I run cloud infra for a living. Have been managing infrastructure for 20 years. I would never for one second consider building my own hosting for a start-up. It would be like a grocery delivery company starting their own farm because seeds are cheap.
Depends what you’re doing I suppose. I think the three companies I mentioned (CloudFlare, Zoom and WhatsApp) are good examples of infrastructure investment as a competitive advantage.
None of those are start-ups, though. They've either IPOed (CloudFlare, Zoom) or been acquired by publicly-traded companies (WhatsApp).
A startup is a company that might still need to pivot to find its final business model, potentially shedding its entire existing infrastructure base in the process. Start-ups are why IaaS providers don't default to instance reservations — because, as a startup, you might suddenly realize that you won't be needing that $10k/hr of compute, but rather $10k/hr of something else.
Or suppose you run the most successful/profitable Fantasy Sports League start-up on the internet (used to work for 'em) and host your own gear. Every year you have to analyze trends in use and predict future load, to build the capital needed to buy all new racks of servers every 2-3 years, pay for all the IT staff, datacenter costs.
That was before the cloud existed. They had to poach experts from hosting companies to build and maintain their gear. They built a 24/7 NOC, did server repair, became network experts, storage experts, database experts. Besides being incredibly complex and burdensome, it was financially risky. If they missed their projections they could over-invest by 1-2 million bucks, or even worse, not have the capacity needed to meet demand.
If somebody told us back then that we could pay a premium to be able to scale at any time as much as we needed, when we needed it? We would have flipped out. We had heard about Amazon building some kind of "grid computing" thing, but it seemed like a pipe dream for universities, like parallel computing. Turns out it was a different kind of grid.
WhatsApp ran on bare metal in SoftLayer prior to (and well after) being acquired by FB.
CloudFlare went well beyond leasing servers and built their own POPs with network etc prior to IPO. Much of what they built wouldn't have made economic sense with AWS tax.
I didn't mean to imply that IPOing is the point at which a start-up becomes a not-start-up. None of these three were a start-up for quite a few years before their IPO, either.
In most of these cases, the companies growth from startup to not-startup was only possible because of their infrastructure advantage. Do you think Cloudflare the startup could have offered a free tier if they had to pay Amazon $0.10 per GB that their users sent over the network?
Of course not. But the free tier was a vital component of Cloudflare's growth, first-mover advantage and wide adoption.
