Comparative advantage is one of those basic economic concepts discussed in college.  Simply stated, it explains why the US is better off designing and building routers than growing bananas - even if it has an absolute advantage in producing both. The key to comparative advantage lies in figuring out the opportunity cost associated with doing one thing over another.

When I left Google to start Ooyala, my co-founders and I came face to face with this conundrum - neatly summed up by Jeff Huber from Google - “starting a company sounds sexy and exciting until you realize that only 30% of your time is spent building out your idea and the other 70% is spent on mundane tasks like plugging in cords at your data centers.”  Since our core-competence was not building out data-centers, it didn’t seem smart for us to focus our attention and time on this.

So in the same way that the US focuses on building routers, we decided to focus on developing our video technology and found a country/company that could provide us with bananas/infrastructure. We turned to Amazon Web Services (AWS) as they provide a bundle of infrastructure and application services that are charged on a per-use basis. The Elastic Computing Cloud, Simple Storage Service, Simple Database and a myriad of other development services are all part of this offering. Amazon provides the basic building blocks required to build a sophisticated and infinitely scalable application. On the fly, we can bring up and take down computing clusters and we can store terabytes of information for pennies on the dollar.

Building on AWS gives small upstarts the same type of building and processing power that the “big guys” such as Google are able to leverage for their own development. Brainscape, a small imaging company is using AWS for image processing and analysis of the brain.  Other companies are using the services to conduct computationally expensive calculations.  The availability of these types of services will increase the size and complexity of problems that startups will be able to tackle. It will put them on equal footing with companies with significantly larger R&D budgets. Even Google recently got into the outsourced cloud computing business.