Fellow cloudman Matthias Steiner tweeted about pay as you go model and clouds
— Matthias Steiner (@steinermatt) May 24, 2013
Since I have been doing cloud and pricing for the past few years I had few thoughts on this. Pricing is an art and science combined. To understand let me start with a story from my childhood. If you have even been to India and bought anything from a bazaar you know you never pay the first price the vendor asks for. As a kid I would see my elders haggling over the prices of everything. One fine afternoon my elder brother was buying shoes for me and he got the vendor from Rs 250 to Rs 90 (early 80s good times I know). After getting the shiny shoes for me I asked him how does he came to the figure of Rs 90 and he told me about he thought about
the cost of material, labor and margin
and Rs 90 seemed like a good price. I internalized this concept and lived with it for years. Then I came to US and I noticed all sorts of pricing. Apparel pricing where they would be “fully priced” in spring, some what discounted in summer and deeply discounted by Autumn. Air ticket pricing was black magic. So read a few books and about marginal cost of producing something but then finally settled on the idea of pricing as
what someone is ready to pay for
This concept of what someone is ready to pay for is a great one. I mean if for the same necktie one person pays $50 and the other would gladly pay $80, I would like to sell accordingly. But how do I know who would pay how much. This is a really hard problem to solve and is the reason you see a regular cup of coffee for $2.00 while the white caramel macchiato with soy milk costs $4.50 at your favorite coffee joint. You don’t think that extra stuff costs the seller $2.50. It is their way of segmenting the customer and see who would pay more or who derives how much value.
The above concept works great where perceived value can be shown by adding attributes or services like models of cars, versions of software. But there are markets where doing this segmentation is a little hard. Utility markets for water, electricity and gas are great example of this. One Kwh hour of electricity is indistinguishable from another (though you can still bring in time of the day, how it was produced for some fun). These are the markets that are ripe for pay as you go. You could have tiered pricing over here as well. In cloud computing IaaS are PaaS models (compute units, storage, API calls etc) closely remember this utility model and we see similar pricing models as well.
There is one very important characteristic that dictates the PAYG model for clouds is that of elasticity and efficient use of resources. See in the on-premise model, an organization plans for the peak capacity and buys hardware accordingly (capex). But that peak performance might happen only 10% of the time or even lesser. So these resources are underutilized. But the organization has already bought so not much can be done (though for very large organizations a private cloud can be a choice). Now in the cloud PAYG model most of time you are working under a normal load and paying accordingly. If there is spike in the demand resources are added elastically and you pay for what you use. The same resources that you utilized during the peak time could be repurposed for other organizations during your average load profile.
Another alternative pricing model is of packaging where for commercial reasons or adoption reasons a seller might choose to package the resources in bundles and sell it. For example cell phone plans are great examples of this. These are valid models but fail the elasticity options discussed above as what happens when there is spike in demand. Sometimes you might see unlimited plans (cell phone, ISPs) but then you get into fair use of the resources ( recently a guy was using 50TB of bandwidth on Verizons FIOS plan).
In the end I would say utility like evolving nature of cloud resources and elasticity is what drives the clouds to PAYG models. We can also thank AWS for setting up the precedent.
Coffee Ratecard image by - http://www.flickr.com/photos/nataliejohnson/3017624698/
Bay area at its best. Thanks to Bjorn Goerke for quoting this by Steinbeck which is so apt ( http://bgoerke.wordpress.com/2013/04/02/ive-never-seen-her-more-lovely/ )
When I was a child growing up in Salinas we called San Francisco “the City”. Of course it was the only city we knew, but I still think of it as the City, and so does everyone else who has ever associated with it. A strange and exclusive word is “city”. Besides San Francisco, only small sections of London and Rome stay in the mind as the City. New Yorkers say they go to town. Paris has no title but Paris. Mexico City is the Capital.
San Francisco put on a show for me. I saw her across the bay, from the great road that bypasses Sausalito and enters the Golden Gate Bridge. The afternoon sun painted her white and gold rising on her hills like a noble city in a happy dream. A city on hills has it over flatland places. New York makes its own hills with craning buildings, but this gold and white acropolis rising wave on wave against the blue of the Pacific sky was a stunning thing, a painted thing like a picture of a medieval Italian city which can never have existed.
I stopped in a parking place to look at her and the necklace bridge over the entrance from the sea that led to her. Over the green higher hills to the south, the evening fog rolled like herds of sheep coming to cote in the golden city. I’ve never seen her more lovely. When I was a child and we were going to the City, I couldn’t sleep for several nights before, out of bursting excitement. She leaves a mark.
FROM John Steinbeck, Travels with Charley, 1962imported from Google+
Sony is doing some nice things with their NEX series. A friend has been rocking 5N for a while and it shoots some nice pics. Saw the pre-review of 5R and it seems even better. All this while Canon and Nikon the so called leaders in DSLRs are fumbling with their micro four third strategy.imported from Google+
Day 2 of #MakerCamp was kindda meh. Making Animated GIFs https://plus.google.com/109780686446922422512/posts/bbNhaUR2jER
Day 2 of #MakerCamp – Animated .gifs with +Jared Ficklin
Share your questions and ideas in the comments!imported from Google+
You Didn’t Build That
Could the Internet have been created by private industry? Without government’s help as funder and convenor? I don’t think so. Here’s why.
When the ARPANET was created, each of the research laboratories around the country had different equipment. That meant we had to figure out how to connect machines that were manufactured by different companies. The first four computers on the ARPANET were the Xerox Data Systems Sigma 7 at UCLA, the Scientific Data Systems (later acquired by Xerox Data Systems) SDS 940 at SRI International, the IBM 360/75 at the University of California, Santa Barbara, and the Digital Equipment PDP-10 at the University of Utah. In order to connect these computers, there had to be some sort of common standard that was not controlled by any single company. This applied to every level of the system, from the hardware interface to the IMP to the basic protocols that moved messages from one computer to another, to the higher level applications such as email and, later, the world wide web. The open architecture of the Internet, with defined interfaces and open standards that were all freely available, initially made it possible for any person and any company to participate. This was a fundamental principle of the early work. This was also a hallmark of the government research effort, and would not have come about if the Internet had been created by industry
Steve Crocker is chairman of the Internet Corporation for Assigned Names and Numbers. In the late 1960s, he was a UCLA graduate student who helped create the ARPANET, a precursor to the Internet. Duri…imported from Google+
"Romantic reductionist" neuroscientist Christof Koch discusses the search for meaning in the world of science, and the philosophical influence of working with Francis Crick.imported from Google+
How do you like the new g+ ui?? A testimported from Google+
With the new look where it shows the images in background, g+ looks more like graffiti but in a good wayimported from Google+
This has to be best web based adaption of Ramayana (Indonesian version) Watch it to be amazed. It is too much fun to see the epic unfold using google's various services. Jatayu posting an SOS update before dying was great.
Welcome to the English language version of Ramayana. Don't have a password? We will send it to you… Do you speak Indonesian?imported from Google+