Select your localized edition:

Close ×

More Ways to Connect

Discover one of our 28 local entrepreneurial communities »

Be the first to know as we launch in new countries and markets around the globe.

Interested in bringing MIT Technology Review to your local market?

MIT Technology ReviewMIT Technology Review - logo

 

Unsupported browser: Your browser does not meet modern web standards. See how it scores »

Two weeks ago, Google launched a test version of App Engine, an infrastructure service aimed specifically at Web developers. The product is one of several offering cheap infrastructure to Web businesses, so that they can rent storage and processing power and avoid expensive hardware purchases. Experts say that despite lower operating costs, venture capitalists aren’t likely to change their funding strategy.

Ramu Yalamanchi, founder and CEO of hi5, says that changes to infrastructure have made a big difference over the years in terms of how startups operate. According to Yalamanchi, in 2003, when hi5 was founded, open-source software, such as the database system PostgreSQL and the Linux operating system, along with cheap components, made it possible for the company to get by with only $250,000 in seed money–a feat that wouldn’t have been possible just a few years previously. “Today, we would have looked very closely at Amazon S3,” Yalamanchi adds, noting that infrastructure costs are continuing to drop.

Amazon Web Services, including Amazon S3 and Amazon EC2, only charge companies for the storage and processing they use. As a result, explains Adam Selipsky, Amazon Web Services’ vice president of product management and developer relations, startups don’t have to pay for servers that sit idle much of the time, waiting for a sudden surge in traffic. Selipsky says, “That means you have to raise a lot less money from angels and venture capitalists, and the reduction of risk is very attractive to startups themselves, and very attractive to their initial backers.” (Angels are private investors who typically invest their own money in startups, as opposed to venture capitalists, who typically manage pools of money from a variety of sources.)

Google’s App Engine offers features similar to Amazon’s Web services. Tom Stocky, a product manager at Google, says that the company has given a great deal of thought to building an environment to help Web-based applications get off the ground quickly and grow easily. “Even the most proficient developers can get benefit here, because they get access to the same infrastructure Google engineers use,” Stocky says. For example, in addition to being hosted on Google’s servers, developers can use Google’s software to authenticate customers. App Engine, Stocky explains, also includes access to some of Google’s own methods for managing data, including the company’s load balancing algorithms and data storage systems that allow for faster access to data.

Edward Roberts, founder and chair of the MIT Entrepreneurship Center and a professor at the MIT Sloan School of Management, says that given the lower initial costs of starting a business, people should “expect more startups.” However, he says that he doubts venture capitalists will change the size of their investments, since they need to invest certain quantities in order to keep their funds working to maximum capacity. “More startups may, however, get funded by angels or angel groups who have less money than the venture capitalists,” Roberts says.

3 comments. Share your thoughts »

Credit: Technology Review

Tagged: Business, Google, startups, Amazon.com, venture capital, App Engine, Amazon Web services

Reprints and Permissions | Send feedback to the editor

From the Archives

Close

Introducing MIT Technology Review Insider.

Already a Magazine subscriber?

You're automatically an Insider. It's easy to activate or upgrade your account.

Activate Your Account

Become an Insider

It's the new way to subscribe. Get even more of the tech news, research, and discoveries you crave.

Sign Up

Learn More

Find out why MIT Technology Review Insider is for you and explore your options.

Show Me