8 ms·

Premium Pricing Just Doesn't Last

36 points by deitcher 12y ago

sly010 12y ago
Upvoted, not because I agree, but because I would like to see discussion on this. I just bought 2 Mobius Action cams for $70 each and they are awesome. On the other hand someone doing any sports worth recording probably won't even think about buying anything else but the best accessories.
bitslayer 12y ago
But where does Apple figure into that argument? I would say that their premium pricing was and still is worth the difference.
- IgorPartola 12y ago
  Arguably Apple is still only serving the high end of the market. They are in a unique position where the consumer does not do the math on the true cost of the iPhone. I also don't see a whole lot of college kids with rMBP's. Besides, who is to say that they are not going to run out of their premium price runway?
  - coob 12y ago
    Probably depends which college you go to, but Macs are pretty popular on a lot of campuses: http://askmeboy.com/wp-content/uploads/2014/08/college-classroom-laptops1.jpg http://askmeboy.com/wp-content/uploads/2014/08/college-class...
    - barrkel 12y ago
      rMBP vs MBP vs MBA?
    - jfoutz 12y ago
      As far as the U.S. goes, around 1/3 don't go to college, and 1/3 go to community college. I doubt many of those kids are going for the MBP. I can't tell if you're using this as evidence for or against apple being a premium brand.
  - realityking 12y ago
    I haven't seen a Retina MacBook Pro, but you can walk into any bigger lecture hall and you'll see plenty of MacBook Airs. (My observation is in Germany)
- Aldo_MX 12y ago
  I would say that their competitors have failed to provide a better alternative. What's the point of buying an Android phone (from the average Joe perspective) if the OS is preloaded with bloat and the experience is a sluggish phone? A power user can root, install a custom ROM, etc. But can your average Joe? Or wait... what if not even a power user can install a custom ROM because the poor wording behind a feature of your phone makes it look like your warranty is void? (fig [1]. Knox Warranty Void) [1] http://i41.tinypic.com/31338kh.jpg http://i41.tinypic.com/31338kh.jpg
  - bhouston 12y ago
    The Nexus 4 and even more so the Nexus 5 are really nice devices. I switched from iOS to Andriod and liked the switch. My wife did the switch too and liked it.
    - deitcher 12y ago
      I think the Motorola and Xiaomi effects are more severe. It is one thing to compare a $500-600 Samsung S5/S6 vs $600-800 iPhone 6/+. It is a whole other to compare a $150-200 Moto E/G vs $600-800 iPhone.
    - Aldo_MX 12y ago
      My intention is not to initiate a debate about which Mobile OS is better, but whether the included bloatware (which you are unable to remove and it's a common practice in Android phones) helps to worsen your experience. Many mid/lower end phones feel completely unusable without a custom ROM.
      - deleted 12y ago
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      - GVIrish 12y ago
        There's bloatware out there but for the flagship Android phones typically it's not so bad that it makes the phone unusable for the average user. iOS does not enjoy as big of an advantage in UI/UX as it used to, which is phones like the Nexus 5/6, HTC One, and S5 have decent market share. Then when you get into cloud services (Gmail, Maps, Google Now, etc.) Android has a clear advantage. So depending on what parts of the smartphone experience a user prioritizes, a logical argument can be made for either platform.
- TheOtherHobbes 12y ago
  Lock-in. If you go Android you lose all your apps and stored data. Apple are in the business of providing services that happen to use Apple hardware. They also generate some of the world's best marketing and industrial design, and understand that a brand is not a technical spec. Samsung and Team Android have never understood this in the same way. So you have to compare like for like. A GoPro is a closed unit. It has no ecosystem to speak of. An iPhone is a gateway to the Apple ecosystem. It's really a service and marketing experience, some parts of which you can hold in your hand. Now, you can debate if the Apple experience is as good as it claims to be. (I don't believe it is.) But still - IMO that's why Apple has a planet-sized market cap, and Team Android are perpetually playing catch up.
  - Swizec 12y ago
    This. So very much this. When you buy an Apple, you're in for a treat. Everything from unpacking to when you eventually need service is awesome. For instance, just today they spent 5 minutes cleaning lint out of my iPhone's charging socket. I was extremely delighted because I had assumed the phone has fallen down so much the socket got detached from the motherboard and wasn't charging well. Compare that to when I bought a Samsung Galaxy thing for my mum. It was just 100 euro cheaper than an equivalent iPad, but as soon as you opened it, you felt like you overpaid. Nothing specific you could mention, but it just felt like somebody hired the cheapest possible intern to decide how packaging should work. When I pay 600 euro for a piece of tech, I don't want to feel like I've been duped and would be better off buying a suspicious tablet from a street vendor. And when that thing needed repairs ... well, you took it in, and they were like "Meh, this is user error. Go figure it out" sigh
    - deleted 12y ago
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      - vinceguidry 12y ago
        The Nexus is nice, but it fails hard at the primary thing I use it for, streaming music using Bluetooth. Takes forever to start playing after I start the car, cuts out when resources are low, stutters. Really annoying. I'm almost to the point where I'm considering going back to iPhone. I've almost got the Android bug out of my system. For awhile I thought I might start developing personal apps, and I think I'd rather target Android than iPhone, but I think I'm over that too.
