
Snap Committed to Spend $1B on Web Services with Amazon - robertgk
https://www.bloomberg.com/news/articles/2017-02-09/snap-committed-to-spend-1-billion-on-web-services-with-amazon
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arihant
$3B over the next five years. Rackspace was worth around $4.6B in August with
assets of around $1.6B. Assuming that Snap would require as big an
infrastructure as Rackspace, then purchasing Rackspace for $4.6B was surely a
better deal, because that's the amount their GC + AWS + Raw Hardware bill
would cost, if they decide to build their own infra. Given how much AWS was
earning a year back while still being massively profitable, these services
cost a few hundred million a year to run at worst.

I have a strong feeling that this has a lot to do with available human capital
to build and sustain these services. It even took Rackspace years to have a
"Cloud" offering and it was essentially Slicehost with blings.

Come to think of it, it is around $4 per user, per year. With the way the
landscape is with everything shifting to (live) videos, it probably is not
that much an expenditure. Especially given that Snap will have several times
the users in next 5 years, so the cost will look even less. That, and
inflation.

~~~
adventured
Except that's entirely unrealistic as an actual business move. Coming up with
$600m per year for operations, is very different for Snap versus coming up
with $4.3 billion all at once to buy another business. This is especially true
given Snap's (currently) anticipated revenue growth rate.

First, the people funding Snap - the people providing the capital to buy
Rackspace - would not look well upon them trying to buy Rackspace. They'd
think it was a huge distraction. Snap has some capital now, but they require
that for operations, so they'd have to go out and raise a new $4.3 billion for
the deal (and they'd suffer a painful dilution because investors would balk).

Second, you can replicate the useful (to Snap) infrastructure of Rackspace, at
a fraction of the cost of buying the business as it was valued based on a
relatively high multiple.

A year from now Snap should be able to hit at least $2 per user on a quarterly
basis, with 200 million or more daily active users (both conservative
numbers). At $400m quarterly in sales and growing, versus the ~$150m Google /
Amazon costs (which might be lower in the early years of the deal?), it's a
bad business move to take a 15% to 20% dilution hit to purchase the overvalued
Rackspace business. That bad value ratio gets more and more lopsided if Snap
keeps growing in the coming years.

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koolba
$1B at AWS, $2B to Google Cloud, ... eventually this adds up to real money.

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toomuchtodo
It only cost SpaceX $1.2 billion to develop a reusable launch vehicle.

~~~
abakker
and at the end we'll have either one of the coolest pieces of engineering and
technology ever, or...throwaway pics.

NB: I really hope Snap ends up doing some really cool stuff with VR/AR and
makes my comment seems stupid in hindsight. Maybe if they could live-stream in
full 360 VR the launch and landing of a space X rocket...

~~~
josu
For context: The US Broom, Brush, and Mop Manufacturing Industry was $2.8B in
2013 [1]. Not everything is as sexy as launching rockets to outer space, but
as long as people derive utility from throwaway pics there will be demand for
billions of dollars of web services.

[1]
[http://www.businesswire.com/news/home/20130301005429/en/Rese...](http://www.businesswire.com/news/home/20130301005429/en/Research-
Markets-2013-Report-2.8-Billion-Broom)

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Thaxll
Why would they go multi-cloud? ( I'm asking because even very large
infrastructure don't use 2 providers )

From a management / ops perspective it's a nightmare to manage and imo adds
more problems than it solves.

~~~
benjarrell
I think redundancy would be the main reason. They also can use that to
leverage for better pricing as well.

~~~
dgemm
I think it's more likely the second reason.

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luhn
Last week everybody was shocked that they're going to spend $400mm/yr with
Google... Now the total cloud bill is up to $600mm/yr! I can't wrap my head
around these numbers.

~~~
matt_wulfeck
You'd probably also have a hard time wrapping your head around their traffic
and usage.

~~~
20years
and their lack of profit.

