Online marketplace Etsy is under growing investor pressure, following a drop in share price, to cut costs. But will embracing public cloud do the trick?
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Etsy is one of a handful of household names enterprises regularly name-check whenever you quiz them about where they drew inspiration from for their DevOps adoption strategy.
The peer-to-peer online marketplace’s engineers have been doing DevOps for more than half a decade, and are well-versed in what it takes to continuously deliver code, while causing minimal disruption to the website and mobile apps they’re trying to iteratively improve.
According to the company’s Code as Craft blog, Etsy engineers are responsible for delivering up to 50 code deploys a day, allowing the organisation to respond rapidly to user requests for new features, or improve the functionality of existing ones.
The fact the company achieves such a ferocious rate of code deploys per day, while running its infrastructure in on-premise datacentres, has marked it out as something of an anomaly within the roll-call of DevOps success stories.
For many enterprise CIOs, DevOps and cloud are intrinsically linked, while the Etsy approach proves it is possible to do the former successfully without the latter.
Investor interference at Etsy
One company investor, Black & White Capital (B&WC), seems less impressed with what Etsy has achieved through its continued use of on-premise technology, though, and has publicly called on its board of directors to start using public cloud instead.
B&WC, who owns a 2% stake in Etsy, made the demand (along with a series of others) in a press statement on 2 May 2017. Its aim being to draw public attention to the decline in shareholder value the company has experienced since it went public in April 2015.
According to B&WC, Etsy shares have lost 33% of their value since the IPO, while firms in the same category – listed on the NASDAQ Internet Index and the S&P North American Technology Sector Indexes – have seen the average price of their shares rise by 38% and 35%, respectively.
Given that Etsy is reportedly the 51st most popular website within the United States, and features around 45 million unique items for sale, B&WC’s argues the firm should be making more money and returning greater value to shareholders than it currently does.
Part of the problem, claims B&WC’s chief investment officer, Seth Wunder, is the lack of “expense management” and “ill-advised spending” going on at Etsy.
“This has allowed general and administrative expenses to swell to a figure that is more than 55% higher than what peers have spent historically to support a similar level of GMS [gross merchandise sales],” said Wunder, in the press statement.
“The company’s historical pattern of ill-advised spending has completely obfuscated the extremely attractive underlying marketplace business model, which should produce incremental EBITDA margins of greater than 50% with low capital investment requirements.”
Room for improvement?
The statement goes on to list a number of areas of operational improvement, compiled from feedback supplied by product engineers and former employees, that could potentially help cut Etsy’s overall running costs and drive sales.
These include reworking the site’s search optimisation protocols, and introducing marketing features that would open up repeat and cross-sale opportunities for people who use the site.
The press statement also goes on to make the case for freeing up Etsy’s research and development teams by using cloud, because they currently spend too much time keeping the firm’s on-premise infrastructure up and running.
“It is Black & White’s understanding that more than 50% of the approximately 450 people on the R&D team focus on maintaining the company’s costly internal infrastructure,” the statement continued. “A shift to the public cloud would provide long-term cost savings while also establishing a more flexible infrastructure to support future growth.”
Private vs. public cloud costings
Apart from the quotes above, there is no further detail to be found within the private letters B&WC sent to Etsy’s senior management team (and subsequently made public) about why it feels the firm would be better off in the public cloud.
If the investors’ main driver for doing so is simply to cut costs, it should not be assumed that shifting Etsy’s infrastructure off-premise will deliver the level of savings they are hoping for.
Indeed, there is growing evidence that it actually works out cheaper for some organisations to run an on-premise private cloud rather than a public cloud. Particularly ones whose traffic patterns are relatively easy to predict and are rarely subject to unexpected spikes… as is (reportedly) the case with Etsy.
When Computer Weekly quizzed Etsy previously on the rationale behind its use of on-premise datacentres, the company said – based on the predictability of its traffic usage patterns – it makes commercial sense to keep thing on-premise rather than use cloud.
It is difficult to say with any conviction what changes may have occurred at Etsy since then to cause its investors to reach a different conclusion, aside from their new-found commitment to cost-cutting.
The October 2016 edition of 451 Research’s Cloud Price Index report, meanwhile, suggests the investors could end up worse off by blindly favouring the use of public cloud over an on-premise, private cloud deployment.
“Commercial private cloud offerings currently offer a lower TCO when labour efficiency is below 400 virtual machines managed per engineer,” the analyst house said, in a blog post. “Past this tipping point, all private cloud options are cheaper than both public cloud and managed private cloud options.”
Take caution with cloud
There is no guarantee moving to public cloud will equate to long-term costs savings, and here’s hoping Etsy’s investors are not labouring under the misguided view that it will.
Within the DevOps community there are also plenty of war stories about how a change in senior management or investor priorities has resulted in companies abandoning their quest to achieve a sustainable and efficient continuous delivery pipeline, negatively affecting their digital delivery ambitions.
Given the investor’s agenda for change at Etsy is heavily weighted towards harnessing new technologies, as well as equipping its board of directors with more technology-minded folks, it would be a shame if that were to come at the expense of its position as one of the poster childs for DevOps done right.