noelwelsh 12y ago
Tech changes faster than almost any other industry, which is great for premium brands like Apple as you can keep redefining the minimum baseline performance. Remember computers in the hey-day of the PC? Every two years brought a huge tangible improvement. Programs made for new computers just wouldn't run on old PCs, or if they did would be unusably slow. That ended sometime around the release of the Core 2, except for niche users (gamers, developers, etc.) It's the same thing for phones right now. A phone that is more than a few years old just feels like a piece of crap to use; it's slow, the screen is poor, and it doesn't support new features. Good times for manufacturers! (Though we are very rapidly getting to the end of this cycle, IMHO). Same thing applies to AWS, brought up as an example in the post. The base price is not really the issue -- AWS prices fall slower than Moore's law and it is still more expensive that bare metal. It's the new toys you get every year that make AWS attractive. AWS keeps providing more and more pieces of your infrastructure at attractive price points with less admin overhead. At some point they'll have reimplemented everything the modern company needs and then they too will be subject to more serious competition.
- deitcher 12y ago
  I never considered that point. Do AWS prices fall slower than Moore's law, and do they fall slower than the prices of the underlying equipment? I have managed a goodly number of AWS implementations and considerations ("should we do it or not?"). AWS was cheaper in most cases not because of bare metal vs AWS, but because of the sheer efficiency of scale, and not having to hire staff and expertise to manage all of the infrastructure. Hmm... you just inspired a new post. Thanks, noelwelsh!
  - toomuchtodo 12y ago
    > AWS was cheaper in most cases not because of bare metal vs AWS, but because of the sheer efficiency of scale, and not having to hire staff and expertise to manage all of the infrastructure. Once you get to a certain scale, you're hiring admins either way. The only question is whether you're hiring AWS admins or you're hiring bare metal sys|network|linux admins.
krschultz 12y ago
I believe engineers over-rate the cost/feature-consciousness of consumers and under-rate brand consciousness. People do want to shop on price, but they want a discount on the brand they know. That's why they'll buy a laptop for $20 less on Amazon than at Best Buy, but they probably won't buy a non-name brand laptop. I don't even think his examples are compelling. There were action cameras before GoPro, there are alternative cameras on the market now. Some have different form factors, some are cheaper, some are better. At the end of the day, GoPro is plastered all over every action sport competition and their daily video email gets millions of views. That's harder to replace than the actual tech - especially when the product itself needs to be redesigned every 18 months. Also note that "come in under the incumbent's price" is a bad startup strategy. The incumbent has economy of scale & bulk pricing advantages the startup can't match. The only way to do it is to build a different product that is so much cheaper to make that you can squeeze the same margins in a lower price tier. If that's possible, then it means GoPro has shot over what the market needs. In that particular case, I don't think it is true today. It might be true someday. In AWS's case, I actually think the competitive play is on the higher end. Everyone is trying to undercut AWS's price (generally by giving it away for free). I feel that the last 20 years has shown trying to get under Amazon or Walmat's price is a bad strategy. How can anyone get under their price at smaller scale without taking a "strategic" loss or having 0 margins? I'd rather compete on the high side by offering better docs / UI & UX / support and not be competing completely on the price of hardware.
- jedrek 12y ago
  > I believe engineers over-rate the cost/feature-consciousness of consumers and under-rate brand consciousness. I agree. They also tend to discount the value of an ecosystem around various high profile electronics goods. Apple and gopro are both amazing examples of that, there are hundreds of accessories for every iPhone and every gopro camera. Then there's the value of a known workflow, of positive word of mouth and, finally, a feeling of community. People would much rather ask a friend who owns a product about some issue than hit the Internet to find a solution. GoPro and Apple both also tend to bring killer features to market first. Be it TouchID or 4K 30fps for $600.
  - 12y ago
slgeorge 12y ago
As it says, "If there is one truism in the technology market, it is that premium pricing just doesn’t last." It definitely has one aspect of a Truism [1] - no-one really looks at the underlying assumptions. The biggest assumption in much of the tech industry is that you're aiming for mass market - the consumer tech brands like Facebook particularly have that assumption - other people follow sometimes without understanding the implications. If that's your focus, and you have limited differentiation your pricing has to reflect that over time replacements will come in and undercut you. That's the GoPro example he's using, where the parameters of his comparison are the "components of the hardware camera". What he's missed is that Apple and plenty of others (think every car brand) have shown that brand and real differentiation can prevent new entrants from being able to provide an equivalent that is good enough. The point is that the customer has to believe that product A and product B are comparable - and that the parameters may not just be the bits or atoms. For example GoPro's brand speaks to "action sports" and being active, they have software and