a cloud platform. The first of five examples identified in this paper relates to the pricing model of your cloud provider. By The Hour or By The Minute. If you could subscribe to a SaaS application by the day instead of the month, most every business would gain savings. The reason, employees are either working each day, or they are not working. Each day is only one-thirtieth of a month after all Similarly, most businesses could save money by leveraging a compute solution that charged by the minute instead of by the hour. To state the obvious, each minute is only onesixtieth of an hour. There are loads of potential for savings when you are with a provider who gives you the right flexibility and pricing model. Action Item For: Developer Question to Ask: How do I pick a cloud provider that is easy to launch with while leveraging the benefits of the cloud without paying for unused features or spending too much time configuring environments? Punch Line: Developers rule in the creation through initial launch of a B2B SaaS application. Then the cost structure must remain flexible and the platform must be simple enough for a team to operate and leverage all of the benefits of the cloud as the company grows. There is little time for complicated architectures and expensive cloud consultants. 4
Chapter 2 Ramping Up Is Fairly Simple Too The exhilaration of the first business subscribing to your application wears off quickly. If your business is really taking off, you likely never noticed the exact time when your excitement for a growing sales line turned into a concern of whether your cloud platform would ramp in similar fashion. Whereas the developer was in charge of the initial cloud decision when creating the application, the CEO (or COO or the controlling investors) usually influences the next decision. The decision is very much a business model choice. Do you want to manage the infrastructure internally, hire a third party services provider, or move to high-touch managed infrastructure partner? The CEO is in a unique position with this decision. Luckily for the CEO, few will be able to tell if the decision is a good one, or not, until the firm scales much larger. It is hard to tell if the decision is right in the short-term because knowledgeable systems administrators, database architects, and API experts can be found and hired in small numbers when each person is their own team. Recruiting becomes a bigger challenge as your infrastructure team s needs grow. It comes down to a decision on the core competency of your firm. Does managing the infrastructure make you a better firm? In the early days, it might help you because no one has tested the limits of your application to know if you sized it correctly for performance and traffic patterns of your users. Whatever choice your firm makes, the only wrong decision will be to go with a provider that gives you no access or ability to ask questions. ASAP Access To Experts: Things will go wrong with your application code. Things will also go wrong with your cloud infrastructure. You might be lucky to have hired the experts who know how to resolve problems quickly. Then again, not everyone is lucky. When cloud happens you will want to get to experts quickly and cost effectively. Making sure you understand the support model of your cloud provider is vital. Failing to know what issues you can call your provider for assistance is a mistake. Failing to know the response time you can expect is a mistake. Failing to know the cost you are paying for support (when it is not needed during uptime) is also a mistake. All of these mistakes are avoidable with some considerations during this phase of initial growth. Action Item For: Developer Question to Ask: When I reach a $1mn/year run-rate, what will my cloud infrastructure spend be per month? Punch Line: The days of claiming your business gains a competitive advantage by managing cloud infrastructure are over. A smart executive of a B2B SaaS application firm makes the strategic decision early to select their cloud provider based on service capability. 5
Chapter 3 Test/Dev Needs Differ From Production After enough businesses sign-up for your service, you will no longer be able to get away with having scheduled downtime because your development site runs on the same infrastructure as your production environment. It is a costly, but necessary phase for growing SaaS businesses to create a separate test/dev environment. It is easy for your business to default to using the same cloud strategy (colocation, IaaS, PaaS, or traditional hosting) for your test/dev environment. However, it would be lucky if that default reaction is the right one for your business. A test/dev environment has different needs than your production environment. For example, you might have no use of the test/dev environment in the evening or on weekends, whereas your production environment needs to run 24x7. Also, depending on the stage of development, there might be a massive need during stress testing whereas an earlier stage would require minimal infrastructure. If you are saying to yourself that the above statements are obvious, then you either already run your test/dev on the cloud; or you should be convinced to consider a different cloud for your infrastructure needs. Seek Lowest Price on Test/Dev & DR: Since the needs of a test/dev environment fit the cloud perfectly, this should be moved to a cloud platform immediately. If you are starting a new business, it should be there from day one The same can be said for disaster recovery (DR) environments. Physically redundant DR is expensive and most companies choose not to pay for this at all, or skimp on the environment. Buying a cloud platform for DR is akin to buying a quality insurance policy with a low premium because you can manage the deductible at all times. There is no reason to run either of these workloads on physical gear in colocation or even through traditional hosting services because the security needs are minimal and the workload variability is high, which is perfect for cloud. Action Item For: Dev/Ops Leader Question to Ask: How do I separate my application so that production is not impacted by test/dev cycles? Punch Line: The needs of a test/dev environment fit perfectly with the profile of a IaaS cloud providers perfect client. Low security needs, highly variable demand, etc. A smart support executive separates their test/dev from production early and does so with the lowest cost cloud IaaS provider available. 6
