A Beginner’s Guide to Bring Your Own Cloud

The profitable but challenging deployment model sweeping the nation.

What if I told you that there are customers out there willing to pay you 2-5x your normal price, for the exact same product? They don’t want extra features or a fancier dashboard. In fact, they don’t even want you to host the software on your servers – they want to do it (and pay for it) themselves. Sick, right?

Maybe. This increasingly popular deployment model goes by a few names (self-managed, customer-managed, customer-cloud-deployed), but we’ll call it BYOC (Bring Your Own Cloud), and if you’re building B2B software, it’s worth understanding what makes some BYOC offerings successful, and some a huge dumpster fire.

Trickiness aside, the BYOC ask from customers is becoming commonplace. As data regulations get stricter and security teams get more power over vendor decisions, more enterprise buyers are walking into sales calls with a version of the same question: “Can this run in our cloud?”. Those vendors that can confidently say yes are making buku bucks.

The SaaS deal

SaaS works because of a simple trade: as the customer you give up control, and in return, you get convenience. Instead of managing your own servers, you pay the vendor to do it for you. No servers to manage, no upgrades to coordinate, no infra team needed. The vendor handles all of that, and you get a website to log into. For most companies, this is great. You should probably stop reading here if your customers are all happy with this arrangement.

But “most companies” is not “all companies,” and the ones where this deal falls apart tend to have very, very, large budgets.

Mo money mo problems

For buyers in financial services, healthcare, defense, and large tech (among others), multi-tenant SaaS creates problems that aren’t really solvable with a better sales pitch.

🚨 Confusion Alert

Multi-tenant just means that multiple customers are using software that resides on a single physical (or virtual) server. Your data is in the same shared database as everyone else’s. If you use Gmail, that’s multi-tenant. So is X, Sheets, Claude, you name it.

Here are some of those problems:

• Data residency and sovereignty: some companies can’t have their data leave their own servers, period.

• Security posture inheritance: in SaaS, your customer’s security is only as good as yours…and they might not want to take a bet that you know what you’re doing.

• Performance and egress costs: SaaS requires moving a lot of data around the internet, which is expensive AF, in some cases, even more expensive than the software itself.

• Vendor lock-in: if your SaaS runs on one specific cloud provider, your customer is now locked into that cloud, even if they already use a different one.

If you’re a cool, lean, startup moving fast and breaking things, these may sound like lame problems to you. But these are Fortune 500 problems. Get ya money up.

The spectrum

For all of these reasons and more, companies want to keep things running in their own clouds, your software included. But what that means in practice is very squishy. There’s a whole spectrum of deployment models that blend vendor-managed and customer-managed infrastructure. Understanding where you sit on it is probably a good first step.

Fully managed multi-tenant SaaS. You run everything. Customer gets a login. Everyone’s data sits in the same general pool of infrastructure. This is the default, and it works great for most buyers.

Single-tenant SaaS. You still run it, but each customer gets their own isolated infrastructure like databases and API servers, in the cloud. Better for compliance and sometimes performance, but you’re still holding the data.

Hybrid Architecture. This one is a bit wonky, but worth mentioning. Basically, sensitive data lives in the customer’s account (called the data plane in this architecture), and non-sensitive data and functionality lives on centralized infrastructure hosted by the vendor (control plane). This can help alleviate some of the pains of fully self-hosted setups, such as a lack of observability for debugging, because the data plane can communicate error logs and such back up to the control plane.

Fully self-hosted (pure BYOC). This is the most extreme, but also most lucrative version of BYOC, and the one we’ll generally focus on here. The customer runs the entire software stack in their own environment. These days, that usually means you ship a containerized (fancy word for packaged) version of your software that runs on Kubernetes, which helps with installs and upgrades. But you lose visibility into what’s actually happening and debugging without cluster access is painful. Works if your customers have strong platform teams. Doesn’t if they don’t.

The economics of BYOC

If you’re selling a SaaS product at $50K/year to a mid-market customer, the BYOC version of that same product can go for $150-250K/year. Sometimes more. The functionality is the same. What the customer is paying for is the right to run it inside their own environment, on their own infrastructure, under their own security and compliance posture. So the obvious question is: why would they pay more for less?