~~~
matt_wulfeck
At least that can be forgiven if you have accelerating revenue, which can't be
said about many startups with big valuations.

~~~
20years
User growth is flat though. That would concern me in regards to how much more
they can accelerate their revenue in comparison to costs.

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patrickg_zill
Let's grant them a period of huge growth and say they go from current 160
million users to even, 320 million after 1 year.

As others point out, they are spending $600 million per year between Google
and Amazon. Do they make more than $2 per user per year?

~~~
adventured
Yes. Snap is at $1.05 per user (daily actives) in the most recent quarter, up
from $0.31 the year prior. That's just for the quarter. They can probably hit
at least $5 or $6 per user for all of fiscal 2017.

Facebook is at $7.16 per user in the most recent quarter (based on daily
actives; it's $4.62 based on monthly actives), and Twitter is at around $2.23
per user based on monthly actives in the most recent quarter (I can't locate
recent daily active numbers).

~~~
mcintyre1994
The math here is awkward to visualise because the numbers are multiplying, but
does your $5-6 for 2017 overall require them to be above Facebook's current
$7.16 in at least Q4 '17? That seems really ambitious, but I might be reading
this wrong. For reference, could you give a ballpark of where you see
Facebook's $/user for 2017?

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foxylion
I'm really curious what their bill looks like. 1.000x m3.large, petabytes of
S3 storage, loads of traffic.

I can't imagine what the numbers are. Is there any big player which has public
numbers about their infrastructure? (I mean in detail - which services, how
many instances, traffic, ...)

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0xFFC
I am very curious why they didn't azure as their cloud partner ? What was
wrong about it ? (I am geninunely asking, I am really curious about technical
capability of azure vs aws vs gcp vs oracle)

~~~
MichaelGG
In my experience, Azure is a complete pain in the ass. It's just always
something with them.

Yesterday for instance we finally got to the bottom of a slow page problem.
The issue? Azure CDN was stalling up to 2 seconds at times. Creating a new CDN
profile fixed it.

They're expensive, way more than GCP. It's slow - everything is just slow.

I know several companies that chose to pay GCP vs use free Azure credits
because it's just "problematic".

And I say this as a fairly big supporter of MS overall, and I really really
wanted to like Azure.

GCP just blows everything out of the water. Though it would be nice if they
had a Aurora or Postgres RDS equivalent. Automatic DNS integration with GCE
would be handy, too.

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jpalomaki
If the Spectacles and other similar things really catch up, they might need
some storage space and computing power.

[https://www.spectacles.com](https://www.spectacles.com)

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josscrowcroft
I'm curious, at that scale why don't they build their own infrastructure?
Surely it would cost less?

~~~
matt_wulfeck
It's not like they don't have the option to build it themselves in the future.
This provides a lot of flexibility with very little liabilty to get their
platform massive.

Besides they aren't like Facebook where they will grow their hardware slowly
as they ramp up, Snapchat is already incredibly popular. It would be a massive
undertaking to move everything to the data center. The experts who are good at
that kind of thing are all already gainfully employed.

~~~
toomuchtodo
> This provides a lot of flexibility with very little liabilty to get their
> platform massive.

This is completely untrue. They are _committed_ to spending that money with at
least Google (whatever they don't use in infra, _they have to make up with a
true up payment_ ). I don't know the AWS terms, but they would have to be
successful at a level that is completely unrealistic for this to be
financially sound (considering their growth numbers show users have tapered
off).

[https://twitter.com/dannysullivan/status/827274299929026560](https://twitter.com/dannysullivan/status/827274299929026560)

"Snap’s daily active user grown went from single digit to flat last year"

If user growth is flat, and you're not yet profitable, the only nob you can
turn is more ads or making ads more expensive for ad buyers. Neither option
will endear Snap with either party.

~~~
matt_wulfeck
It's much easier to go belly up with chapter 7 and not have to sell millions
and millions (billions?) in physical assets then to simply say "sorry, we're
out of business" to the contracts for future obligations.

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flylib
can anyone give a comparable to how much Facebook/Google/Twitter spend on
cloud infrastructure per user per year? these numbers are harder to find as
they build their own datacenters/staff them/etc.

