SmugMug's Don MacAskill

UPDATE 4/30/07: This post was written in November 2006, so these numbers are a little out of date. It’s now been 12 months and we’ve saved almost exactly $1M. You can see the most recent numbers, as of April 2007, in my ETech slides.

I still have some more Web 2.0 Summit stuff to write up if I get a few minutes today, but let me talk about Amazon’s S3 for a minute. At the conference, I was chatting with Michael Arrington of TechCrunch fame (who perfectly handled a blogosphere mini-explosion last week, I thought) and we got to talking about S3. He was impressed with how we were using it, but joked that our $500K saved number sounded like “complete bullsh*t”. I laughed along with him and assured him it was true, but on the way home I got to thinking that it IS a really big number to throw out there without details.

So here are the cold hard facts:

• Our estimate, as you can see in BusinessWeek’s cover story, is that we’re saving $500K per year. We’ve been using S3 for almost 7 months so far (we launched it on or around April 14th), so for my $500K estimate to be in the right ballpark, we should be somewhere near $291K saved to date (well, we don’t grow linearly, so less than that … but let’s do easy math, shall we?).
• We had roughly 64,000,000 photos when we launched S3. We now have close to 110,000,000 photos. Yes, that’s ~72% growth in 7 months.
• To sustain our pre-S3 growth, we were buying roughly $40,000 per month in hard disks plus servers to attach them to. We’re not talking about EMC or other over-priced storage solutions. We’re talking about single processor commodity Pentium 4 servers attached to really cheap Apple Xserve RAID arrays. Not quite off-the-shelf IDE disks, but once you factor in the reliability and managability, the TCO comes out to be in a similar ballpark (We’ve done it both ways).
• If you’re doing the math at home, $40K may seem a little high until you realize how our architecture works: We use RAID-5, with hot spares, and we have two entirely separate storage clusters. That means we have to buy 1.4TB of raw disk to store an actual 500GB.
• To sustain our current, Nov 2006 growth rate, we’d need to buy more like ~$80K per month. Let’s assume over the 7 months, it ramped from $40K to $80K linearly (it was actually more of a curve, but this makes the math easier). $40K + $46K + $53K + $60K + $66K + $73K + $80K = $418K
• Our datacenter space, power and cooling costs for those arrays is ~$1.36/month for every $100 of storage. (~$544month @ $40K, ramping to ~$1088/month @ $80K). $544 + $626 + $721 + $816 + $898 + $993 + $1088 = $5,686.
• It’s cost us some manpower to move everything up to S3. So while I expect to save money on manpower in the long run, currently it’s probably break even – I don’t have to install, manage and maintain new hardware, but I’ve had to copy more than 100TB up to Amazon. (We’re not done copying old data up yet, either)
• Total amount NOT spent over the last 7 months: $423,686
• Total amount spent on S3: $84,255.25
• Total savings: $339,430.75
• That works out to $48,490 / month, which is $581,881 per year. Remember, though, our rate of growth is high, so over the remaining 5 months, the monthly savings will be even greater.
• These are real, hard numbers after using S3 for 7 months, not our projections. They closely match (but are actually slightly better) than our projections.

So there you have it.

But wait! It gets even better! Because of the stupid way the tax law operates in this country, I would actually have to pay taxes on the $423K I spent buying drives (yes, exactly like the money I spent was actually profit. Dumb.). So I’d have to pay an additional ~$135K in taxes. Technically, I’d get that back over the next 5 years, so I didn’t want to include it as “savings” but as you can imagine, the cash flow implications are huge. In a very real sense, the actual cash I conserved so far is about $474,000.

But wait! It gets even better! Amazon has been so reliable over the last 7 months (considerably more reliable than our own internal storage, which I consider to be quite reliable), that just last week we made S3 an even more fundamental part of our storage architecture. I’ll save the details for a future post, but the bottom line is that we’re actually going to start selling up to 90% of our hard drives on eBay or something. So costs I had previously assumed were sunk are actually about to be recouped. We should get many hundreds of thousands of dollars back in cash.

I expect our savings from Amazon S3 to be well over $1M in 2007, maybe as high as $2M.

Perhaps most important, though, is the difficult-to-quantify time, effort, and mental thought we’re saving. We get to spend both that money and all of our extra time and effort on providing a better customer experience and delivering better customer service. Storage was a necessary evil that’s now been nearly removed as a concern.

Want more? I have some other posts on the subject:

• Amazon S3: The Holy Grail
• Amazon + Two Guys + $0 = Next YouTube

And I’ll continue to post with more hard details, including our technical architecture and some of our code, as well. And yes, we’re starting to consume other Amazon services like EC2.

Jeff Bezos just gave a great presentation and had an interesting chat with Tim O’Reilly here at the Web 2.0 Summit. I’ve written about Amazon’s web services a few times, including the BusinessWeek cover story this week.

