Amazon’s data center efficiency VP James Hamilton gave a talk recently at the First Round Capital CTO Summit in which he explained to budding entrepreneurs how he would approach providing value to the modern data center. Hamilton outlined a simple matrix that startups can use called the “top 10 problem” test. Hamilton writes:

“You never want to first have to explain the problem to a perspective customer before you get a chance to explain your solution. It is way more rewarding to be working on top 10 problems where the value of what you are doing is obvious and you only need to convince someone that your solution actually works.”

To put it plainly, it’s better to provide a 10 percent cost improvement on an 80 percent problem than a 50 percent improvement on a 10 percent problems. Hamilton also discussed the value to businesses of cloud computing in terms of helping avoid up front capital costs and keeping those costs variable rather than fixed.

He also discussed two issues in the data center. First, he noted that in a data center case study, 31 percent of costs were power related and that figure was trending upward. Second, he suggested we are getting closer to a point where SSD storage could approach HDD storage in costs. SSD’s offer moderate power savings. Finally he noted that server utilization is between 10 and 20 percent at most data centers, pretty awful when you think about the costs of all those servers.

All in all Hamilton wants all directions pointing toward using cloud services like Amazon’s EC2 because he believes webscale companies like Amazon are best positioned to tackle all of these problems at scale and innovate quickest. And I’d say he’s largely right here.