Pricing Models
Seattle, 10 AM, a nondescript conference room
7 people seated around a rectangular table, deeply focused on a six page document in front of them. Lets call them A, B, C, D, E, F and G. A is the author of this document. Person G is seated at the end of the table, no one sitting at the other end facing TV.
10:15 AM
A: Shall we start?
C: Interesting proposal, your supporting data shows that even though this will help 20% of our customer base, this 20% only contribute 4% of our revenues.
D: Yes, I like the idea of helping our customers save, but its one thing if we take a hit to that 4% of the revenue, but your proposal impacts 100% of our customers
G: Bold idea, I like the courage to think outside the box, but a 15% drop in revenue is hard to swallow.
F( reflectively): If we go with this proposal, would the customers who negotiated enterprise terms with us be upset? Will they expect us to apply price reduction retroactively?
B: ( Bursts out laughing )
E: But, A is right though. Even Cloud_Opinion was complaining about our pricing model
G: lets not turn this into a silly discussion, that guy is not even funny, even if we ignore his immense stupidity about business. So, A, why should we do this?
E: But, I like his beer recommendations
G: Yes, he does have a fine taste in Alcohol
A: I believe our business model is prone to attack by other competitors and getting ahead of it will be beneficial to us longer term. For example, we have to do away with Reserved Instances and just charge for what customers actually use and give them discounts the longer they use the resources. This will encourage customers to run more workloads for longer with us.
F: If we implement this, our quarterly results will miss targets, and our stock will drop
E: When did we care about stock price?
B: (More loud laughs )
A: If we don’t do this, the 20% of customer base may go to our competitors
C: Our competitors are actually pretty clueless, and we should stay focused on customers not competitors
B: (More loud laughs )
D: That 20% are the least profitable segment of our business, let others take them. We can improve margins
G: I agree, we are making great strides with large enterprises. Also, our discounts to enterprises are likely the best in the industry today. A, come back with an altered proposal that doesn’t hit our revenue targets that much.
C: Shall we eat? I am starving.
D: Is the Pizza guy here?
E: No, but we had leftovers from last night’s company meeting to talk about impact of election
F: I love that we never lost our origins as a startup and being cost conscious
B: ( more laughing )
And friends, this is why I do not expect AWS pricing model to change anytime soon. Its always the really smart managers that make shrewd decisions and get disrupted.