Chapter 4 So, You Think You Are Big Enough For Colocation If your hosting/cloud infrastructure measures in hundreds of virtual machines or physical servers, you are by anyone s measure a success. With success comes discipline and, among other things, the certainty of a Chief Financial Officer who wants to understand (and control) the big spend on cloud infrastructure. The most likely time for this discussion is when the contract with their hosting provider is up for renewal or the physical gear is in need of a hardware refresh. The bias of most CFOs who look strictly at the dollars and cents will be to consider a move to a colocation model. Shifting infrastructure strategies like this is a major undertaking. Since the CFO is not the one who will do the heavy lifting, you may be interested in assistance in presenting the full picture. It is a very simple, and true, statement to say that anything in your infrastructure running 24x7 is something that will be cheaper to own than rent. This resulted in a common phrase of buy the base, rent the spike. As you evaluate your infrastructure most successful SaaS app firms will be able to identify an underlying base of their total infrastructure that is always on. It is more important to identify this growth trajectory than merely the total spend each month/day/hour in doing the assessment of what to rent versus what to buy. In the world of traditional infrastructure hosting, the price of the first hosted web server is the same as the nineteenth. The 100 th server costs the same too Some hosting firms provide volume-pricing agreements to combat the allure of colocation s pricing advantage when buying many racks of physical gear. The better solution than changing your infrastructure model from a cloud provider to an internally managed environment is to move the non-complex to a low-cost, IaaS cloud. Minimize Cost of the Web Farm: If your firm selected a managed hosting provider, and you are now spending over $100,000 per month, you likely have a substantial portion of this spend on a non-complex web server farm. This is an increasingly common situation. Most B2B SaaS apps in this situation consider moving the web farm (or the entire environment) to a colocation model to remove the managed services tax on the portion that is not complex. This is better performed on IaaS cloud infrastructure, but only recently has an IaaS cloud been able to scale and be compatible with your architecture. You don t need to wait until reaching $100,000 per month to consider this option because the IaaS cloud is now perfect for most every web server farm running in a managed hosting model. Action Item For: CFO Question to Ask: What percent of sales do best in class B2B SaaS firms spend on cloud infrastructure? Punch Line: As you grow, you should gain margin leverage in your infrastructure spend. A smart CFO will ask their application architects to highlight the non-complex portion of their infrastructure and then seek bids for moving this to an IaaS cloud. 7
Chapter 5 Now You Have International Customers Software has no global boundaries. However, the timing of adoption and the type of adoption for different software applications differs by geography. Whether your application was launched for the UK audience and you are now looking to expand to the US, or if you launched in North America and have interest in Germany, you need to consider many new topics. SaaS applications need to be designed for use in a new international market rather than merely hosted in a new geography. Some examples of the application changes that are needed for successful international expansion include: local language tailoring, currency accommodation, workflow habits, and most importantly local regulations. If those are not accounted for in the application, the infrastructure choice will not matter because the application will be challenged to achieve rising adoption. More Nodes Are Better Than Less Nodes: Your business does not need cloud infrastructure in every part of the world. However, it will certainly want to run in more than one location (for redundancy). Beyond this, you will want to add locations to reduce latency or to comply with data requirements of local countries where you have customers. It is unlikely you could ever find a provider that exists in all of the locations that would be perfectly optimized for your business. The only way to do that would be to build your own, but the cost of doing this would be many times more expensive than finding your cloud partners who align with your geographic growth plans. Obviously, more cloud nodes are better than fewer nodes. Your provider should be able to assist you in finding a different cloud partner in locations where they do not plan to exist. Action Item For: General Manager, International Question to Ask: Do you have international cloud nodes today and what is your roadmap for expansion? Punch Line: You designed your business and application for success. As you grow, you will have opportunities to grow in new geographies. A smart international executive will ensure their infrastructure partner intends to grow their locations as well. 8
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About the Author: Andrew Schroepfer is the former President/Founder of Tier1 Research (now 451 Group), as well as VP/Senior Analyst at Goldman Sachs covering Internet Infrastructure Services Industry. Most recently, prior to starting his new firm, Mr. Schroepfer was VP/Enterprise Strategist for a leading web hosting and cloud services provider. He has more than 15 years cloud hosting/internet infrastructure services industry experience. Andy is founder and CEO of Big Cloud Sales. Cloud buyers can join their Cloud Customer Council by contacting www.bigcloudsales.com or Andy@BigCloudSales.com. US Office ProfitBricks Inc. 15 Tudor Street Cambridge, MA 02139 Phone: +1 866 852 5229 Fax: +1 888 620 3376 email: info-us@profitbricks.com German Office ProfitBricks GmbH Greifswalder Str. 207 10405 Berlin, Germany Phone: +49 (0)30 609 856 990 Fax: +49 (0)30 609 856 999 email: info@profitbricks.com www.profitbricks.com twitter.com/profitbricksusa blog-us.profitbricks.com 2012 Profitbricks, Inc. All rights reserved. ProfitBricks, the ProfitBricks logo and Dynamic Data Center are trademarks of ProfitBricks Inc. All other trademarks are the property of their respective owners. ProfitBricks reserves the right to make changes without further notice.