Achieving Profitability on AWS

Startups on AWS:
Getting to Profitability
Pieter Kemps
Business Development, Startups & Venture Capital
Amazon Web Services
@p_kemps

Time
Usage
Page Views
Revenue
Etc.
The Infamous Hockey Stick

Time
Usage
Page Views
Revenue
Etc.
The Infamous Hockey Stick
Costs

Revenue to go Up
Unit Costs to go Down
Margin to go Up

Economies of Scale
Pricing Models
Cost Aware Architecting

Some AWS concepts…
Pay as you go
Pay less per unit when you use more
Pay even less when you reserve
• Reserved pricing
Pay even less when you architect for cost optimization
• Smart architecting and leveraging AWS managed services
Pay even less as AWS grows
• AWS economies of scale result in continuous price reductions

What does this look like in
the real world?

An example
Enterprise software provider in APAC
Focused on SaaS for storage, security, collaboration, etc.
Backed by leading VC’s in the region
Strong growth – winning customers globally
Focused on profitability & reducing unit costs
Worked closely with the AWS team to optimize its architecture

Margin
Growth
-10%
price drop
in S3
-20%
RI purchase
-22%
Migration
Cassandra
to Dynamo
-18%
Price drop in
S3 of 25%
54%
reduction in
unit costs
“Based on a True Story”

Getting to Profitability
by
Running Lean on AWS

01 02 03 04
Idea MVP ProfitabilityScale

Build Apps, Not Infrastructure to do more with less
01 02
Idea MVP

Your application & Your business
Innovation, not undifferentiated heavy lifting
Spending developer time in the right place
(Deep insight alert: Developer Time = Money)
Automation
Beanstalk – Developer sandboxes with production ready infrastructure
OpsWorks – Control with Chef customization
CloudFormation – Comprehensive control of all aspects of infrastructure
= Focus

Develop Lean, Test Heavy to develop a killer MVP
01 02
Idea MVP

Develop Lean, Test Heavy to develop a killer MVP
Fail Forward, Fail Faster by lowering the cost of innovation
01 02
Idea MVP

Getting to MVP for $250
Time
Scale
Total Spend to MVP
$250
$235$15$0
• 3 months dev/test/release
• Serving Beta customers
• Ready for full production
and scale
Low Cost of Iteration Means more Innovation

01 02
Idea MVP
www.slideshare.net/AmazonWeb
Services/getting-to-mvp-on-aws

Scale up Demand
leverage Amazon in your Go to Market strategy with the AWS Partner
Network (APN), Marketplace, and Amazon AppStore for Mobile Apps
02 03
MVP Scale

Scale up Demand
Scale your Reach
reach customers globally in minutes leveraging AWS’ global infrastructure,
incl. regions, availability zones, and Content Delivery Network
02 03
MVP Scale

Go global in minutes to reach a global audience
Fast & Easy customer acquisition leveraging AWS regions & CDN
Application

Scale up Demand
Scale your Reach
reach customers globally in minutes leveraging AWS’ global infrastructure,
incl. regions, availability zones, and Content Delivery Network
Scale your Architecture
use a range of AWS services to build scalable architectures that serve your
first 10 million users
02 03
MVP Scale

Production 1.4 Architecture
Best Practice Scalable Architecture
Well-designed, 2 Tier architecture
Highly Available due to Multiple Availability Zone
Load Balancing & Auto-Scaling for full scalability
Static content stored in durable, consistent way
Improved end-user experience through CDN
Optimal Database set up with ElastiCache or DynamoDB
Big Data analytics built in for continuous optimization
Capable of serving 10M+ users

02 03
MVP Scale
www.slideshare.net/AmazonWeb
Services/getting-to-scale-on-aws

03 04
ProfitabilityScale
Economies of Scale
AWS Pricing Models
Cost Aware Architecting
A look at TCO
This Webinar

Economies of Scale truly matter…

Every Day…
AWS adds the equivalent server capacity
to power Amazon when it was a global,
$5.2B enterprise in 2003
2003
$5.2B retail business
7,800 employees
A whole lot of servers…

