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How are cloud companies financing all of the cap ex and fixed IT support that they offer cheaply to their customers? (Webinar Attendee Question)

This question was asked by an attendee during the Proformative webinar "The Evolving Role of Finance Leaders: Owning Technology" held on November 14, 2012.  A video of the webinar can be viewed here:


Tom Kelly
Title: Managing Director
Company: T > Edward, Inc.
(Managing Director, T > Edward, Inc.) |

In a word Scale. The vision of any Cloud company is to maximize the space. In the manufacturing world the term "Excess Capacity" applies here. Basically a Cloud company want to maximize server space. They need more servers...they buy in bulk, receive better pricing and as a result can provide the software at a reduced cost versus a company buying its own servers, paying a staff to maintain them, etc.

Probably more than you want to know about what drives a Cloud company can be found in a paper written by Bessemer Venture Partners:

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