The public cloud makes it easy for anyone to start a software company—but at a cost—your margins now belong to AWS. Thread:

There are three ways of paying for software infrastructure:
1. have your customer pay for it (cheap)
2. build your own data center (somewhat costly)
3. rent from a public cloud (very costly)

The cheapest infra is no infra. This is the classic enterprise software model: the customer buys your sw to run on their own hw. Selling pure sw yields the highest margins in industry: 90%+.

With SaaS, the app moves from the client to the cloud. Before AWS got huge, SaaS companies built their own data centers. This shrank gross margins to the 70-80% range. These $$ flowed to the likes of Dell, HP, Cisco etc.

The newest SaaS companies don't own any infra—they only rent from the cloud. But that comes at a cost..

Snowflake—built entirely on the public cloud—has 62% gross margin, the lowest of any public data company.

Snowflake and Cloudera are both data warehousing companies. But because Snowflake also pays for infra, its gross margins are 25% lower.

For every $100 Snowflake makes, {AWS, GCP, Azure} takes about $25.

The public cloud drinks your milkshake.

That's a slight exaggeration. It's possible to run a SaaS company all on AWS at ~80% margins. The key is to be "data lite". Your product can't just be gobs of data. It's got to be light and high value, like alerts, authentication, monitoring etc:

Regardless, it's almost impossible to exaggerate how comprehensively the three public clouds are soaking up software dollars. The multitude of SaaS companies are like different schools of fish, competing, thriving, in three giant oceans. /end