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Free cloud credits a gateway drug for startups

Public cloud credits are becoming table stakes in the world of startups, where vendors continue to fish for the next big thing to fill their balance sheets.

Forget the so-called public cloud price wars. In the fight for startup customers, it's all about free.

Amazon built the public cloud market largely on the backs of its startup customers, and competitors are increasingly trying to chip away at that stranglehold by dangling cloud credits in front of today's emerging companies. Microsoft is the latest to up the ante, offering $120,000 in Azure cloud credits over the course of a year.

Agolo, a New York startup that curates and personalizes social networks and news, joined the Azure program after being approached as part of an incubator, said Mohamed AlTantawy, CTO and co-founder. The real draw was Azure machine learning, but the funding -- $60,000 at the time -- certainly played a part, he said.

"At the beginning it was a huge factor because, as a young startup, this money is not something small," AlTantawy said. "That money is not something you can pass on."

Amazon has a program for startups that offers up to $15,000 in credits for use over two years, while Google last fall began its own program with $100,000 available to participants. IBM and Microsoft offer the most at $120,000 after Microsoft said it would double its previous offering starting July 1.

Vendors have their own criteria for joining the programs and take different approaches to mete out the funds. Google, for example, gives the startups access to funds based on usage, while Microsoft caps the monthly disbursement to 1/12th  the total allotment. And these programs are often more than just a free pass for compute, with vendors offering mentorship and technical assistance throughout their participation.

The best things in life are free*

Of course, as the saying goes, nothing in life is free. Going all-in with a cloud provider can invariably lead to vendor lock-in -- a scenario customers say isn't necessarily a bad thing if you go in with open eyes.

"The benefit for the large tech players like Microsoft, Amazon and Google is to provide these types of credits to get people like us developing on their platform," said John Andrews, CEO of Celect, Inc., a  Boston-based provider of predictive analytics for retailers and member of the Google Cloud Platform for Startups program. "They're looking at the long-term value of the customer."

But the tradeoff can be worth a degree of stickiness and brand loyalty, he said.

"We're trying to manage our expenses as tightly as we can," Andrews said. "If someone's going to offer us $100,000 in credits that we can apply and basically it just goes to our bottom line – at this point we're more than willing to take that and leverage that platform."

If someone's going to offer us $100,000 in credits that we can apply and basically it just goes to our bottom line -- at this point we're more than willing to take that and leverage that platform.
John AndrewsCEO of Celect, Inc.

Still, money isn't everything.

Several members of these programs said they turned down larger sums from other vendors because they didn't trust the product. Others said the hurdles involved with switching from platform to platform for additional credits isn't worth it.

"It is a pretty big process once you have solid infrastructure in place on one platform," said Tom Bachant, co-founder and CTO at Dashride, a New York provider of on-demand dispatch services for livery companies. "The whole concept of moving it to a new platform is time consuming and it's just a huge risk. For us I don't think it makes sense to save a couple bucks."

But the potential for lock-in on certain workloads shouldn't be a limitation for IT needs better suited for other platforms, several startup customers noted.

"It doesn't have to be all in one place," AlTantawy said. "Transferring data in and out of services will cost a lot as opposed to having everything on one service, but that's the beauty of the cloud – you can host anything anywhere and make them communicate."

To make the most of these programs, participants recommend holding off on any agreement until the money is truly needed, to make the transition as quickly as possible when ready to take full advantage of the credits, and to model costs and track usage during the free period so you're prepared when the real bills start coming in.

Startups still critical to public cloud

The public cloud market, especially in its earliest days, was derided for its lack of traction with enterprise customers. And while that's changed, vendors in this space continue to look to startups to find the next big thing to blossom into a blue chip customer.

"Successful startups tend to grow their usage very rapidly," said Lydia Leong, vice president and distinguished analyst for Gartner, Inc., an IT analysis firm in Stamford, Conn. "Giving away a little bit of free services at the beginning is not a big deal."

It's important for startups to look at the platforms intelligently and decide which they're most suited to, Leong said. For the smaller guys working out of their garage, it's possible to bounce from platform to platform, but larger efforts have the potential to burn through those credits in rapid succession.

"It goes pretty quickly once you actually get some customers, but it can help for someone more prototyping [to] take it all the way to launch," Leong said. "The ideal candidate is someone who's already got a product and it is nearly ready for launch."

Credits can get a provider in the door for a conversation, but the vendor still must prove its worth, said Ken Schutt, Head of Global Venture Capital Business Development for Google Cloud Platform.

"What we've found is everybody has credits, whether it's us or Microsoft or Amazon," Schutt said. "Credits have become something that's really just table stakes to be truly considered in this space for early stage startups."

Schutt spent six years working in business development with enterprise customers at VMware, Inc., and while big businesses are moving toward public cloud, it will be the cloud-native startups that continue to push innovation and drive awareness and adoption, he said.

"It's starting to show significant traction with enterprises but that's a long game," Schutt said. "Startups are going to be a core tenant of cloud for the foreseeable future and going forward in perpetuity."

Trevor Jones is news writer for TechTarget. Contact him at [email protected].

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