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Amazon cloud perfect for building start-ups, says John Brown, Deloitte

It's a rite of passage for tech start-ups to announce their first multi-million dollar rounds of funding, a way to demonstrate viability in a hyper-competitive industry. But taking on funding from outside investors is, to a certain extent, becoming unnecessary and even financially irresponsible because of new opportunities made available by cloud computing, suggests John Seely Brown. 

FAQ: Cloud computing, demystified

Brown, a former chief scientist at Xerox who now holds roles with the Deloitte Center for the Edge and the University of Southern California, delivered the opening address at the Burton Group Catalyst conference in San Diego Tuesday.

Brown said he's puzzled by start-ups that take in large sums of money from angel investors, in the process giving away a large portion of their future value, and then spend that initial cash on an IT infrastructure that will be obsolete in five years. Instead of buying physical servers, start-ups today should simply rent virtual servers from the Amazon Elastic Compute Cloud, he said.

With the Amazon cloud, "I can now build a start-up at a fraction of the cost I used to build start-ups," he said.

Brown discussed Animoto, a start-up that built an automated system for creating music videos, and was able to scale up incredibly quickly using the Amazon cloud. Animoto's application went viral after being posted on Facebook, and because the company ran its infrastructure on Amazon it was able to scale from 50 servers to 5,000 servers in about 24 hours. Without that technology, and cloud management tools made by RightScale, Animoto would have had to pay for thousands of servers up front, and perhaps never use the majority of them.

"The sense of infinite speed to scale up made all the difference in the world," Brown said. "They didn't have to pay for the stuff they weren't using."

Labor productivity has improved remarkably over the past four decades, largely due to improvements in information technology, Brown said. At the same time, U.S. businesses' return on assets has dropped because of intense global competition, diminishing brand loyalty, and a shift in power from businesses to customers, he said.