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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

by 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.
  - exelius 12y ago
    Like you, I doubt that they are charging anywhere close to marginal costs because that's simply not how you run a successful business (especially a capital investment business like AWS). Price is determined by the market, and Amazon charges a price they think the market will support - no more, no less. If you think you can put a product out there at a lower price than Amazon, you're always free to try. It was a genius customer retention strategy to continuously drop prices without customers even having to ask - it's basically the opposite of what telecom companies do and it makes Amazon's customers love them. As far as customer-hostility goes, you're right, there are some customer-hostile practices that happen just due to the nature of some of these B2B markets. But they're largely restricted to "expert" markets where you're expected to know a little bit more and prevent yourself from getting ripped off. There is an element of subtlety to this, but the idea is that you shouldn't be trying to leverage your customers' ignorance in exchange for a big pay day. I'm sure there are small instances of individual marketing managers getting away with things that are against the "Amazon code", but by and large those practices stop as soon as the product is big enough to make it on executives' radar.
    - jimmrf 12y ago
      Agreed and especially like your points around expert markets about the executives' radar. Just a to build a bit on the pricing point: Outside of perfect competition, price is not determined by the market. It is determined by executive or committee or some agent of a company subject to the market, specifically 1) observed and expected competitors' prices and 2) the company's estimate of the demand curve composed of all possible customers & workloads.
      - exelius 12y ago
        Right; I meant only that cost has no bearing on the price set by the company. The two things you mentioned (competitive landscape and demand forecasts) are both ways of measuring the market. Marginal cost only plays into the equation when the marginal cost of the product is higher than the maximum price/pricing structure the market is willing to bear over the time horizon you're considering. Amazon just has a longer time horizon than most companies.
pshc 12y ago
>what comes after 4k? Stereo, virtual reality...

by patwolf 12y ago

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.
- exelius 12y ago
  Like you, I doubt that they are charging anywhere close to marginal costs because that's simply not how you run a successful business (especially a capital investment business like AWS). Price is determined by the market, and Amazon charges a price they think the market will support - no more, no less. If you think you can put a product out there at a lower price than Amazon, you're always free to try. It was a genius customer retention strategy to continuously drop prices without customers even having to ask - it's basically the opposite of what telecom companies do and it makes Amazon's customers love them. As far as customer-hostility goes, you're right, there are some customer-hostile practices that happen just due to the nature of some of these B2B markets. But they're largely restricted to "expert" markets where you're expected to know a little bit more and prevent yourself from getting ripped off. There is an element of subtlety to this, but the idea is that you shouldn't be trying to leverage your customers' ignorance in exchange for a big pay day. I'm sure there are small instances of individual marketing managers getting away with things that are against the "Amazon code", but by and large those practices stop as soon as the product is big enough to make it on executives' radar.
  - jimmrf 12y ago
    Agreed and especially like your points around expert markets about the executives' radar. Just a to build a bit on the pricing point: Outside of perfect competition, price is not determined by the market. It is determined by executive or committee or some agent of a company subject to the market, specifically 1) observed and expected competitors' prices and 2) the company's estimate of the demand curve composed of all possible customers & workloads.
    - exelius 12y ago
      Right; I meant only that cost has no bearing on the price set by the company. The two things you mentioned (competitive landscape and demand forecasts) are both ways of measuring the market. Marginal cost only plays into the equation when the marginal cost of the product is higher than the maximum price/pricing structure the market is willing to bear over the time horizon you're considering. Amazon just has a longer time horizon than most companies.

pshc 12y ago

>what comes after 4k? Stereo, virtual reality...