communities that people want to be in. It's perceived as something that 'active people' use and has brand cachet. So the 'replacement' has to capture all that value, not just the hardware costs. Frankly, they've absolutely eaten the lunch of much bigger hardware companies who have far more economies of scale. The AWS example is even less clear cut. Since Amazon is a retailer we can assume their strategy is mass take-up, and we know that their general pricing strategy is for people to "believe" they are cheapest. But, we also know that Amazon practises differentiation, we've seen that with Kindle and Amazon Prime. If you look at the AWS services you can see they are aiming to provide a highly differentiated service aside from "simple" IaaS. We also know that as a retailer Amazon uses extremely sophisticated pricing strategies. At this point I would think that Amazon is continuing to drive down the cost of basic IaaS due to economies of scale which makes it very difficult for competitors to get started, while keeping the cost up of 'value-added' services which provide differentiated service and make the whole service a lot more sticky. They will probably do Amazon Prime like things with their whole portfolio over time. There are plenty of businesses where the strategy of being cheapest is right, but it's not the only approach. [1] http://en.wikipedia.org/wiki/Truism http://en.wikipedia.org/wiki/Truism
vwelling 12y ago
As long as it's just a better product, there will always be those willing to pay a little more. Even if the product is part for part the same as a competitor's, better customer service might still warrant a premium price. Not having to go through the hassle of dealing with a horrible RMA process for example, is worth the extra money to me. The nice thing about customer service, is that its monetary value is very hard to quantify, making objective comparison difficult. So there's always room to charge extra.
patwolf 12y ago
I would say the argument doesn't have anything to do with premium pricing and everything to do with lock-in. In the case of AWS, prices are cheap. But once you've built your software to use all of the proprietary AWS services, it's not economically feasible to switch to another cloud provider. You're locked in. This works similarly for Apple. You do pay more for the product, but it's not trivial to switch to a cheaper Android device after plugging into the Apple ecosystem. GoPro clearly can't continue to win technologically (what comes after 4k?), and they don't have an ecosystem to lock you in.
- exelius 12y ago
  > In the case of AWS, prices are cheap. But once you've built your software to use all of the proprietary AWS services, it's not economically feasible to switch to another cloud provider. You're locked in. I would actually say that this is not a huge issue with AWS. Amazon tends to either use open protocols, or the industry adopts Amazon's open protocols (see S3). It's also their philosophy as a company that they want to win by helping their customers win. The folks at Amazon drink the kool-aid: from the top down, they legitimately believe that this attitude is their core competitive advantage. Bezos has been known to fire people for making moves that were profitable, but customer-hostile. He sees it as undermining the long-term brand value of Amazon in the pursuit of short-term profit. Amazon's whole strategy here is really interesting: in markets where they can achieve economies of scale, they are totally willing to help lower their competitors' cost bases. That's because their competitors are now contributing to the scale that allows Amazon to succeed, and also helping Amazon to lower their own cost base. The ultimate idea is that if you always give the customer what they want -- even if that means helping your competitors -- you will be at the forefront of any industry you want.
  - jimmrf 12y ago
    Great points, but I would (and have - news.ycombinator.com/item?id=911252) argue that prices are not cheap, at least relative to costs. They are spending to develop some great services over top, but the perception that they are charging anywhere close to their marginal costs is purely successful PR. Also, subtle point but I would add that any firing would be for moves perceived as customer-hostile. Just looking into the EC2 Reserved Instances and the supposed secondary marketplace I see some less-than-consumer-friendly practices that seem to be just fine so long as nobody takes note.
amelius 12y ago
The same holds for many things. For instance, software licenses. If your license is restrictive, then no matter how good your product, eventually your competitors will catch up with a "good enough" product that has a less restrictive license. Therefore, open source licenses will eventually converge to permissive, like MIT or BSD style licenses.
- deitcher 12y ago
  @amelius, I haven't though of software from that perspective. App servers, Web servers, databases and a lot of middleware have gone down that path. Have you written it up? I would like to see a write-up on that.
  - amelius 12y ago
    No I haven't, but feel free to do so :)
    - deitcher 12y ago
      I wrote one. http://blog.atomicinc.com/2015/03/11/licenses-as-premium-pricing-2387/ http://blog.atomicinc.com/2015/03/11/licenses-as-premium-pri... Feel free to post to HN if you like (or if you dislike and then comment :-) )
PaulHoule 12y ago
There are some counterexamples. Smart phones are still driven by bling and snobbery so if you have a $900 phone you get $900 of snob value, an $1800 phone gets $1800 of snob values, etc. Same for "luxury" cars -- if you have a Cadillac it had better be your second or third car because you'll still need a ricer to get to work for the days your car is in the shop. There is a vibrant market for cheap phones and a vibrant one for expensive phones but nothing in between because the main value expensive phones has is as a positional good. Similarly, there is a lot of hating on tablets because tablets aren't connected with the cell phone plan boondoggle economy, but rather they are driven by economics and people just don't want to pay hundreds and hundreds of dollars. It isn't such an exciting biz to be in precisely because it is competitive.