Economies of Scale
Lower variable expense than companies can achieve themselves
Reduced
Prices
More
Customers
More AWS
Usage
More
Infrastructure
Economies of
Scale
Lower Cost

On-Demand
Pay for compute
capacity by the hour
with no long-term
commitments
For spiky workloads,
or to define needs
Cost Optimization using different purchase models
Reserved
Make a low, one-time
payment and receive a
significant discount on
the hourly charge
For committed
utilization
Spot
Bid for unused capacity,
charged at a Spot Price
which fluctuates based
on supply and demand
For time-insensitive or
transient workloads
Free Tier
Get Started on AWS
with free usage & no
commitment
For POCs and
getting started

On Demand Pricing
Pay less when you use more

0
10
20
30
40
50
60
0 12 24 36
DatainTB
Months
Actual Storage
Savings on Storage

0
10
20
30
40
50
60
0 12 24 36
DatainTB
Months
Actual Storage Provisioned
Savings on Storage

0
10
20
30
40
50
60
0 12 24 36
DatainTB
Months
Actual Storage Provisioned
Savings on Storage
Underutilized
= WASTE
AWS =
NO WASTE

Reserved Instance Pricing
Make a low, one-time payment and receive a
significant discount on the hourly charge
For committed utilization
•Light Utilization RI
•Medium Utilization RI
•High Utilization RI
•1-year
•3-year
2 Terms3 Versions

Utilization RI option Savings over On-Demand
<10% On-Demand
10% - 40% Light Utilization RI Up to 56%
40% - 75% Medium Utilization RI Up to 66%
>75% Heavy Utilization RI Up to 71%

$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0% 20% 40% 60% 80% 100%
Cost
Utilization
Heavy Utilization
Medium Utilization
Light Utilization
On-Demand

February 2013
48.7 million users globally
Raised $200M (Total = $338M)
$2.5B valuation

Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

Python Web Application Servers
150 High-CPU EC2 Instances
Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

Python Internal Web Services
35 High-CPU EC2 Instances
Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

Memcache and Redis Caches
90 High-Memory EC2 Instances
Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

MySQL Database Servers
70 Master/Slave Pairs on EC2
Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

Amazon S3 File Storage
8 Billion Objects • 410 Terabytes
Web Application
Servers
Sharded Database
Cache Servers
Internal
Web Services
File Storage

Auxiliary Services
60 EC2 Instances
Development
Logging
Operational Tools
Asynchronous
Task Workers
Search
Data Analysis
Elastic MapReduceData Analysis

• Most traffic happens in the afternoons and evenings, so they reduce the number of
instances at night by 40%.
• At peak traffic $52 an hour is spent on EC2 and at night, during off peak, the spend is as
little as $15 an hour. Saving per hour = 71%

Save more money by using Spot Instances
Up to 85% savings over On Demand pricing
Spot market for under-
utilized capacity
Requested Bid Price and
Pay as you go
Spot Price < On-Demand Price

Use Case Types of Applications
Batch Processing Generic background processing (scale out computing)
Hadoop Hadoop/MapReduce processing type jobs (e.g. Search, Big Data, etc.)
Scientific Computing Scientific trials/simulations/analysis in chemistry, physics, and biology
Video and Image
Processing/Rendering
Transform videos into specific formats
Testing Provide testing of software, web sites, etc
Web/Data Crawling Analyzing data and processing it
Financial Hedgefund analytics, energy trading, etc
HPC Utilize HPC servers to do embarrassingly parallel jobs
Cheap Compute Backend servers for Facebook games
Use Cases for Spot Pricing

Optimizing Video Transcoding Workloads
for a FREEMIUM model
Free Offering
Optimize for reducing cost
Acceptable Delay Limits
Implementation
– Leverage spot pricing
– Maximum Bid Price
– < On-demand Rate
– Use on-demand Instances, if delay
Get strongly reduced price for your
workload
Premium Offering
Optimized for Faster response
No Delays
Implementation
– Invest in Reserved Instances
– Use on-demand for Elasticity
Get Instant Capacity for higher price

“Give me 4 fault tolerant algorithms and I can pick
the best one almost with my eyes closed.
If you then ask me which one is best for the
business, in terms of dollar costs, I would be
clueless...”
Werner Vogels, CTO, Amazon

