Click here to close now.


Agile Computing Authors: Betty Zakheim, Deep Bhattacharjee, David Dodd, Greg O'Connor, Dana Gardner

Related Topics: Agile Computing, @CloudExpo

Agile Computing: Blog Feed Post

Cloud Pricing and Sales Models

How much should you charge for your cloud service?

Ask anyone involved in standing up a public cloud service and you'll hear the same story. The technology is relatively the easy part. The hard part is defining the business model aspects of your cloud service offering, more specifically defining sales models and pricing that works.

Often you'll hear a variety of buzz words thrown around like econmies of scale or low margin / high volume business when talking about Cloud Computing, but for the most part competing based on capital expense and volume isn't a reasonable approach. (We'll just out spend our competitors, ie. Microsoft spending billions on new data centers.)

Most revenue models break down into two basic groups, technical value (features) and cost (price / margin). As I've written before, value is about solving problems, but competitive pricing is also important.

Starting at bottom you have the freemium model, arguably one of the most useful approaches. This a model where you give away your service in hopes of monetizing at some later point or possibly selling ad space. I'd classify this as a high volume approach. Lots of users, some may pay -- maybe. The Free approach to service generates lots of users as well as lots of up front operational costs. So you'll need to consider your cost per sale ratio (CPS) closely. How much does it cost me to convert a free user into a paying customer? This converstion concept was made popular in the SEO realm where sites would calculate their ad prices based on the number of sales transactions an ad could potentially generate. Basically it was ROI based pricing. It's also the main driver behind the commerical open source movement. But today we're not talking about selling traditional software, but instead selling cloud services (SaaS, IaaS, PaaS, etc,).

Another freemium approach is the free introductory service or a loss leader where a service is sold at a low price (at cost or below cost or free) to stimulate other profitable sales. If you've ever been to a retail store, you'll recognize this sales promotion tactic. Free ballons for the kids, cheap beer for Dad etc. What's interesting from my vantage point is a number of Enomaly ECP service providers have used this approach with great success. One of the more successful created a free "Beta" period which generated hundreds of user signups. This both helped test the cloud IaaS service & platform as well as provided a large pool of interested, and more importantly targeted customers to convert. And convert they did -- with more than 70% of the free customers ending up paying for the service after the beta phase was complete. I jokingly refer to this approach as the crack dealer sales approach. Get them hooked early and quickly.

Other approaches could include deferred payments, (we won't charge you unless you use it, or won't charge you for the first 90 days). You need to realize that users like free. But customers are willing to pay for something they like or see value in.

Which brings us to how much should you charge for your cloud service? Assuming you have competitors, (if you don't than you probably don't have any market for your service either) you'll want to likely be in the same ball part for the same basic service as your competitors. This will probably be an entry level service with little differentiation. The important aspect to pricing will be in the areas where you're different. Maybe you offer a premium storage or load balancer, or advanced security or something I haven't even thought of. The more value you provide the more you can charge for your services. Also the key metric is ROI and making sure you can easily demonstrate it, hopefully without a sales person - low or no touch sales are always better. These are areas that you can charge significantly more for because, you're costs are 'obviously' higher, and hopefully it's a better value than your customer attempting to create the service themselves or to buy from someone else.

Read the original blog entry...

More Stories By Reuven Cohen

An instigator, part time provocateur, bootstrapper, amateur cloud lexicographer, and purveyor of random thoughts, 140 characters at a time.

Reuven is an early innovator in the cloud computing space as the founder of Enomaly in 2004 (Acquired by Virtustream in February 2012). Enomaly was among the first to develop a self service infrastructure as a service (IaaS) platform (ECP) circa 2005. As well as SpotCloud (2011) the first commodity style cloud computing Spot Market.

Reuven is also the co-creator of CloudCamp (100+ Cities around the Globe) CloudCamp is an unconference where early adopters of Cloud Computing technologies exchange ideas and is the largest of the ‘barcamp’ style of events.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.

