# The Cost of Cloud, a Trillion Dollar Paradox - Andreessen Horowitz - Host: [a16z.com](https://links.thingelstad.xyz/hosts/a16z.com/) - Saved: June 10, 2021 (2021-06-10T11:37:39Z) - Record: https://links.thingelstad.xyz/links/de48ff2aa159/ - JSON: https://links.thingelstad.xyz/links/de48ff2aa159.json ## What Jamie wrote This is an incredible article and a must read for any senior technology leader in a public company, or any large organization. This is a deep dive on how cloud spend shows up on the P&L versus traditional technology infrastructure which is an asset that sits on the balance sheet. The cloud has huge benefits in many areas, and leveraging them is absolutely key to building solutions quickly. However, you build on a permanent level of leverage that is very hard to unwind. > However, as industry experience with the cloud matures — and we see a more complete picture of cloud lifecycle on a company’s economics — it’s becoming evident that while cloud clearly delivers on its promise early on in a company’s journey, the pressure it puts on margins can start to outweigh the benefits, as a company scales and growth slows. Because this shift happens later in a company’s life, it is difficult to reverse as it’s a result of years of development focused on new features, and not infrastructure optimization. Hence a rewrite or the significant restructuring needed to dramatically improve efficiency can take years, and is often considered a non-starter. Before you read this and jump to quick conclusions, the framing is important. This analysis is looking at places where cloud is a **huge** part of the cost of goods sold. **34%**! > Dropbox gross margins increased from 33% to 67% from 2015 to 2017, which they noted was “primarily due to our Infrastructure Optimization and an… increase in our revenue during the period.” Again, scale matters. But interesting that $100M of OpEx can be $50M of costs in two years. That is a big swing, but they are also big numbers. > estimates that repatriating $100M of annual public cloud spend can translate to roughly less than half that amount in all-in annual total cost of ownership (TCO) — from server racks, real estate, and cooling to network and engineering costs. The article is an interesting read just to get a sense of how much the cost of revenue is cloud spend at some companies. > A billion dollar private software company told us that their public cloud spend amounted to 81% of COR, and that “cloud spend ranging from 75 to 80% of cost of revenue was common among software companies”. That is an eye popping number. There is so much good data here, and informative for how very large tech organizations with predictable loads should be looking at cloud spend. There is a top end, but it is pretty high up there. ## Facts - Kind: [Page](https://links.thingelstad.xyz/kinds/page/) ## Appears in - [WT190: Weekly Thing #190 / WWDC, Passport, Roll](https://weekly.thingelstad.com/archive/190/), Featured ## Same host - [1,000 True Fans? Try 100](https://links.thingelstad.xyz/links/370d5557aa48/) (a16z.com, February 13, 2020) - [SaaS Businesses Weather Hard Times by Focusing on Efficient Growth - Andreessen Horowitz](https://links.thingelstad.xyz/links/36adc41b8613/) (a16z.com, April 23, 2020) - [NFTs and a Thousand True Fans - Andreessen Horowitz](https://links.thingelstad.xyz/links/4367f80f1834/) (a16z.com, March 2, 2021) - [NFT Canon - Andreessen Horowitz](https://links.thingelstad.xyz/links/0d7380e5fcc6/) (a16z.com, April 5, 2021) - [The Strategic Approach to Building a Board | Andreessen Horowitz](https://links.thingelstad.xyz/links/49a48d331fb7/) (a16z.com, January 21, 2023) ## Saved the same week - [NonFungible.com | Analyze, track & discover NFTs and collectible art markets](https://links.thingelstad.xyz/links/b53f27cda66c/) (nonfungible.com, June 10, 2021) - [The CTO Show with Rajiv Pant | Cloudflare TV](https://links.thingelstad.xyz/links/4337ed80f67a/) (cloudflare.tv, June 10, 2021) - [DeAll: The Air of Decentralization in 2021 | Hector Fernandez | LinkedIn](https://links.thingelstad.xyz/links/12b3ff261fd8/) (linkedin.com, June 10, 2021) - [The self is not singular but a fluid network of identities | Aeon Essays](https://links.thingelstad.xyz/links/722c7d5c6ff5/) (aeon.co, June 10, 2021) - [Jsonmatic](https://links.thingelstad.xyz/links/fcb534698a3b/) (jsonmatic.com, June 10, 2021) ## Elsewhere - Wayback Machine: https://web.archive.org/web/*/https://a16z.com/2021/05/27/cost-of-cloud-paradox-market-cap-cloud-lifecycle-scale-growth-repatriation-optimization/