SmallBets 12y ago
You can add Beats to the list - a low barrier industry ripe to undercut a premium priced brand, but it has not done so. There is an emotional factor, where customers associate their own identity and how they see themselves with the brands. That is what allows premium pricing to last.
bluedino 12y ago
Many premium brands have been around for years. Rolex, Coach, etc. Sure, trends change but there are always going to be people willing to pay extra for the status of having a premium brand.
GVIrish 12y ago
Eh I think this analysis is pretty shallow and misses some key points. A. Is the product/service something approximating a commodity? If the answer is yes, then certainly premium pricing is not sustainable. In the case of cloud services it's not quite a commodity, but ultimately if the [cloud] service meets the customers technical and service/support requirements the main differentiator is going to be price. B. How high are the switching costs? Once a customer has invested in a certain product or product ecosystem, how expensive is it for them to switch? With Apple vs Android the costs are not necessarily high, but it takes a decent amount of work to transfer media and adjust to new ways of doing things. For some customers that may not be worth it. C. How big of a factor is branding? See Apple, GoPro, Amazon, BMW, Mercedes, Coach, etc. With a physical product the brand is often a such large component of the buyer's decision that even if there is a cheaper similar product it[the cheaper item] doesn't even get consideration. A Hyundai Genesis has many of the same luxury features as a BMW 5 series but is much cheaper. But, probably 90% of the time, the person considering a 5 series is never going to even set foot in the Hyundai dealership. In the IT context, the choice might be between a well-known software vendor and a much-cheaper alternative. But enterprise customers typically are going to go with the name-brand option, even if they don't need all the bells and whistles it provides. Many shops don't need something like Salesforce but they pay the premium just the same. D. How price sensitive is the target customer? Depending on the customer and the market, sometimes the customer doesn't really care if there is a cheaper alternative. They're happy with what they're doing and the price difference might be a rounding error to them so they just stick with what they've always been doing. So yes, premium pricing can't last for some scenarios but that's hardly a rule.
Htsthbjig 12y ago
I disagree. GoPro is not Premium. For me GoPro is cheap for what it does. I had bought Sony and Canon DSLR in the past. THIS IS PREMIUM. Several thousand dollars each. My Gopro does things NO OTHER CAMERA in the thousands category could do. In fact , the people at Canon, Nikon, and Sony disable features on the hundred dollar category so it does not compete with the thousands. E.g You want instantaneous electric controlled shutter on your NEX X Sony camera? Sorry, you need to pay thousands of dollars. You want uncompressed HDMI video output? Same answer. They have an HDMI port!!, they simply disable it!! They provide you with crappy analog output. With my GoPro, I can do it all way cheaper, smaller, lighter, great video, and rock solid. Connecting it to a HDMI grabber provides amazing quality. You could stabilize it with cheap motors as it is so lightweight. Control via the Web?,mobile phone?with my own apps? no problem with the GoPro. I love this camera so much, and hate the others. If Gopro decided to make a DLSR, I would buy it. The other companies could burn in Hell, they had abused so much.
- saiya-jin 12y ago
  good for you to be such a fan, for one I am not, although owning their devices. Overpriced products, some botched updates (yes, most companies screw up more than once, but that's not an excuse), not really caring that much for customers (cases oficially usable under water were only included in Hero 3, which is roughly +-5th generation, till then they were just waterproof & completely out of focus). Image quality is a joke compared to recent cell phones. Price wise their top model is ridiculously expensive, without delivering anything special (ie better picture quality). Battery life is bad, and no sign of improvement (apart from PR talk every single release). THis is exactly the type of device needing long battery life, since it's often in environments where switching battery is impossible/very hard, and often being exposed to cold. They are chasing 4K video and ridiculous frame rates, but picture quality was never paramount (problem is, competition is worse). This is niche interest, most people don't need nor want 1080p / 120 fps. For nice slow-mo movies, you need anyway much higher framerate (at least 240 fps). They have good marketing, no doubts. As for products, not so much. I repeatedly end up with sundown images/videos being one ugly orange-oversaturated mess, that cannot be fully corrected in post processing (and why the hell should I? Even my 4 year old phone can cope with it automatically). I was recently considering whether to go for top of the line GoPro or buy small but good camera. Usages - underwater, climbing & mountaineering side camera. GoPro lost on all but small form factor, and I bought Canon S110 with underwater housing. It costed me same, picture quality is completely differetn level, and form factor is sometimes actually better with Canon. If you look around, there is quite a lot of people disappointed in them. But as I said, they have good marketing.

