# Margins in the Cloud

By [Continuations](https://continuations.com) · 2010-05-27

business, strategy, finances, startups, cloud

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Historically in the software business high gross margins were considered essential.  It is not clear to me that the same logic will apply for cloud-based services.  Their cost structure might wind up being quite different.  Much smaller development teams can accomplish amazing things on top of a cloud stack substantially reducing the fixed cost component.  On the other hand, COGS may increase significantly as the underlying cloud services are paid on a variable basis.  With that in mind, it could well be that some of the most successful cloud businesses will have small or even tiny margins (just a tiny bit of a mark-up / premium to the underlying infrastructure) but at potentially huge scale!  This is just a short post to help me with my own thinking on this, but I am hoping to dig deeper with some actual numbers and maybe case studies along these lines.

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*Originally published on [Continuations](https://continuations.com/margins-in-the-cloud)*