Follow Amazon's Example: Dare to Talk About IT Costs, Prices

 
 
By Eric Lundquist  |  Posted 2013-05-02 Email Print this article Print
 
 
 
 
 
 
 

I've sat through tens, hundreds, thousands (!) of technology keynotes, panels and presentations.  I've heard about chasms crossed, paradigms shifted and disruptive innovation enough times to make the strongest weep.

But you know what? You almost never hear CEOs or keynoters talk about what their products cost. Product prices are not a favorite keynote topic. Why is that? Could it be that the audience of technology buyers and sellers doesn't want anyone to know what they charge or what they pay?

Software pricing in particular is one of those arcane and secret processes where negotiations never see the light and final contracts hold service, support and upgrade gotchas that can challenge the wiliest spreadsheet jockey.  Software may be the only industry where you pay for a product with all its flaws and then pay again for the upgrade that is supposed to fix the flaws.

That was why it was a pleasant surprise to listen to Andy Jassy at the Amazon Web Services Summit in San Francisco.  Jassy, AWS senior vice president, spent a good chunk of his keynote discussing pricing. You can watch the stream of his keynote and skip to about 12 minutes in to hear his AWS pricing discussion.

To summarize, Jassy said that AWS is in line with Amazon's overall high-volume, low-margin business goal which for AWS means adding services while driving down prices. While Jassy said the old guard technology vendors have a philosophy of "charging as much as they can," AWS can point to 31 price reductions since 2006.

Now, keynotes are designed to promote companies, but AWS does have a strong track record of adding services and cutting prices at a rate unheard of at other tech companies. While some analysts can point to the disruptive nature of cloud computing based on the underlying technology (which oldsters will contend is really just an updated version of time-shared mainframes), the ability to know how much you are paying for in software and hardware infrastructure may indeed be a first.

Amazon is one of the current big-five technology-based economic disrupters (the others being Google, Facebook, eBay and Apple) that have a stock valuation and cash hoard that allows them to experiment, innovate and push successful and kill unsuccessful projects. Microsoft's Azure and Rackspace should concentrate on building business strategies that do not include getting into a pricing war with Amazon.

A few weeks ago, I went to a cloud computing event where several experienced IT infrastructure creators said that as a rule they used AWS for rapid development and then brought resources in-house within their own private cloud systems. They were adamant in contending that their cost justification bore out the value of private clouds.

The bigger point was that they could do an accurate price comparison because it was clear what they were paying, thanks to AWS pricing reports. The reason CIOs often report to chief financial officers is their inability to provide an accurate report of what they are spending on corporate technology infrastructure.

So, here's my advice for IT execs, take your trial programs to AWS (you have them in your company even if you don't know it) and spend some time with the AWS Trusted Advisor service. Trusted Advisor allows you to see how your AWS application is operating across the four categories of cost, security, fault tolerance and performance.

Dive into the cost function, and you will get advice on how to spend less. That is a first in the tech industry in my opinion.  Now, think about creating a similar service in your organization to delve into what you are paying for in tech.

And here's my advice for keynoters.  While you are talking about chasm leaping, etc., spend 10 minutes of your presentation explaining how you are pricing those innovations and how you are allowing your customers to see just what they are paying for.

Eric Lundquist is a technology analyst at Ziff Brothers Investments, a private investment firm. Eric Lundquist, who was editor-in-chief at eWEEK (previously PC WEEK) from 1996-2008, authors this blog for eWEEK to share his thoughts on technology, products and services. No investment advice is offered in this blog. All duties are disclaimed. Lundquist works separately for a private investment firm, which may at any time invest in companies whose products are discussed in this blog, and no disclosure of securities transactions will be made.

 
 
 
 
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