36 points by deitcher 12y ago

Upvoted, not because I agree, but because I would like to see discussion on this. I just bought 2 Mobius Action cams for $70 each and they are awesome. On the other hand someone doing any sports worth recording probably won't even think about buying anything else but the best accessories.

bitslayer 12y ago

But where does Apple figure into that argument? I would say that their premium pricing was and still is worth the difference.

IgorPartola 12y ago
Arguably Apple is still only serving the high end of the market. They are in a unique position where the consumer does not do the math on the true cost of the iPhone. I also don't see a whole lot of college kids with rMBP's. Besides, who is to say that they are not going to run out of their premium price runway?
- coob 12y ago
  Probably depends which college you go to, but Macs are pretty popular on a lot of campuses: http://askmeboy.com/wp-content/uploads/2014/08/college-classroom-laptops1.jpg http://askmeboy.com/wp-content/uploads/2014/08/college-class...
  - barrkel 12y ago
    rMBP vs MBP vs MBA?
  - jfoutz 12y ago
    As far as the U.S. goes, around 1/3 don't go to college, and 1/3 go to community college. I doubt many of those kids are going for the MBP. I can't tell if you're using this as evidence for or against apple being a premium brand.
- realityking 12y ago
  I haven't seen a Retina MacBook Pro, but you can walk into any bigger lecture hall and you'll see plenty of MacBook Airs. (My observation is in Germany)
Aldo_MX 12y ago
I would say that their competitors have failed to provide a better alternative. What's the point of buying an Android phone (from the average Joe perspective) if the OS is preloaded with bloat and the experience is a sluggish phone? A power user can root, install a custom ROM, etc. But can your average Joe? Or wait... what if not even a power user can install a custom ROM because the poor wording behind a feature of your phone makes it look like your warranty is void? (fig [1]. Knox Warranty Void) [1] http://i41.tinypic.com/31338kh.jpg http://i41.tinypic.com/31338kh.jpg
- bhouston 12y ago
  The Nexus 4 and even more so the Nexus 5 are really nice devices. I switched from iOS to Andriod and liked the switch. My wife did the switch too and liked it.
  - deitcher 12y ago
    I think the Motorola and Xiaomi effects are more severe. It is one thing to compare a $500-600 Samsung S5/S6 vs $600-800 iPhone 6/+. It is a whole other to compare a $150-200 Moto E/G vs $600-800 iPhone.
  - Aldo_MX 12y ago
    My intention is not to initiate a debate about which Mobile OS is better, but whether the included bloatware (which you are unable to remove and it's a common practice in Android phones) helps to worsen your experience. Many mid/lower end phones feel completely unusable without a custom ROM.
    - deleted 12y ago
      [deleted]
    - GVIrish 12y ago
      There's bloatware out there but for the flagship Android phones typically it's not so bad that it makes the phone unusable for the average user. iOS does not enjoy as big of an advantage in UI/UX as it used to, which is phones like the Nexus 5/6, HTC One, and S5 have decent market share. Then when you get into cloud services (Gmail, Maps, Google Now, etc.) Android has a clear advantage. So depending on what parts of the smartphone experience a user prioritizes, a logical argument can be made for either platform.
TheOtherHobbes 12y ago
Lock-in. If you go Android you lose all your apps and stored data. Apple are in the business of providing services that happen to use Apple hardware. They also generate some of the world's best marketing and industrial design, and understand that a brand is not a technical spec. Samsung and Team Android have never understood this in the same way. So you have to compare like for like. A GoPro is a closed unit. It has no ecosystem to speak of. An iPhone is a gateway to the Apple ecosystem. It's really a service and marketing experience, some parts of which you can hold in your hand. Now, you can debate if the Apple experience is as good as it claims to be. (I don't believe it is.) But still - IMO that's why Apple has a planet-sized market cap, and Team Android are perpetually playing catch up.
- Swizec 12y ago
  This. So very much this. When you buy an Apple, you're in for a treat. Everything from unpacking to when you eventually need service is awesome. For instance, just today they spent 5 minutes cleaning lint out of my iPhone's charging socket. I was extremely delighted because I had assumed the phone has fallen down so much the socket got detached from the motherboard and wasn't charging well. Compare that to when I bought a Samsung Galaxy thing for my mum. It was just 100 euro cheaper than an equivalent iPad, but as soon as you opened it, you felt like you overpaid. Nothing specific you could mention, but it just felt like somebody hired the cheapest possible intern to decide how packaging should work. When I pay 600 euro for a piece of tech, I don't want to feel like I've been duped and would be better off buying a suspicious tablet from a street vendor. And when that thing needed repairs ... well, you took it in, and they were like "Meh, this is user error. Go figure it out" sigh
  - deleted 12y ago
    [deleted]
    - vinceguidry 12y ago
      The Nexus is nice, but it fails hard at the primary thing I use it for, streaming music using Bluetooth. Takes forever to start playing after I start the car, cuts out when resources are low, stutters. Really annoying. I'm almost to the point where I'm considering going back to iPhone. I've almost got the Android bug out of my system. For awhile I thought I might start developing personal apps, and I think I'd rather target Android than iPhone, but I think I'm over that too.

