Cloud pricing and pay as you go model

cloud-pricing

Fellow cloudman Matthias Steiner tweeted about pay as you go model and clouds

 

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[1][2] 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.

coffee_pricing

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 and 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.

[1] The Undercover Economist – Tim Hartford (light reading pop science)
[2] Principles of Microeconomics – Greg Mankiw (heavy dry university text)

Coffee Ratecard image by – http://www.flickr.com/photos/nataliejohnson/3017624698/

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Building HTPC 3 – Capabilities and big picture

(This is the last of this HTPC build series do read the Part 1 – HTPC Research and Part 2 – HTPC Build )

After researching for almost 3 years HTPC was finally built and is the center of my audio video setup. It is truly a one-box-to-rule-the-all solution. I was able to replace the following AV components with this single box

  1. Google TV – online streaming
  2. WDTV Live – local media player
  3. Comcast Cable Settop box
  4. Bluray-DVD player
  5. Digital Video Recorder

Here is a photo I posted on facebook

My AV Setup now includes – HTPC, audio receiver, RF based keyboard and remote, Harmony remote. HTPC provides the following capabilities

  • Live cable TV
  • DVR
  • Netflix, Hulu etc
  • Desi movie watching from bwcinema.com
  • Online music – pandora, saavn, dhingana
  • Local media play i.e. digital photos, home videos
  • Bluray/DVD player
  • File and backup server

Let us see how long this setup would last :)

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Building HTPC 2 – Components

(This is the second part of this HTPC build series do read the Part 1 – HTPC Research and Part 3 – HTPC Final )

After doing a lot of research I come up with the final list of components. I choose to go for SSD for the OS and programs drive. Really like the choice of Silver Stone GD06 case I made. But that required me to buy a modular power supply and shorter cable set. I was able to repurpose one of my external 1TB USB drives by opening it and using it as a main storage. Keyboard/Remote choice was based on online reviews. iPazzport is a good looking small form factor RF based remote. Performance is average. My best investment was the Ceton infinity card that allows me to take my cable tv wire into the PC and

  1. CPU – i5-2500 (BX80623I52500) 250
  2. Motherboard – GIGABYTE GA-Z68MX-UD2H-B3 LGA 1155 Intel Z68 150
  3. Solid State Hard Drive – Crucial CT128M4SSD2 m4 2.5″ Solid State Drive – 128GB 159.99
  4. Case – SilverStone Grandia Series HTPC Case (GD06) 122
  5. Tuner card – Ceton Infinty 4 PCI-e 199.99
  6. Power Supply – SilverStone Strider Plus ST50F-P 500W ATX 79.99
  7. Hard disk – Western Digital – 1 TB – $60
  8. RAM MEM 4Gx2|GSKILL F3-17000CL9D-8GBXM 74.99
  9. Bluray player – BD Combo Samsung SH-B123L 57.99
  10. CPU COOLER SCYTHE|SCSK-1100 R 34.99
  11. Keyboard/Remote – iPazzport KP-810-18R 38.87
  12. CablesSilverStone PP05 Short Cable for PSU Set 19.99
  13. Wifi AdapRosewill RNX-N180UBE 16.08
  14. Guide – Renethx 4

Here is a photo of all the components

 

Silverstone GD06 case

 

Gigabyte Z68 Motherboard

Assembly in progress

 

My buddy Guru Chahal also helped me a lot during this HTPC build. Powersupply in the above picture is upside down from the optimal position as the fan should be down. Ultimately I did put in the optimal way. Had to play with cables a lot for that. Couple of interesting things I learnt during this built. CPU needs it own power. Didn’t knew that and started the PC without that connection. Took some time to figure that out. One should always have a real keyboard handy to configure the PC for 1st time. SATA Blu ray players have separate SATA connectors for data and power. It was hugely satisfying once the HTPC was built and connected with the TV. I ended up spending more than $1000 but it was worth it :)

 

 

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Building HTPC 1 – Research

(This is the first part of this HTPC build series do read the Part 2 – HTPC Build and Part 3 – HTPC Final )

It was 2008 and I needed to replace my old faithful Sony Vega CRT TV. LCD TVs were becoming quite mainstream at that time and anything above 46 inches were more than 2000 bucks. Spending that much requires some research and I landed on avsforum’s LCD forum. I bought the TV but discovering avsforum was a discovery for gadget loving geek. I will come to that later. Watching TV on 52 inches of LCD was a revelation. Around the same time my little daughter came into the world and there was explosion of cute pictures and HD videos. To watch them on the TV I bought a media player called WDTV  which could show me all the media I had on the hard disk attached to it as well as youtube etc.