In case you don’t want to read the long-winded version, here’s a summary of what I think is really going on here:

• Amazon Web Services isn’t some strange deviation from Amazon’s core business. Instead, it’s an evolution of their business that makes a lot of sense. They’ve learned to scale datacenters well, and companies like ours don’t want to have to learn those same lessons, so we can build on Amazon. Amazon makes money, we save time (which is money) and get to focus on our application, and everyone wins.
• Google gets a lot of press for building a “WebOS” as they release web-based replacements for desktop applications. But they’re really focused on client-side desktop replacements, whereas Amazon is really focusing on backend, server-side recplacements. It’s less glamorous to the average consumer, but far more glamorous to anyone who needs those services to build their company.

I’m not sure everyone grasps how truly huge this is. I suppose that’s good, since we do and it gives us an edge.

The next YouTube will be built on Amazon’s Web Services by two guys in a dorm for roughly $0.

BusinessWeek has an article up about Amazon’s push into web services. GigaOM’s got a little coverage, and I see it spreading a bit over on TechMeme and TailRank.

We’re in the article, since we’re a big believer in this “new” vision of Amazon’s. Amazon calls the stuff they’re exposing the “muck” of doing business online, and I think it’s a perfect term. Some people see this as some radical departure from Amazon’s core business, but I don’t at all. Just like much of Amazon’s business, it’s an evolution. They began as a bookstore online (no-one remembers this, but they weren’t the first. BookStacks was relatively huge when Amazon launched), and eventually evolved by adding more and more products. They sell nearly everything, including groceries, now.

Why? Because once they had some of the infrastructure built to sell books, it made sense to add DVDs and CDs. And then once that was built, it made sense to add electronics and video games and gardening supplies and everything else under the sun. Why? Because they had even more infrastructure built. The average person doesn’t appreciate just how difficult the fulfillment piece of Amazon is, from warehousing, inventory control, packing, and shipping, but those who do boggle both at how difficult it is and at how well they do it. May as well leverage that expertise across other product lines where it makes sense, right?

Along the way, they also happened to get extremely good at systems. My father co-founded and successfully ran a direct competitor to Amazon, fatbrain.com, so we got a good, close look at just how good they were. While eBay was having massive outages, Amazon continued to purr along, scaling well and fast. When Toys R Us had a disastrous holiday season one year because they couldn’t scale their systems, who did they call? That’s right, Amazon.

I don’t have any direct knowledge of the chain of events, but I’ll bet it was something like that which caused the initial light bulb to start glowing. Dimly, at first, but glowing none-the-less. The thought process probably went something like this: “Hmm, you know, this letting other businesses like Target, Borders, and Toys R Us build their businesses on ours is turning out to be a good deal. It leverages our existing infrastructure and knowledge to grow our sales. I wonder how we can let other businesses build and grow on ours?”

Enter Amazon Web Services, zShops, Marketplace, and the other programs to let people sell things on Amazon without actually being a part of Amazon. The first Web Service, E-Commerce Services (ECS), allowed anyone to build their own shop online, using their own URL and look-and-feel to sell, say, TVs. But Amazon would handle all the nasty bits of the process, like actually acquiring and shipping the TVs. To use their terminology again, the “muck” of running an online retailer was taken out of the equation – the online TV shop could focus on customer acquisition rather than fulfillment headaches.

From there, it’s really a fairly small step, rather than a giant leap, for Amazon to say “Hey, we really like people building their businesses on ours. What else do we have hiding around here that would help businesses out?” And it turns out the answer revolves around their other core knowledge and infrastructure investment: datacenters, storage, and servers. Just like physical fulfillment, Amazon is one of the few truly experienced web-scale companies in the world. And just like physical fulfillment, the more volume you do, the more efficient you can get and the more you can lower costs. (Assuming you’re talented, that is, which is a large assumption).

As Amazon ships more items, they get better shipping rates. As they buy more bandwidth, they get better bandwidth rates. And that doesn’t even take into account the knowledge, software, and other intangibles that continue to get more precise as they scale, both in their warehouses and their datacenters.

It’s sorta silly that some of this stuff hasn’t become a commodity already. I think if you took a close look at how SmugMug has built and scaled, say, storage and how Flickr or YouTube or any other recent startup has, you’d see we’ve all done it in remarkably similar fashions. We’re all re-inventing and re-building the same wheel, over and over again. And it’s expensive, time consuming, and not core to our value proposition – except that without it, we can’t build our business. In other words, it’s “muck.”

At SmugMug, we want to focus on the customer experience, from user interface to customer service, and not have to worry about storage. For us, it’s a necessary evil that detracts from our ability to deliver better features faster. We’re actively investigating plenty of other web services at Amazon, both announced and otherwise, and are extremely excited about how much more time we’ll be able to spend with our customers instead of our datacenters.

Finally, I think it’s worth mentioning that we love web services of all shapes and sizes. We publish our own API, we consume web services from Google and Yahoo already, and we plan to add more to the mix. But while everyone else’s web services allow us to add whizzy features, like Google Maps, or Yahoo’s Geocoder, Amazon’s solve real hard problems down deep where no-one will notice them. The “muck.”

They’re really building the very foundation of future web applications.