@ThingsExpo Stories
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Day 2 Keynote at 17th Cloud Expo, Sandy Carter, IBM General Manager Cloud Ecosystem and Developers, and a Social Business Evangelist, wil...
PubNub has announced the release of BLOCKS, a set of customizable microservices that give developers a simple way to add code and deploy features for realtime apps.PubNub BLOCKS executes business logic directly on the data streaming through PubNub’s network without splitting it off to an intermediary server controlled by the customer. This revolutionary approach streamlines app development, reduces endpoint-to-endpoint latency, and allows apps to better leverage the enormous scalability of PubNub’s Data Stream Network.
Apps and devices shouldn't stop working when there's limited or no network connectivity. Learn how to bring data stored in a cloud database to the edge of the network (and back again) whenever an Internet connection is available. In his session at 17th Cloud Expo, Ben Perlmutter, a Sales Engineer with IBM Cloudant, demonstrated techniques for replicating cloud databases with devices in order to build offline-first mobile or Internet of Things (IoT) apps that can provide a better, faster user experience, both offline and online. The focus of this talk was on IBM Cloudant, Apache CouchDB, and ...
I recently attended and was a speaker at the 4th International Internet of @ThingsExpo at the Santa Clara Convention Center. I also had the opportunity to attend this event last year and I wrote a blog from that show talking about how the “Enterprise Impact of IoT” was a key theme of last year’s show. I was curious to see if the same theme would still resonate 365 days later and what, if any, changes I would see in the content presented.
Cloud computing delivers on-demand resources that provide businesses with flexibility and cost-savings. The challenge in moving workloads to the cloud has been the cost and complexity of ensuring the initial and ongoing security and regulatory (PCI, HIPAA, FFIEC) compliance across private and public clouds. Manual security compliance is slow, prone to human error, and represents over 50% of the cost of managing cloud applications. Determining how to automate cloud security compliance is critical to maintaining positive ROI. Raxak Protect is an automated security compliance SaaS platform and ma...
The Internet of Things (IoT) is growing rapidly by extending current technologies, products and networks. By 2020, Cisco estimates there will be 50 billion connected devices. Gartner has forecast revenues of over $300 billion, just to IoT suppliers. Now is the time to figure out how you’ll make money – not just create innovative products. With hundreds of new products and companies jumping into the IoT fray every month, there’s no shortage of innovation. Despite this, McKinsey/VisionMobile data shows "less than 10 percent of IoT developers are making enough to support a reasonably sized team....
Just over a week ago I received a long and loud sustained applause for a presentation I delivered at this year’s Cloud Expo in Santa Clara. I was extremely pleased with the turnout and had some very good conversations with many of the attendees. Over the next few days I had many more meaningful conversations and was not only happy with the results but also learned a few new things. Here is everything I learned in those three days distilled into three short points.
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo 2016 in New York and Silicon Valley. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 17th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound cha...
DevOps is about increasing efficiency, but nothing is more inefficient than building the same application twice. However, this is a routine occurrence with enterprise applications that need both a rich desktop web interface and strong mobile support. With recent technological advances from Isomorphic Software and others, rich desktop and tuned mobile experiences can now be created with a single codebase – without compromising functionality, performance or usability. In his session at DevOps Summit, Charles Kendrick, CTO and Chief Architect at Isomorphic Software, demonstrated examples of com...
As organizations realize the scope of the Internet of Things, gaining key insights from Big Data, through the use of advanced analytics, becomes crucial. However, IoT also creates the need for petabyte scale storage of data from millions of devices. A new type of Storage is required which seamlessly integrates robust data analytics with massive scale. These storage systems will act as “smart systems” provide in-place analytics that speed discovery and enable businesses to quickly derive meaningful and actionable insights. In his session at @ThingsExpo, Paul Turner, Chief Marketing Officer at...
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).
In his General Session at 17th Cloud Expo, Bruce Swann, Senior Product Marketing Manager for Adobe Campaign, explored the key ingredients of cross-channel marketing in a digital world. Learn how the Adobe Marketing Cloud can help marketers embrace opportunities for personalized, relevant and real-time customer engagement across offline (direct mail, point of sale, call center) and digital (email, website, SMS, mobile apps, social networks, connected objects).
We all know that data growth is exploding and storage budgets are shrinking. Instead of showing you charts on about how much data there is, in his General Session at 17th Cloud Expo, Scott Cleland, Senior Director of Product Marketing at HGST, showed how to capture all of your data in one place. After you have your data under control, you can then analyze it in one place, saving time and resources.
The Internet of Everything is re-shaping technology trends–moving away from “request/response” architecture to an “always-on” Streaming Web where data is in constant motion and secure, reliable communication is an absolute necessity. As more and more THINGS go online, the challenges that developers will need to address will only increase exponentially. In his session at @ThingsExpo, Todd Greene, Founder & CEO of PubNub, exploreed the current state of IoT connectivity and review key trends and technology requirements that will drive the Internet of Things from hype to reality.
Two weeks ago (November 3-5), I attended the Cloud Expo Silicon Valley as a speaker, where I presented on the security and privacy due diligence requirements for cloud solutions. Cloud security is a topical issue for every CIO, CISO, and technology buyer. Decision-makers are always looking for insights on how to mitigate the security risks of implementing and using cloud solutions. Based on the presentation topics covered at the conference, as well as the general discussions heard between sessions, I wanted to share some of my observations on emerging trends. As cyber security serves as a fou...
With all the incredible momentum behind the Internet of Things (IoT) industry, it is easy to forget that not a single CEO wakes up and wonders if “my IoT is broken.” What they wonder is if they are making the right decisions to do all they can to increase revenue, decrease costs, and improve customer experience – effectively the same challenges they have always had in growing their business. The exciting thing about the IoT industry is now these decisions can be better, faster, and smarter. Now all corporate assets – people, objects, and spaces – can share information about themselves and thei...
Continuous processes around the development and deployment of applications are both impacted by -- and a benefit to -- the Internet of Things trend. To help better understand the relationship between DevOps and a plethora of new end-devices and data please welcome Gary Gruver, consultant, author and a former IT executive who has led many large-scale IT transformation projects, and John Jeremiah, Technology Evangelist at Hewlett Packard Enterprise (HPE), on Twitter at @j_jeremiah. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Discussions of cloud computing have evolved in recent years from a focus on specific types of cloud, to a world of hybrid cloud, and to a world dominated by the APIs that make today's multi-cloud environments and hybrid clouds possible. In this Power Panel at 17th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the importance of customers being able to use the specific technologies they need, through environments and ecosystems that expose their APIs to make true change and transformation possible.
The Internet of Things is clearly many things: data collection and analytics, wearables, Smart Grids and Smart Cities, the Industrial Internet, and more. Cool platforms like Arduino, Raspberry Pi, Intel's Galileo and Edison, and a diverse world of sensors are making the IoT a great toy box for developers in all these areas. In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists discussed what things are the most important, which will have the most profound effect on the world, and what should we expect to see over the next couple of years.