noelwelsh 12y ago

Tech changes faster than almost any other industry, which is great for premium brands like Apple as you can keep redefining the minimum baseline performance. Remember computers in the hey-day of the PC? Every two years brought a huge tangible improvement. Programs made for new computers just wouldn't run on old PCs, or if they did would be unusably slow. That ended sometime around the release of the Core 2, except for niche users (gamers, developers, etc.) It's the same thing for phones right now. A phone that is more than a few years old just feels like a piece of crap to use; it's slow, the screen is poor, and it doesn't support new features. Good times for manufacturers! (Though we are very rapidly getting to the end of this cycle, IMHO). Same thing applies to AWS, brought up as an example in the post. The base price is not really the issue -- AWS prices fall slower than Moore's law and it is still more expensive that bare metal. It's the new toys you get every year that make AWS attractive. AWS keeps providing more and more pieces of your infrastructure at attractive price points with less admin overhead. At some point they'll have reimplemented everything the modern company needs and then they too will be subject to more serious competition.

deitcher 12y ago
I never considered that point. Do AWS prices fall slower than Moore's law, and do they fall slower than the prices of the underlying equipment? I have managed a goodly number of AWS implementations and considerations ("should we do it or not?"). AWS was cheaper in most cases not because of bare metal vs AWS, but because of the sheer efficiency of scale, and not having to hire staff and expertise to manage all of the infrastructure. Hmm... you just inspired a new post. Thanks, noelwelsh!
- toomuchtodo 12y ago
  > AWS was cheaper in most cases not because of bare metal vs AWS, but because of the sheer efficiency of scale, and not having to hire staff and expertise to manage all of the infrastructure. Once you get to a certain scale, you're hiring admins either way. The only question is whether you're hiring AWS admins or you're hiring bare metal sys|network|linux admins.

krschultz 12y ago

I believe engineers over-rate the cost/feature-consciousness of consumers and under-rate brand consciousness. People do want to shop on price, but they want a discount on the brand they know. That's why they'll buy a laptop for $20 less on Amazon than at Best Buy, but they probably won't buy a non-name brand laptop. I don't even think his examples are compelling. There were action cameras before GoPro, there are alternative cameras on the market now. Some have different form factors, some are cheaper, some are better. At the end of the day, GoPro is plastered all over every action sport competition and their daily video email gets millions of views. That's harder to replace than the actual tech - especially when the product itself needs to be redesigned every 18 months. Also note that "come in under the incumbent's price" is a bad startup strategy. The incumbent has economy of scale & bulk pricing advantages the startup can't match. The only way to do it is to build a different product that is so much cheaper to make that you can squeeze the same margins in a lower price tier. If that's possible, then it means GoPro has shot over what the market needs. In that particular case, I don't think it is true today. It might be true someday. In AWS's case, I actually think the competitive play is on the higher end. Everyone is trying to undercut AWS's price (generally by giving it away for free). I feel that the last 20 years has shown trying to get under Amazon or Walmat's price is a bad strategy. How can anyone get under their price at smaller scale without taking a "strategic" loss or having 0 margins? I'd rather compete on the high side by offering better docs / UI & UX / support and not be competing completely on the price of hardware.

jedrek 12y ago
> I believe engineers over-rate the cost/feature-consciousness of consumers and under-rate brand consciousness. I agree. They also tend to discount the value of an ecosystem around various high profile electronics goods. Apple and gopro are both amazing examples of that, there are hundreds of accessories for every iPhone and every gopro camera. Then there's the value of a known workflow, of positive word of mouth and, finally, a feeling of community. People would much rather ask a friend who owns a product about some issue than hit the Internet to find a solution. GoPro and Apple both also tend to bring killer features to market first. Be it TouchID or 4K 30fps for $600.
- 12y ago

