Okay so they raised 100m which means they need to work towards a 1bn exit. And if they want to keep their momentum going their r&d cost will go through the roof. Because they have to build the whole stack and it all has to be rock solid (eventually). It’s an immense engineering effort.
I get how this looks profitable on paper, because Fly charges for compute, and hardware and bandwidth are cheap. But the real expense is r&d, marketing and SBC and those will rule out profitability at any scale. These are not one-time expenses. You have to keep spending forever or your customers will leave. We’ve seen this time and time again. Heroku isn’t the only example. It’s the tragedy of platform/infra startups.
That's backwards. Profitability at scale is about the _only_ way for a cloud provider to be profitable. There's a reason you don't see a bunch of small cloud providers, the economics only work at scale.
Platform companies can't scale by just getting more of the type of customers they already have. They scale by getting bigger and more demanding customers. Those customers will expect the things AWS and the other big cloud platforms already offer. And then R&D expenses explode. The bigger they get the higher R&D will be. In absolute numbers and relative to revenue.
Yes, it's true that if you become as big as AWS then economy of scale starts to work in your favor again. But that outcome is so unlikely it's not worth thinking about. The realistic best case outcome is that they become a mid-sized cloud provider, like Digital Ocean. And Digital Ocean, in business for 11 years and having raised 500m (pre IPO) is still losing money. Linode, after 20 years of struggle, ultimately gave up and sold for $900m last year. Even the best case outcome looks pretty bleak.
I get how this looks profitable on paper, because Fly charges for compute, and hardware and bandwidth are cheap. But the real expense is r&d, marketing and SBC and those will rule out profitability at any scale. These are not one-time expenses. You have to keep spending forever or your customers will leave. We’ve seen this time and time again. Heroku isn’t the only example. It’s the tragedy of platform/infra startups.