Bret Piatt

Service Providers launch offerings with a particular use case or set of use cases in mind.  Flickr launched a photo/video sharing site, Joyent offers Accelerators to host websites, and Google/Yahoo/Hotmail/etc. offer free e-mail.  All of these services have other ways they could and probably are being used….ways the product teams never expected.

Plenty of on-line backup services exist, Jungle Disk (disclosure, they’re owned by my employer), Carbonite, Mozy, AT&T Remote Vault, and more.  These services are all priced around $50+/year after you have a resonable amount of data.  This is where Flickr enters the picture in our unexpected use cases…by using steganography I can have 50GB of free backup and after that it only costs me $24.95/year for unlimited.

Why are free e-mail services interesting? They offer free storage and bandwidth again expecting you to use it for e-mail. Many of their terms of service don’t prohibit account sharing. If you are a software company looking for a low cost way to distribute your newest release get company@<freemail>.com and upload it there. Setup the auto-updater in your software to check for a new version in the e-mail and if it is there download and update.

For general web hosting providers offer different package offerings with CPU/Disk/Bandwidth under the expectation you’ll host your entire site with them. To differentiate some offer extreme amounts in one of the categories to attract customers. One example of this is Joyent Accelerators with 10TB of transfer for $45/month (or $199/year prepaid). They figure you can’t use 10TB of transfer with 5GB of storage. I can host all of my images for an advertising campaign at Joyent and store the DB and rest of the site elsewhere. Off AWS 10TB of download transfer would cost you $1,700/month but CPU/Disk are much less expensive than they are from Joyent (my employer is Rackspace where our cloud offerings are priced much more like AWS).

This extends beyond just technical services as well. The best example of this is the “all you can eat buffet”. They pick a price based on average consumption and charge everyone the same. This works better in the buffet world than it does in the information services world as people generally eat in groups of friends or family. Information services however we can consume individually thus allowing use case versus price arbitrage much more efficiently.

Service cost arbitrage exists all over, the reason we have it, and the reason more people don’t take advantage of it is many of them aren’t efficient to utilize. If I release a steganographic Flickr backup client they’d change their terms of service. If all software companies started using free e-mail services for distribution, they’d change the terms of service. Even the “all you can eat buffet” would change the terms of service. When I used to wrestle in high school our team of 40+ would go to buffets after our tournaments and we’d frequently see a near-realtime change in the terms of service — i.e. we’d get thrown out of the buffet after we ran them out of food.

When developing a service offering the best way to meet the expectations of all of your customers is to price each component in a fair manner. Consider running promotions or specials with limited terms if you’re trying ways to attract new customers rather than setting artificially low prices in a particular category believing people will use the expected use case.