Today a technology startup is almost by definition lean. This is a direct consequence of Moore’s law – doubling of the computing power every 24 months.
Just before the turn of the millennium, we – the Memonic founding team – helped develop a large portal application for a client. The hardware costs (mostly development and live servers) alone bordered on 1million CHF (or €900,000).
Then, in 2006, we built local.ch, today Switzerland’s largest homegrown website. The initial hardware costs for the site were approximately 100,000 CHF (€90,000).
For the past year, we’ve been running Memonic.com, a highly scalable online note-taking application with a few hundred thousand users, for – hardware costs – just 10,000 CHF (€9,000).
Within just a decade, the price for the physical – server –side of an online operation was reduced by a factor of 10² . Next to spending less, it implies fewer and fewer assets. Today we’re running a cloud-based platform.
Nowadays, there are almost no fixed assets in a typical startup balance sheet. You can build a feather-light startup.
That’s Moore’s law in reverse.
Yet it is somewhat inconceivable that the same kind of lessening will happen in the next ten years. If it did, it would imply that we’d be able to run that same platform for just 100CHF (90€) a year.
Over the next 10 years we will probably see an additional price decrease but the price for running the physical side of your online platform will most likely level out. Interestingly, there are some indications that the same is about to happen to Moore’s law.
Let’s now turn to the software infrastructure needed for running our businesses. Here, it is the same story:
For the first mentioned portal project, we purchased Oracle database software worth hundreds of thousand of Swiss francs. Today, we run similar volumes of data at a fraction of the (software) cost of that time.
How? We stand on the shoulders of giants, using their free to cheap software solutions. It’s gotten pretty robust. In fact when we recently compiled a list of applications we’re using*. Quite a zoo!
For each and every business process, we currently employ a SaaS based solution, with the exception of Skype and some development frameworks (see here for a full list).
All in all, we spend less than 1,000€ a month, and that’s for running the entire software stack required to build, maintain and support our operation.
The cost advantages are here to stay. However, in both the case of software and hardware, we do not foresee them dropping much further.
At some point, Moore’s law in reverse will level off. It is hardly imaginable to run the entire backbone infrastructure in 10 years time for 10€ a month. More savings will only be possible through scale.
Given this, we believe that the argument for scale will eventually push a number of growing startups to merge or to be bought at an earlier stage to stay competitive even on razor thin margins.
In sum: there’s never been a better time to build a startup.
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* Disclosure: The author is not affiliated to any the mentioned software vendors, nor does he posses at the time of writing any financial interest in in any of the companies.
