A wealthy looking woman entered an optician's shop, pointed to a very stylish frame and declared to the shopkeeper, "I'd like to buy that. How much?"
Gauging at a glance her capacity to pay, he replied: "$500." When she didn't bat an eyelid, he added quickly, "for the frame."
"And the glass?" she asked haughtily.
"$1000," said the shopkeeper, tremulous at his own boldness but looking for any sign of outrage. When he saw none, he quickly added, "for each."
There's often a thin line between flexi-pricing and fleecing, as the joke above illustrates. But the truth is that sellers often try to gauge how much a buyer is willing to pay, and fix rates accordingly. The sensible buyer is happy to pay a price that reflects the value received from the product. Reaching that balance is an age-old dance, with new moves still being added.
One such move borrowed from other industries is flexible pricing. Airlines have for long sold seats for a higher price on dates closer to the date of travel. We also have witnessed airlines offloading unsold tickets at throwaway prices some three hours before take-off because an unoccupied seat on a flight is nothing but a complete waste of opportunity. Flexi-pricing sends shoppers into frenzy during 'Sale' periods—it tempts people to spend more by asking for less.
The origins in tech sector
In the technology industry, flexi-pricing was embraced by the outsourcing industry pretty early in the day, with service providers billing their customers on a cost-plus basis—and the bill amount could differ from month to month, depending upon the number of people the service provider hired to carry out the work.
Flexi-pricing evolved a notch when service providers started to add value and were rewarded for it accordingly. When product development was outsourced, service providers asked for and began to receive a percentage of the royalty on product sales.
BPOs (business process outsourcing firms) too got into the act, charging clients per transaction rather than per employee. The higher the number of transactions handled, the higher the payment received by the service provider, while the cost per transaction fell for the buyer of the service. This acted as an incentive to automate processes, leading to better performance and enhanced income for the BPO, but also shorter resolution-time for clients.
Evolution leads to innovation
With Cloud computing taking off, flexi-pricing has become the new norm, in turn setting off a chain of innovations. Those opting for cloud are paying only for the amount (of server space, virtual desktops or package software) used without having to actually buy anything. Some decades ago you could only order an entire pizza even if you could consume only a slice. With evolved pricing, you can now ask for just a slice at many pizzerias. But can you pay for a bite at a time? If it was a digital pizza, you could—and that is what Cloud computing has made possible.
Of course, this has made the payment collector's life incredibly complicated. Keeping track of who's using what and how much and for how long is the challenge. Fortunately, tools automatically keep count, measure out billable events and so on. Improved process automation will lead to further evolution of transaction-based pricing—and a lot of new products and services in the following areas:
- Management tools: Cloud solutions already deliver intelligent governance that allows customers to consolidate and virtualize resources, allocate and manage applications, improve service levels, and reduce operational costs. This will reduce manual monitoring drastically and allow for the monitoring to happen from remote locations at lower costs.
- Predictability tools: How much of that particular software are you going to need in the future? How much server space? Will your needs change from month to month, day to day? New tools will be able to estimate future demand based on historical usage and your own business plans.
- Analytical tools: While large companies are making their business intelligence and predictive analytics solutions available on the cloud, we could foresee startups offering a newer and more nimble way to analyse data.
Innovation takes over
It's a virtuous cycle that will lead to further innovation on the Cloud platform, fuelling early-stage funds inflow into this sector. IDC has predicted earlier this year that over $25 billion will flow into acquisitions of companies with cloud service offerings until perhaps the end of 2014—a big jump from the $17 billion in acquisitions during the previous 20 months.
A whole set of innovations are also likely to be industry specific. Take, for instance, the healthcare industry. With doctors using mobile phones to receive photos of ailing patients, then remotely diagnosing the condition, or using collaborative platforms to share patient notes, x-rays and MRI images with the patient himself or with another expert, it's almost certain that HIPAA-compliant cloud-based collaborative platforms are on the horizon.
Similar stories will be written in other fields, such as education, manufacturing, hospitality, automobile, aviation, and nearly any field really. Could the sky be the limit for the Cloud?