3 ms·

Ask HN: How does Amazon decide on pricing for its AWS services?

7 points by iamwil 4y ago

Is it based on the variable cost of electricity? Or the willingness to pay of specific target segments they're going after? Or something else?

joshxyz 4y ago
imo it is the amount they can get away with, especially with their first mover advantage back then. sometimes it costs more to move to another vendor than to just stick with their high prices.
- temp_aws_12345 4y ago
  And sometimes, all the vendors' fixed costs are close enough that those with the highest usage can spread them most-thinly among their customers.
- bko 4y ago
  That's not a helpful answer. Imagine you were tasked to price a product and your report read "charge as much as you can get away with". > sometimes it costs more to move to another vendor than to just stick with their high prices. You're suggesting that they look at competitors, calculate switching cost, amortize that over some period and charge that amount. So if a competitor costs $100, and switching to them would cost $120 and say you amortize that over 1 year, then you would charge $110 per month (competitor + $10 mark up per month). Is this how you think they do pricing?
  - joshxyz 4y ago
    > Imagine you were tasked to price a product and your report read "charge as much as you can get away with". If i'm one of the shareholders i'd want to hear something that rhymes with that. They're not a small team startup chasing validation and growth, they're out to onboard businesses for years of lock-in where the selling point is not just the price but the reputation, reliability, and synergy of this product you're looking for along with their other existing and future upcoming products. > Is this how you think they do pricing? Yes and no. The way I see aws is the whole is greater than the sum of the parts. AWS is sold as an entire solution, not individual products. Lambda for me is priced as Lambda + other AWS products + their developer community. For me it's a mix of quantitative and qualitative factors. In the end i may be wrong and overgeneralizing things, maybe someone from aws can enlighten us? haha.
temp_aws_12345 4y ago
The same way you price any other service: aggregate the costs of your dependencies, forecasting for eventual customer usage over 5 years, and charge for an expected 30% profit margin.
colinmhayes 4y ago
Amazon employs teams of economists. So I’d say the answer is by telling teams of economists they’ve got a new product and want to figure out how to price it. Because it’s not as simple as just “take expected costs and add 30%.” Different products have different margins. There are tons of other factors I’m sure they consider like whether there are any competitors, hype the product has, and how long they expect the product to be popular.

7 points by iamwil 4y ago

Is it based on the variable cost of electricity? Or the willingness to pay of specific target segments they're going after? Or something else?

joshxyz 4y ago

imo it is the amount they can get away with, especially with their first mover advantage back then. sometimes it costs more to move to another vendor than to just stick with their high prices.

temp_aws_12345 4y ago
And sometimes, all the vendors' fixed costs are close enough that those with the highest usage can spread them most-thinly among their customers.
bko 4y ago
That's not a helpful answer. Imagine you were tasked to price a product and your report read "charge as much as you can get away with". > sometimes it costs more to move to another vendor than to just stick with their high prices. You're suggesting that they look at competitors, calculate switching cost, amortize that over some period and charge that amount. So if a competitor costs $100, and switching to them would cost $120 and say you amortize that over 1 year, then you would charge $110 per month (competitor + $10 mark up per month). Is this how you think they do pricing?
- joshxyz 4y ago
  > Imagine you were tasked to price a product and your report read "charge as much as you can get away with". If i'm one of the shareholders i'd want to hear something that rhymes with that. They're not a small team startup chasing validation and growth, they're out to onboard businesses for years of lock-in where the selling point is not just the price but the reputation, reliability, and synergy of this product you're looking for along with their other existing and future upcoming products. > Is this how you think they do pricing? Yes and no. The way I see aws is the whole is greater than the sum of the parts. AWS is sold as an entire solution, not individual products. Lambda for me is priced as Lambda + other AWS products + their developer community. For me it's a mix of quantitative and qualitative factors. In the end i may be wrong and overgeneralizing things, maybe someone from aws can enlighten us? haha.

temp_aws_12345 4y ago

The same way you price any other service: aggregate the costs of your dependencies, forecasting for eventual customer usage over 5 years, and charge for an expected 30% profit margin.

colinmhayes 4y ago

Amazon employs teams of economists. So I’d say the answer is by telling teams of economists they’ve got a new product and want to figure out how to price it. Because it’s not as simple as just “take expected costs and add 30%.” Different products have different margins. There are tons of other factors I’m sure they consider like whether there are any competitors, hype the product has, and how long they expect the product to be popular.