Since I had discovered avsforum I kept going back to it for reading various things audio video. I found out that due to their thinness LCD TV have poor speakers so one should get external speakers. For watching movies, speakers should really be in at least 5.1 config. Of course to drive these speakers you need a good audio receiver. While I am grokking the intricacies of audio systems and looking at to get a home-theater-in-a-box or separate speaker and receiver I browse to the home theater PC area of avsforum. Being a computer guy it is even more fun.  So now it is 2009 and it has been more than a year I have bought the Samsung 52″ LCD TV. And I am totally sucked into the AV world. Thanks to avsforum.

So far I only have the TV and a media player WDTV.  But I am also exploring if I should get speakers, audio receiver and may be a HTPC. Reasoning behind HTPC is to have the browsing capability to stream anything you want as WDTV can only stream youtube and couple of other services. While I am in the wait and see mode, there comes a deal at Fry’s a local store for Onkyo home theater in a box for quite cheap. Specs look good with some decent speakers and 4 HDMI ins and I buy that on a whim. Then Google announces Google TV. A friend who works at Logitech is able to get me Revue.

Google TV with Revue is good and it has the Chrome browser where I can browse, stream all I want. It integrates nicely with the Onkyo receiver I have. Netflix, Amazon VOD integration is even nicer. I really like the way search results are overlayed on live TV and the picture in picture is nice. Having used WDTV I am used to the really nice interface to browse local media i.e. pictures and videos. This is where Google TV sucks – while it is great for online media browsing app for local media is not so good. I have to keep WDTV and Google TV while what I want is a single box for every thing. My desire now for HTPC grows even further. So I start doing the final research for building the HTPC and looking for all the components that would go into it. AVSForum’s HTPC forum is the ultimate source for it. Two threads on this forum

  1.  renethx ‘s Guide to Building a HD HTPC and
  2. assasin  ‘s Assassin’s Simple/Beginner HTPC Buying and Building Guide

are my main sources. I learnt a lot from these guys in choosing the components. I ended up buying renethx’s guide to pay my debt :)

 

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Why I love design

This post is actually about a electronic product, so what does the design has to do with it? Let me start with a bit of history. I am not sure where I got interested in design. But few months of my life where my neurons would have been lit up enough that light was coming thru my ears must be when I came to US. You see I grew up in the India of middle 80s (feeling old :)) where the design must have been stuck in the five year planning commissions. There were the Ambassdor cars, Philips radios, HMT watches and Colgate tooth paste and things would remain the same till may be mid 90s. If a product was supposed to work some way it would for a very long time. Even now if you open some of the Haldiram Namkeen products readily available in US you would see how little attention is paid to usability of the product where design matters a lot.

So 1st few months in US were great from that perspective. I am a very curious person so I would notice the design in everything like how the medicine bottles can only be opened in certain ways, numerous designs of opening the wooden doors meant for gardeners, how the swimming pool chairs have stops for various angle of reclines and dual sided boxee remote etc. That was then, I still notice these design things but the aha moments have sort of reduced. But every now and then something comes up and I go wow.

 

Snap Circuits® Jr. 100 Experiments - Elenco SC-100

Any DIYer worth their salt would have dabbled with electronic circuits. Remember when you discovered breadboards for wiring. Those Electronics for You issues for folks who grew up in India. So yesterday I had had to give a b’day present and much to my lovely wife’s discomfort I chose a geek present. It is called Snap Circuits SC100. What they have is similar to a bread board. But what I really LIKED and that’s where the design bit comes – is the way they have solved the problem of joining and creating various circuits. As is clued by the name they used the good old Snap Buttons for making the connection between various components. So a kid of 8-108 ( recommended age group on their box) won’t have to fiddle with cutting the wires, joining and soldering etc. Very nice.

Essentially you have plastic breadboard with a grid. Instead of typical holes at the intersection of lines you have little plastic projections to which various components and giant plastic wires snap onto by using the buttons. They have a nice book with lots of projects starting from a simple circuit with a switch to on-off a LED to more complicated ones. Here is picture from flickr. Note the shiny buttons at the intersections. Who would have thought the buttons for your shirts will be used to make circuits. That is why design matters.

 

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Can USPS? part two

I recently wrote about if USPS can survive as webvan, on a similar note it was refreshing to see this NYT story about Deutsche Post and how it is thriving and evolving for digital age

The Deutsche Post office across from the train station here offers DVDs, umbrellas, phone cards and toys — with the processing of mail appearing nearly an afterthought. And the facility housing it is not a post office at all. Deutsche Post occupies a corner space in a bank.

What was news to me was how USPS is constrained by law not to evolve or play in limited markets

It’s easy to say that the U.S.P.S. is a bunch of morons, but they live under legislative restrictions on what businesses they can enter and are expressly prevented from entering business unless it’s related to physical mail.

Now thats a bummer. I wonder if these legislative restrictions would be relaxed as things get more digital.

