New Pricing Models in the Clouds

With these turbulent times, most managers are hunkered down, trying to keep costs low and close whatever orders might be available to them.  There’s one more thing to think about—fine-tuning your offering and subsequent pricing model.

There are subtle shifts going on in several industries that point to the need to do that.  The first is in the computing industry.  The move to “cloud computing”.  Cloud computing combines the concept of software as a service–where you purchase the use of the software on a monthly basis rather than as a unique product and computing time versus purchasing the machine.

The recent battle between Oracle and IBM to purchase Sun Microsystems (Oracle won by the way) is the sign that software and computers as a products that are purchased in large chunks might be going the way of the horse and buggy.  The reliability and ubiquity of the internet provides businesses with an opportunity to offload a peripheral piece of the business on companies that can better provide the data, customer contact and infrastructure services.  And, they can get it done for a monthly fee rather than having to invest in the buildings, equipment and application services that they do now.  This is what Ross Perot started back in the 1950’s but now it’s taking the next step to better leverage the internet.

With the new offering of cloud computing, companies will have to adopt new pricing metrics–based on use and application of the computing/software services being provided and identify new value levers to fill out their price sheets.  Without the proper set up of the offering and analysis of the subsequent value, cloud computing will get commoditized.  But with good analysis and execution, cloud computing can be a benefit to sellers and buyers alike as increased efficiencies and broader scale adds lower cost to infrastructures that can only be imagined today.

At the other end of the spectrum but with the same set of issues, I’ve loved looking at what’s happening to the publishing business.  The downturn has tipped many struggling newspapers over the edge.  Those papers have been slow to realize that what they really offer is content not newsprint.  By focusing on the paper rather than the content, the daily rags have destined themselves to the technological scrap heap.  They’ve been slow to evolve their delivery mechanism to take advantage of today’s technology and lifestyles of people.  The exception has been The Wall Street Journal which offers high quality electronic content along with the newspaper.  It gives people a set of alternatives at a reasonable price so they can make the choice based on convenience and value. 

Look also at the book publishing business.  Amazon has broken out ahead of the pack in e-books and is continuing their dominance with improvements to their Kindle which seem to please users.  Yes, their pricing model still doesn’t reflect the increased efficiency of electronic content but give them time and they’ll figure it out.  Compare that to the textbook publishers that continue to ignore that technology has changed the way people want to consume words–especially younger people.  Instead, the publishers focus on writers and big presses (read that as big costs too) when readers increasingly want easy access to cheap and easy to search content.  The publishers that have figured that one out are finding that they are selling 3-4 times as many e-books as they thought and are making a bunch more money.

Now is a great time for struggling managers to start thinking outside the box.  Think about how your customers are changing.  Think about how your delivery methods can change.  Think about how your offering and it’s value can evolve to better meet the needs of the people and the times.  Then, you can spend some time thinking about how to price it all.