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I usually try to cut them some slack. I mean, they're operating this stuff at Internet scale and have never (AFAIK) raised prices. They've basically got two opt

I usually try to cut them some slack. I mean, they're operating this stuff at Internet scale and have never (AFAIK) raised prices. They've basically got two options: * Price things in an intricate way sufficiently specific to actual costs of providing the service for many use cases * Price things more generally in a way that more or less probably results in about the same revenue The problem with option #2 is that it's dependent upon some customers implicitly subsidizing others (e.g. any "unlimited storage" backup solution). It can work a lot of times, but sometimes it doesn't, and at AWS's scale, that could change quickly. It'll upset a lot of customers if they then have to restructure pricing to account for a small subset of customers' use cases being too costly to provide.

joosters 6y ago
Doesn't that kind of problem get easier at large scale? It's like any time you have a limited resource to share out. e.g. if an ISP has 150mbits of connectivity, it would be difficult to provide a '100mbit' service to two homes - one busy user will clearly hit the other. But if you have 1500mbits to share out to 20 homes, the service will seem much better. As you scale up, it becomes easier to provision less per customer.
- inlined 6y ago
  Economy of scale is different when you’re providing a cloud business because your costs (and hopefully revenue) are dominated by the head customers. Imagine a company whose business model isn’t profitable for AWS becomes the next Dropbox. Suddenly the tail can’t subsidize the head. And even if it could, the business is shot. You always need the head to subsidize the tail (e.g. free trials). You can’t let the head become unprofitable.
  - joosters 6y ago
    All these are problems, yes, but my point is they become more manageable when you have more customers. Having Dropbox as a client would be exceedingly difficult if you only have two other customers, but it gets easier as you add more customers and scale up.
- moduspol 6y ago
  I think that works for ISPs because their service area and customer base are arbitrarily defined and within their control. They don't have to worry as much about a datacenter suddenly opening up in the middle of a neighborhood that throws off the profitability of everyone else. And they can also impose things like bandwidth caps to curb some less-profitable customers' usage. But cloud providers, by design, are charging "per use" and expected to scale "indefinitely"... at least for expected use cases.
- scarface74 6y ago
  One case that comes to mind is when they started charging for S3 API requests because people were using it as a free KV store.
pathseeker 6y ago
>I mean, they're operating this stuff at Internet scale and have never (AFAIK) raised prices Prices should have gone down because they've continued to scale up and go into custom cooling/hardware/backbones/etc. You're basically saying that you're cutting them slack because their margins have gotten much larger and they haven't decided to raise prices to make them even bigger.
- moduspol 6y ago
  Perhaps. All I meant was to show there's never been a time where they've had to acknowledge pricing something sufficiently badly that they had to go back and adjust prices up, perhaps after seeing how customers were using it. The slack I'm giving is for the complexity in their billing, not in the price itself.
- ses1984 6y ago
  Early customers were taking a bet on a new thing. Later customers are buying into the stability of the brand.
- pdonis 6y ago
  > Prices should have gone down because they've continued to scale up and go into custom cooling/hardware/backbones/etc. Why should that make prices go down? Prices aren't based on cost. They're based on what the market will bear, i.e., what customers will pay. If you think AWS is too costly, you can go find some other solution. If enough customers start doing that that AWS's financial state suffers, AWS will have to rethink its price and cost structure.
  - SomewhatLikely 6y ago
    In a highly competitive market prices tend toward marginal costs plus some small profit margin. Think agriculture or plastic trinkets. The fact their prices and profits have remained high for so long indicates lower competition, likely due to high barriers to entry from competitors and high switching costs for consumers.
    - 6y ago
zackbrown 6y ago
To apply established terms to these concepts, the divide you're describing is roughly "cost-based pricing" vs. "value-based pricing."

joosters 6y ago

Doesn't that kind of problem get easier at large scale? It's like any time you have a limited resource to share out. e.g. if an ISP has 150mbits of connectivity, it would be difficult to provide a '100mbit' service to two homes - one busy user will clearly hit the other. But if you have 1500mbits to share out to 20 homes, the service will seem much better. As you scale up, it becomes easier to provision less per customer.

inlined 6y ago
Economy of scale is different when you’re providing a cloud business because your costs (and hopefully revenue) are dominated by the head customers. Imagine a company whose business model isn’t profitable for AWS becomes the next Dropbox. Suddenly the tail can’t subsidize the head. And even if it could, the business is shot. You always need the head to subsidize the tail (e.g. free trials). You can’t let the head become unprofitable.
- joosters 6y ago
  All these are problems, yes, but my point is they become more manageable when you have more customers. Having Dropbox as a client would be exceedingly difficult if you only have two other customers, but it gets easier as you add more customers and scale up.
moduspol 6y ago
I think that works for ISPs because their service area and customer base are arbitrarily defined and within their control. They don't have to worry as much about a datacenter suddenly opening up in the middle of a neighborhood that throws off the profitability of everyone else. And they can also impose things like bandwidth caps to curb some less-profitable customers' usage. But cloud providers, by design, are charging "per use" and expected to scale "indefinitely"... at least for expected use cases.
scarface74 6y ago
One case that comes to mind is when they started charging for S3 API requests because people were using it as a free KV store.

pathseeker 6y ago

>I mean, they're operating this stuff at Internet scale and have never (AFAIK) raised prices Prices should have gone down because they've continued to scale up and go into custom cooling/hardware/backbones/etc. You're basically saying that you're cutting them slack because their margins have gotten much larger and they haven't decided to raise prices to make them even bigger.

moduspol 6y ago
Perhaps. All I meant was to show there's never been a time where they've had to acknowledge pricing something sufficiently badly that they had to go back and adjust prices up, perhaps after seeing how customers were using it. The slack I'm giving is for the complexity in their billing, not in the price itself.
ses1984 6y ago
Early customers were taking a bet on a new thing. Later customers are buying into the stability of the brand.
pdonis 6y ago
> Prices should have gone down because they've continued to scale up and go into custom cooling/hardware/backbones/etc. Why should that make prices go down? Prices aren't based on cost. They're based on what the market will bear, i.e., what customers will pay. If you think AWS is too costly, you can go find some other solution. If enough customers start doing that that AWS's financial state suffers, AWS will have to rethink its price and cost structure.
- SomewhatLikely 6y ago
  In a highly competitive market prices tend toward marginal costs plus some small profit margin. Think agriculture or plastic trinkets. The fact their prices and profits have remained high for so long indicates lower competition, likely due to high barriers to entry from competitors and high switching costs for consumers.
  - 6y ago

zackbrown 6y ago

To apply established terms to these concepts, the divide you're describing is roughly "cost-based pricing" vs. "value-based pricing."