slgeorge 12y ago

As it says, "If there is one truism in the technology market, it is that premium pricing just doesn’t last." It definitely has one aspect of a Truism [1] - no-one really looks at the underlying assumptions. The biggest assumption in much of the tech industry is that you're aiming for mass market - the consumer tech brands like Facebook particularly have that assumption - other people follow sometimes without understanding the implications. If that's your focus, and you have limited differentiation your pricing has to reflect that over time replacements will come in and undercut you. That's the GoPro example he's using, where the parameters of his comparison are the "components of the hardware camera". What he's missed is that Apple and plenty of others (think every car brand) have shown that brand and real differentiation can prevent new entrants from being able to provide an equivalent that is good enough. The point is that the customer has to believe that product A and product B are comparable - and that the parameters may not just be the bits or atoms. For example GoPro's brand speaks to "action sports" and being active, they have software and communities that people want to be in. It's perceived as something that 'active people' use and has brand cachet. So the 'replacement' has to capture all that value, not just the hardware costs. Frankly, they've absolutely eaten the lunch of much bigger hardware companies who have far more economies of scale. The AWS example is even less clear cut. Since Amazon is a retailer we can assume their strategy is mass take-up, and we know that their general pricing strategy is for people to "believe" they are cheapest. But, we also know that Amazon practises differentiation, we've seen that with Kindle and Amazon Prime. If you look at the AWS services you can see they are aiming to provide a highly differentiated service aside from "simple" IaaS. We also know that as a retailer Amazon uses extremely sophisticated pricing strategies. At this point I would think that Amazon is continuing to drive down the cost of basic IaaS due to economies of scale which makes it very difficult for competitors to get started, while keeping the cost up of 'value-added' services which provide differentiated service and make the whole service a lot more sticky. They will probably do Amazon Prime like things with their whole portfolio over time. There are plenty of businesses where the strategy of being cheapest is right, but it's not the only approach. [1] http://en.wikipedia.org/wiki/Truism http://en.wikipedia.org/wiki/Truism

vwelling 12y ago

As long as it's just a better product, there will always be those willing to pay a little more. Even if the product is part for part the same as a competitor's, better customer service might still warrant a premium price. Not having to go through the hassle of dealing with a horrible RMA process for example, is worth the extra money to me. The nice thing about customer service, is that its monetary value is very hard to quantify, making objective comparison difficult. So there's always room to charge extra.

patwolf 12y ago

I would say the argument doesn't have anything to do with premium pricing and everything to do with lock-in. In the case of AWS, prices are cheap. But once you've built your software to use all of the proprietary AWS services, it's not economically feasible to switch to another cloud provider. You're locked in. This works similarly for Apple. You do pay more for the product, but it's not trivial to switch to a cheaper Android device after plugging into the Apple ecosystem. GoPro clearly can't continue to win technologically (what comes after 4k?), and they don't have an ecosystem to lock you in.

exelius 12y ago
> In the case of AWS, prices are cheap. But once you've built your software to use all of the proprietary AWS services, it's not economically feasible to switch to another cloud provider. You're locked in. I would actually say that this is not a huge issue with AWS. Amazon tends to either use open protocols, or the industry adopts Amazon's open protocols (see S3). It's also their philosophy as a company that they want to win by helping their customers win. The folks at Amazon drink the kool-aid: from the top down, they legitimately believe that this attitude is their core competitive advantage. Bezos has been known to fire people for making moves that were profitable, but customer-hostile. He sees it as undermining the long-term brand value of Amazon in the pursuit of short-term profit. Amazon's whole strategy here is really interesting: in markets where they can achieve economies of scale, they are totally willing to help lower their competitors' cost bases. That's because their competitors are now contributing to the scale that allows Amazon to succeed, and also helping Amazon to lower their own cost base. The ultimate idea is that if you always give the customer what they want -- even if that means helping your competitors -- you will be at the forefront of any industry you want.
- jimmrf 12y ago
  Great points, but I would (and have - news.ycombinator.com/item?id=911252) argue that prices are not cheap, at least relative to costs. They are spending to develop some great services over top, but the perception that they are charging anywhere close to their marginal costs is purely successful PR. Also, subtle point but I would add that any firing would be for moves perceived as customer-hostile. Just looking into the EC2 Reserved Instances and the supposed secondary marketplace I see some less-than-consumer-friendly practices that seem to be just fine so long as nobody takes note.

amelius 12y ago

The same holds for many things. For instance, software licenses. If your license is restrictive, then no matter how good your product, eventually your competitors will catch up with a "good enough" product that has a less restrictive license. Therefore, open source licenses will eventually converge to permissive, like MIT or BSD style licenses.

deitcher 12y ago
@amelius, I haven't though of software from that perspective. App servers, Web servers, databases and a lot of middleware have gone down that path. Have you written it up? I would like to see a write-up on that.
- amelius 12y ago
  No I haven't, but feel free to do so :)
  - deitcher 12y ago
    I wrote one. http://blog.atomicinc.com/2015/03/11/licenses-as-premium-pricing-2387/ http://blog.atomicinc.com/2015/03/11/licenses-as-premium-pri... Feel free to post to HN if you like (or if you dislike and then comment :-) )

PaulHoule 12y ago

There are some counterexamples. Smart phones are still driven by bling and snobbery so if you have a $900 phone you get $900 of snob value, an $1800 phone gets $1800 of snob values, etc. Same for "luxury" cars -- if you have a Cadillac it had better be your second or third car because you'll still need a ricer to get to work for the days your car is in the shop. There is a vibrant market for cheap phones and a vibrant one for expensive phones but nothing in between because the main value expensive phones has is as a positional good. Similarly, there is a lot of hating on tablets because tablets aren't connected with the cell phone plan boondoggle economy, but rather they are driven by economics and people just don't want to pay hundreds and hundreds of dollars. It isn't such an exciting biz to be in precisely because it is competitive.

