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Utility Pricing for Communications and Computing: Really?
Lately there's been a lot of talk about utility computing, a model designed to deliver computing systems and services, as well as applications, on a pay-as-you-go model. (Utility computing is not the same thing as Cloud Computing, although they are sometimes conflated.)Recently, several communications vendors have been talking to me about utility pricing for their services and applications. And at first blush, it seems like a reasonable idea: Why would anyone want to pay for computing they're not using, right?
But the fact is, the utility pricing model only works in three scenarios:
1. The product being offered can't be acquired any other way. Power is an example of this; for most of us, generating our own electricity is impossible, so we need to get it from a provider. Such limited markets tend to be monopolized, and/or controlled by government; providers can charge what they wish, and ask people to pay what they owe, but they are typically forced to obey price controls that keep the market in check.
2. The product being offered is a limited resource, and as a result, customers should be incented to use less of it whenever possible. Here again, pricing according to usage makes sense. Metered water is a good example of this in the public sector, but my health club's spin classes work the same way-they are not included in the annual membership fee because they are almost always full.
3. People don't use the product much, so they want to pay only for what they use, as doing so will be less costly than paying for a monthly or annual plan. I buy a season ski pass because I know I'll use it more than 20 days a season-the break-even point in Steamboat Springs. Many of my friends buy daily passes because they prefer to snowshoe or ski in the backcountry, and only pay to use the chairlifts a few times a year.
So how does it make sense to buy computing on a utility basis? More specifically, how does it make sense to buy communications that way? Communications hardware and software is readily available, and it is hardly a scarce resource. So neither of the first two scenarios apply. In fact, communications have recently moved away from the utility model-Voice over IP, deployed on premises, costs less than the traditional telephony services it's quickly replacing. Very few people pay per-minute cell phones charges, and no one pays per e-mail message sent (anymore).
And with communications, the goal is to drive usage, not curtail it. With an increasingly virtual workplace, the desire to cut travel for cost and quality-of-life reasons, and an increasingly competitive business environment that demands quick responses and collaboration, who can afford to worry about how many phone calls or web conferencing sessions they're making? But with utility pricing, the only way to keep contracted costs low is by driving down usage.
The only utility pricing model that makes sense to me is one that mimics that offered by my long distance provider: I pay per minute until I hit a $20 threshold, at which point I am automatically moved to an all-you-can-call plan. That makes me feel like I won't get cheated if I start making a lot of calls, and it keeps Qwest from having to send me a check for $100 every other month. (Remember those days? MCI and AT&T funded most of my weekends during college.)