Cost optimization through ‘Cost Aware Architecting’
…by leveraging:Reduce Cost of…
Compute
1. S3 & CloudFront for Caching & Offloading
2. Load Balancing from the start
Storage 4. Storing derivative objects in S3 ‘Reduced Redundancy’
Data Base 5. Read Replicas and/or ElastiCache
Test & Dev 6. A/B Testing for rapid proto-typing
3. Auto-Scaling done Right

• Reduce your compute demand and costs
• Improve end-user experience
• Increase reliability and durability
Cost Aware Architecting to Reduce costs of EC2

2. Load Balancing from the start
• Ready for massive scale, high reliability
• Uninterrupted growth and evolution
• Stateless and redundant array

Buuuk for Singapore Press Holding (SPH)

3. Auto-Scaling done Right with Real Time reaction response
• Elastic Load Balancing and (event-driven) Auto Scaling
• Notification of pending news flash (with audible alarm)
• On-demand ramp up of capacity (6 mins.)
• Subscriber alert push delivered
• Mass response traffic handled (followed by ramp down)

Straits TimesBuuuk

4. Storing derivative objects in S3 ‘Reduced Redundancy’
• Original vs. derived assets : 33% savings
• Single reference and consistency
• Control, accurate logs and tracking
Cost Aware Architecting to Reduce costs of S3
Reduced Redundancy Storage
‘RRS’

5. Read Replicas and/or ElastiCache (‘Database Smarts’)
• Scale out and share work
• Optimal performance, minimize load
• Enhance reliability, ensure data safety
• Cost reduction
Cost Aware Architecting to Reduce costs of DB

6. A/B Testing for rapid proto-typing & innovation
• Inexpensive idea validation
• Seamless switch over and versioning
• Rapid dev / test agility
Cost Aware Architecting to Reduce costs of Test/Dev

Analytics: A/B test of different characters

When calculating TCO…
#1 Start by understanding your use cases & usage patterns

On and Off Fast Growth
Variable peaks Predictable peaks
Usage Patterns

Traditional HW / Hosting
On and Off Fast Growth
Predictable peaksVariable peaks
WASTE
CUSTOMER DISSATISFACTION

AWS = Elastic Capacity
Fast GrowthOn and Off
Predictable peaksVariable peaks

#2 Apples to Apples – Take all the fixed costs into consideration

#3 Leverage ‘Cost Aware Architecting’ to reduce resources

0
10
20
30
40
50
60
Hosting
Traditional Hosting vs AWS
# of
(virtual)
servers
Offload
to S3
Caching
with CF
Auto-
Scaling
Etc.Hosting

#4 Include pricing models (RI, Spot) and economies of scale

#4 Include pricing models (RI, Spot) and economies of scale
#5 Take a look at what’s included: Intangible Cost Savings !

New Customers
Amazon EC2
Amazon RDS
Amazon ELB
Amazon S3
Amazon EBS
For All Customers
Amazon SQS/SNS
Amazon DynamoDB
Amazon SES
Amazon SWF
And more…
AWS Elastic Beanstalk
AWS CloudFormation
AWS IAM
Auto Scaling
Consolidated Billing
No Charge for
Inbound Data Transfer
Data Transfer between
Instances within an
Availability Zone
Free Usage Tier
Did you know?
Free Services Data Transfer

These Asian startups … are getting the same… as these companies:
DURABILITY
SECURITY
SCALABILITY
RELIABILITY
AFFORDABILITY

These Asian startups benefit from AWS… just like these companies:
E-COMMERCE
CONSUMER APPS
GAMING
ENTERPRISE / SaaS
MEDIA

03 04
ProfitabilityScale
What’s Next?
This Webinar

Visit aws.amazon.com/startups
Sign up for the AWS Summit:
Mumbai June 25
Delhi June 27
Bangalore July 5
Singapore July 17 (AWS Cloud Kata for Startups)
Singapore July 18 (Summit)
Sign up here: aws.amazon.com/aws-summit-2013/
Fill up your feedback form

Questions?
Pieter Kemps
Business Development, Startups & Venture Capital
Amazon Web Service
@p_kemps

Achieving Profitability on AWS

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