SmallBets 12y ago

You can add Beats to the list - a low barrier industry ripe to undercut a premium priced brand, but it has not done so. There is an emotional factor, where customers associate their own identity and how they see themselves with the brands. That is what allows premium pricing to last.

bluedino 12y ago

Many premium brands have been around for years. Rolex, Coach, etc. Sure, trends change but there are always going to be people willing to pay extra for the status of having a premium brand.

GVIrish 12y ago

Eh I think this analysis is pretty shallow and misses some key points. A. Is the product/service something approximating a commodity? If the answer is yes, then certainly premium pricing is not sustainable. In the case of cloud services it's not quite a commodity, but ultimately if the [cloud] service meets the customers technical and service/support requirements the main differentiator is going to be price. B. How high are the switching costs? Once a customer has invested in a certain product or product ecosystem, how expensive is it for them to switch? With Apple vs Android the costs are not necessarily high, but it takes a decent amount of work to transfer media and adjust to new ways of doing things. For some customers that may not be worth it. C. How big of a factor is branding? See Apple, GoPro, Amazon, BMW, Mercedes, Coach, etc. With a physical product the brand is often a such large component of the buyer's decision that even if there is a cheaper similar product it[the cheaper item] doesn't even get consideration. A Hyundai Genesis has many of the same luxury features as a BMW 5 series but is much cheaper. But, probably 90% of the time, the person considering a 5 series is never going to even set foot in the Hyundai dealership. In the IT context, the choice might be between a well-known software vendor and a much-cheaper alternative. But enterprise customers typically are going to go with the name-brand option, even if they don't need all the bells and whistles it provides. Many shops don't need something like Salesforce but they pay the premium just the same. D. How price sensitive is the target customer? Depending on the customer and the market, sometimes the customer doesn't really care if there is a cheaper alternative. They're happy with what they're doing and the price difference might be a rounding error to them so they just stick with what they've always been doing. So yes, premium pricing can't last for some scenarios but that's hardly a rule.

Htsthbjig 12y ago

I disagree. GoPro is not Premium. For me GoPro is cheap for what it does. I had bought Sony and Canon DSLR in the past. THIS IS PREMIUM. Several thousand dollars each. My Gopro does things NO OTHER CAMERA in the thousands category could do. In fact , the people at Canon, Nikon, and Sony disable features on the hundred dollar category so it does not compete with the thousands. E.g You want instantaneous electric controlled shutter on your NEX X Sony camera? Sorry, you need to pay thousands of dollars. You want uncompressed HDMI video output? Same answer. They have an HDMI port!!, they simply disable it!! They provide you with crappy analog output. With my GoPro, I can do it all way cheaper, smaller, lighter, great video, and rock solid. Connecting it to a HDMI grabber provides amazing quality. You could stabilize it with cheap motors as it is so lightweight. Control via the Web?,mobile phone?with my own apps? no problem with the GoPro. I love this camera so much, and hate the others. If Gopro decided to make a DLSR, I would buy it. The other companies could burn in Hell, they had abused so much.

saiya-jin 12y ago
good for you to be such a fan, for one I am not, although owning their devices. Overpriced products, some botched updates (yes, most companies screw up more than once, but that's not an excuse), not really caring that much for customers (cases oficially usable under water were only included in Hero 3, which is roughly +-5th generation, till then they were just waterproof & completely out of focus). Image quality is a joke compared to recent cell phones. Price wise their top model is ridiculously expensive, without delivering anything special (ie better picture quality). Battery life is bad, and no sign of improvement (apart from PR talk every single release). THis is exactly the type of device needing long battery life, since it's often in environments where switching battery is impossible/very hard, and often being exposed to cold. They are chasing 4K video and ridiculous frame rates, but picture quality was never paramount (problem is, competition is worse). This is niche interest, most people don't need nor want 1080p / 120 fps. For nice slow-mo movies, you need anyway much higher framerate (at least 240 fps). They have good marketing, no doubts. As for products, not so much. I repeatedly end up with sundown images/videos being one ugly orange-oversaturated mess, that cannot be fully corrected in post processing (and why the hell should I? Even my 4 year old phone can cope with it automatically). I was recently considering whether to go for top of the line GoPro or buy small but good camera. Usages - underwater, climbing & mountaineering side camera. GoPro lost on all but small form factor, and I bought Canon S110 with underwater housing. It costed me same, picture quality is completely differetn level, and form factor is sometimes actually better with Canon. If you look around, there is quite a lot of people disappointed in them. But as I said, they have good marketing.