Today, I had a very interesting discussion with Rich Miller, a consulting colleague who has been around the block more than a few times. One of the interesting points he raised is that Amazon's AWS pricing doesn't quite work for enterprises. Let's explore how it is a problem and why it is so. At first blush, Amazon's pricing is intuitive: use an hour of an m4.xlarge, pay $0.239; use 2 hours, pay $0.

Serverless. Framework-as-a-Service. Function-as-a-Service. Lambda. Compute Functions. Whatever you call it, serverless is, to some degree, a natural evolution of application management. In the 90s, we had our own server rooms, managed our own servers and power and cooling and security, and deployed our software to them. In the 2000s, we used colocation providers like Equinix (many still do) to deploy our servers in our own cages or, at best, managed server providers like Rackspace.

I love tech. Despite an MBA and a decade of consulting and running a start-up or two, deep down, I always will be an engineer. One of the most important lessons I learned as a young engineer 20 years ago at Morgan Stanley - courtesy of Guy Chiarello - is that the technology is only the means, not the end. Understand the finances, the market, even the politics if you want to do something with technology, even just inside a company, let alone outside.

Infrastructure-as-a-Service, cloud servers, whatever you call them, have been around for years. Amazon is the clear leader in the pack (and, according to Simon Wardley, is likely to remain so for a long time), with others like Rackspace, Google Compute Engine, and Azure picking up much of the rest (fortunately for them, the market is plenty big enough). Digital Ocean, a company I mostly ignored for a while, takes kudos for speed and simplicity, and rapidly have become my go-to option for quick servers.

Pricing is one of the most important - and mysterious - parts of a business. Price too high, and you lose customers; price too low, and you leave lots of profit on the table. An entire price consulting industry exists, with great leaders like Patrick Campbell of Pricing Intelligently. One important rule of thumb is that input costs should almost never determine the price of a product. What your costs do is have two effects:

Great technology companies have been built on advertising: Google, Facebook, Yahoo (in the old days), not to mention many a magazine, newspaper and television network. I have always loved the operational side of ad networks. They require building and managing a systems whose data throughput and reliability requirements rival a financial pricing and trading system. I have managed several of those, and the parallels are quite strong. What truly interests me in advertising, though, is the brilliance of great creativity.

In business, there are two benefits that accumulate to large or diversified companies: Economies of Scale Economies of Scope Economies of Scale are the benefits of from doing more of the same. If you make 10MM laptops a year, your cost per computer will be cheaper than if you make 100,000 laptops per year. These benefits come from a number of sources: Purchasing Power: Since you are buying components for 100x as many LCD screens, you can negotiate better prices.

After our article last week discussing the economics of moving into AWS vs. do-it-yourself (DIY), Jim Stogdill wrote an excellent follow-up about when enterprises aren't moving into the public cloud; Simon Wardley - whose strategic situational awareness mapping is in a category by itself and should be required reading for anyone responsible for strategy - continued with his input. In Jim's words, private clouds are like SUVs; they rarely make sense economically, but sometimes you buy them anyways because:

Yesterday's article on the short life span of premium (and especially ultra-premium) pricing led to a robust discussion on Hacker News. In the article, I used Amazon Web Services (AWS) as an example of a company that actively tries to cannibalize itself. A smart commenter pointed out that AWS pricing, while falling continually, has nonetheless fallen more slowly than Moore's Law, according to which equivalently-priced capability should double roughly every 18 (or 24) months.

If there is one truism in the technology market, it is that premium pricing just doesn't last. If you are first to succeed in a new market - which is distinct from first to a market - then you often have a premium price product because you are the "first" and often the "best". The problem is that it just doesn't last. No matter how good your IP (Intellectual Property, like patents, not Internet Protocol), eventually competitors catch up with "