Economy of Scale vs. Scaling Economy

Sometimes, large scale can bring disadvantage. Let’s starts with one of the largest cluster: Yahoo! Mail.

When Gmail comes out, I then realized I how deep I integrated with Y! Mail.
- Pop mail,
- web mail,
- spam filter,
- another yahoo account for spam
- disposable email address,
- address book synchronization with outlook,
- email notification to Yahoo Messenger,
- message archive,
- mobile email alert,
- stock alert,
- weather alert,
- custom email address support,
- multiple account support,
- color coded email by account,
- ads free Yahoo Plus,
- WAP Yahoo mail, and
- Support reading multiple mails using browser’s tabs.

Yes, I used all of the listed features on daily basis.

I have a lot of sympathy to Yahoo when people mistaken Gmail was better. No, Gmail is years behind.

When Gmail switch from 1G storage to 2G, it hurts Y! Mail badly. At the time, the number of Yahoo mail users vs. Gmail’s is probably 100:1. (the ration these days maybe closer to 15:1)

To match Gmail average storage for each user (most user don’t use anything close to 2G), Yahoo pays 100 times more. Each additional MB for 300 millions of users is sustainable money for acquisition cost for the hardware and operational cost like electricity.

To scale to 300 millions users, it is much more than adding machines. It takes a lot of tricks and R&D to get it close to liner scaling. Anything less than liner scaling costs exponentially more. It makes or breaks the economy and feasibility of providing the service.

Werner Vogels [Amazon CTO] talked a lot about Dark Art, scaling and its pain.

In the famous “we [google] are a $100 billion company” financial conference, Eric Schmidt [Google CEO] quoted that the know-how, software and infrastructure to scale to massive number of user is one of Google’s key strength that they are expanding their leads on. However, Gmail (so does Yahoo) has periods that the performance is slowing down badly. It drives away users if not just growth.

Then Steve Ballmer [Microsoft CEO] use analogy about “data center” build everywhere in the world like electric stations. Later, Microsoft announces the billions of missing future profit to build the infrastructure to complete.

The dot com races reach the point that idea alone is far from enough. It is also about the ability to make economy sense out of the service providing to massive amount of users. The ability to scale the computing power is playing a big part to determine the success of a business.