Startups in the Cloud

It's no secret that the state of the economy is really bad, and it seems to get worse on a daily basis. So it stands to reason that this must be a really bad time to try to start up a new company. But this may not be the case. In fact, this might actually be a pretty good time to start a new company. At the recent TechCrunch 50 and DEMOfall conferences, I saw plenty of evidence that there is no shortage of interesting new companies and that many of these companies may actually be thriving. But how could this be? Given the credit crunch, struggling economy and still-existing hangover from the .com bubble, it doesn't make sense that there would be lots of money floating around to jump-start new companies. However, that's the key: Companies nowadays don't need "lots of money"--it sometimes takes a relatively small amount of money for a business to launch to the entire world.

Jim Rapoza

It's no secret that the state of the economy is really bad, and it seems to get worse on a daily basis. So it stands to reason that this must be a really bad time to try to start up a new company.

But this may not be the case. In fact, this might actually be a pretty good time to start a new company.

At the recent TechCrunch 50 and DEMOfall conferences, I saw plenty of evidence that there is no shortage of interesting new companies and that many of these companies may actually be thriving.

But how could this be? Given the credit crunch, struggling economy and still-existing hangover from the .com bubble, it doesn't make sense that there would be lots of money floating around to jump-start new companies.

However, that's the key: Companies nowadays don't need "lots of money"--it sometimes takes a relatively small amount of money for a business to launch to the entire world.

When I met with companies at DEMOfall and asked about their infrastructure and resources, nearly all of them were running on some form of cloud infrastructure, with the majority relying on Amazon's excellent Elastic Compute Cloud (or EC2) service. These services let the smallest new Web company leverage server and computing resources that would be the envy of the biggest .com players--and to do so at very little cost.

Combine this with the growth of incubator and startup office complexes around the country, and small businesses can get up and running to a global audience with very little upfront cost--often being able to run for an entire year on the amount of money that classic .com startups would blow through in a week.

This is a very good thing, as it is the startups that are the lifeblood of the technology economy. Most of the real innovation and exciting products come from new businesses unafraid to push the envelope.

In contrast, large existing businesses are much more sensitive to the state of the general economy, meaning that many are probably pulling back on new initiatives right now. And, as I've argued before, these large companies almost never really innovate, instead relying on acquisitions of small and creative companies to come up with new ideas.

However, while the current state of technology has made it possible to quickly and inexpensively start new companies, there are still some risks.

In addition to the classic risks that come with starting a new company (such as losing your shirt if your new product doesn't really solve a problem or meet a need), there are risks in relying on these new infrastructure platforms. If the cloud goes down, for example, then lots of businesses can go down. And if for some reason a company such as Amazon should fail, or be acquired by a company less interested in hosting potential competitors, the effect on cloud-reliant startups could be disastrous.

Luckily, there is also competition in the cloud space, with options such as Force.com out there to help new businesses get up and running. Hopefully, this competition will continue, and the options for running new businesses will continue to thrive.

Because we really need these exciting and interesting new startups--they may be the only good news we see for a while.