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What works in US

In a NYT op-ed about Genius of Jobs, Walter Isaacson made a comment about US ingenuity and how it is THE advantage that seperates US from India and China. In my experience I would say 3 things that work well in US

1. Scaling what works best – Ideas that work are scaled rapidly and money flows to them. You would see no-name companies go from small start to national international in matter of years. Venture Capital does wonders over here. Apple, Genentech, Google and Facebook are prime examples. (Sorry for Silicon Valley bias)

2. Law of Land – is enforced and contracts are followed. Enron, Galleon Hedge Fund, Rajat Gupta etc no one is spared. ( Yeah yeah you can say a lot of folks responsible for Financial Crisis didn’t pay for what they let loose but still I think it is net positive than otherwise)

3. University Education – US has most of the world’s best education institutions. This is one advantage that could erode in future as the cost of education is becoming very high plus new models of education would evolve with ubiquitous internet and collaboration tools it enables.

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Can USPS survive as webvan?

USPS has been making losses for many many years and it is not unthinkable that it might not survive with its current structure. Much has been written on various reasons for its demise primarily being email. So when the new blog Digitopoly, by some of my favorite authors wrote on the same topic “Postal mail in the Shadow of Email’  My neurons started firing as it is one of the meme I think about. Other being public libraries in the age ebooks. USPS is unique in its nature and owns the biggest fleet that goes to most of the neighborhoods everyday. It would be a shame if USPS goes under and this network is dismantled. So how it can be saved and be profitable.

One not so radical idea for USPS is to partner with major grocery chains and be their home delivery agent sort of like webvan. So I order from Safeway, Kroger, Walmart’s website and grocery is delivered next day in neat packages by the friendly USPS guy. This does bring images from my childhood in India where the vegetable vendors would put their wares on a push cart and go thru neighborhoods hawking these vegetables. Do you think this idea of Grocery as a Service would work?

(Flickr Photo under CC by sarelkromer)

 

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Audrey and iPad

It is very difficult to have totally original ideas on the internet. iPad was released around the same time I was changing apartments once more. And during the move I came across my broadband connected tablet like browsing device from the dot com bust era. I am talking about the 3 Com Audrey I bought during 2001 for $99 after a friend from S’Pore called that it is available on tigerdirect. I loved it during those lean times. So the release of iPad brought back all those memories. While these thoughts were circling in my mind, kind folks on the interwebs have already written a post I wanted to write :D. Here is one snippet from that post

Audrey is/was a $500.00 USD “Internet appliance” released by 3Com in 2000 that ran QNX – a popular embedded *nix-like OS. You could surf the web, listen to music and e-mail folks (plus run a few other apps that came with it). It had a touchscreen (tho, you needed a stylus) with a virtual keyboard, but you could also use a wireless keyboard. My setup is a bit worse for the wear, but she still works:

skitched-20100201-215342.png
Uploaded with plasq‘s Skitch!

The device failed because it was too expensive and just a bit ahead of it’s time (you have to remember, the Internet was a different place back then, with the intended, primary means of connecting the Audrey being dial-up). I believe it also failed because there was no good way to develop for it, thus snubbing early adopters who might have been able to get 3Com over the 1st gen hump and provide it a stream of cool apps to make it worth the money for the general public.

On the internet nothing ever dies. There is still the audreyhacking site live. I might just use audrey for few days for the retro feel.

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Does online shopping changes the buying behavior

@jeffnolan sent the above tweet about placing more orders than last year on amazon. This prompted me to look at my order history as I was sure I would be in the same boat. Going through the order history confirmed it. Now two consumers from the same geographic region don’t make a trend. But I suspect that this would be the case for a lot more people who are voracious consumer of information on the web i.e. heavy users of blogs, tweets and online news. Increase in spend in itself is not bad if it has merely shifted spending at brick and mortar to online spending for stuff. It would be bad ( at least for my pocket) if this 24/7 connectivity, 1000s of review sites, ease of online ordering has increased our wants and buying behavior.

While buying clothes and food etc is not practical but buying gadgets, books, music, games and software etc is super easy. There is always a new batch of TVs with more features, digital cameras with HD video recording, AV receiver with newer version of HDMI, new notebooks, routers with wifi-n, ipads and iphones. Then there are techmeme, gizmodo, engadget, amazon etc to review it. For more hardcore guys there is dpreview and avsforum. And all of this in your smart phone, connected TV 24/7 at your service. I think all of this creates a never ending anxiety to upgrade stuff. Which is resulting in ever increasing line items in things-I-bought-last-winter list.

Good or bad depends up the age old question about wants and needs. So far I have started going the route of giving useful age in years to various things electronics e.g. TV, notebook at least 5 years, phone 2 years, computer stuff at least 3 years etc.  Will be watching my behavior :)

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