The introduction of cloud computing services by Amazon is a defining moment that dramatically lowered the initial cost of starting internet and web-based startups. Cloud computing allowed startups to ‘rent’ hardware space in small increments and scale up as demand grew, instead of making large fixed upfront investments in hardware when the probability of success for the startup was still extremely low. This allowed entrepreneurs and investors to learn about the viability of startups before making large fixed investments, and hence can be seen as lowering the costs of initial experiments. Importantly, this technological shock impacted only a subset of firms. The cloud services provided by AWS provided scalable bandwidth, storage and computing resources for companies with a strong online presence such as software-as-a-service, social networks, or retail e- commerce websites.”
Ewens, Michael and Nanda, Ramana and Rhodes-Kropf, Matthew, Cost of Experimentation and the Evolution of Venture Capital (April 2018). NBER Working Paper No. w24523. Available at SSRN: https://ssrn.com/abstract=3167038
