Why AWS wants you to spend LESS with them
Cost optimization as a customer retention strategy
Before we dive into today’s newsletter, check out the latest Run the Numbers Pod with Lightspeed Ventures’ Sebastian Duesterhoeft. The entire episode is dedicated to TAM (Total Addressable Market). Yes, your boys went DEEP…
You’ll learn how much TAM is “enough” TAM, why a billion dollar outcome might not be enough, and how to calculate TAM on your own as an operator. He puts on a masterclass.
E8 with Sebastian Duesterhoeft also on: Apple & YouTube
I don’t win many awards, but I’m a perennial podium contender for “guy who isn’t afraid to ask a stupid question.”
I did exactly that on Twitter recently:
I couldn’t square in my mind why a technology company would go to such great lengths to help you spend less with them.
It’s not all that common…at least in the subscription world.
For example, I’ve received the following call from Salesforce exactly zero times in the last ten years:
“Hi Mr. Gustafson, we noticed you were not using seven of your licenses, so we wanted to optimize that cost for you.”
Same thing for Clickup or Asana or Monday. In reality, they put the fear of God in me that if I didn’t buy up three years of licenses ahead of time I’d be destitute, penniless, and begging startups for fractional CFO work.
A live look at me paying bills for Clickup, Asana, and Monday.
Ok, there is one company that goes to great lengths to help CFOs and finance teams spend less: Rho.
Their all-in-one finance platform helps companies unify their finance stack – corporate cards, expense management, AP automation, banking, and treasury – all for free.
Learn why the CFO of Best Bay Logistics said Rho brought music to his ears.
So why does AWS promote the buzziest of buzzy words: Cloud Optimization? Here’s why:
Runaway costs make customers run away
Transparency builds trust
Upsell opportunities
Competition
Efficiency favors everyone in the long run
1. Runaway costs make customers run away
Believe it or not, without directions, configuring your cloud infrastructure is slightly more difficult than configuring your IKEA desk back in college.
Quick tangent: My friend Steve is still mad that his now-wife wouldn’t let him keep his “vintage” IKEA when they finally moved in together. The lesson: people take great pride in the things they put together with their own hands, even if it’s cheap.
And since the underlying business model is usage based, and not a predictable, fixed subscription cost, a bad configuration can quickly become a run-away train.
Most of the time this poor set up is a customer problem. But AWS is smart enough to know that it will quickly become a vendor problem. Shit rolls down hill. And if people feel ripped off, they get a bad reputation, even if it’s technically the customer’s fault.
It's also the honest thing to do. And as a bonus, it builds trust that AWS is not here to rip you off, and want to help, rather than fleece you. Speaking of that…
2. Transparency builds trust
Complexity breeds contempt, while transparency builds trust.
If you try your hardest to show people what they are spending, and clearly define the levers to change it, they become deeply embedded in your product. There’s an entire cottage (mansion?) industry of workers who will help you optimize your cloud spend. In fact, once a company gets past, say, 300 people, they usually hire a dedicated infra resource to live within these hallowed dashboards, day in and day out. And you best believe this person is “Team AWS” or “Team GCP” because they’ve built their entire skillset (and livelihood) around it.
It therefore makes all the sense in the world why AWS would create a service to solve the problem they gave us, because that in itself is probably…another revenue stream for them. Think how many people pay to get certified in Cloud Optimization. It’s a lot.
And on the topic of additional revenue streams…
But first… one more quick tangent: I worked for a company that sold Backup and Recovery software. And customers would actually PAY us to certify their employees on our software. Why? Customers wanted their stuff hooked up right, since they just spent so much money on it. And employees felt it made them more valuable on the job market. And most importantly, humans LOVE any sort of certification. They lose their minds over made-up virtual badges.
3. Upsell opportunities
An enterprise rep at AWS can sell you, quite literally, 250 things other than basic ass compute.
AWS will pretty much give you the crackpipe for free so they can sell you lots of crack. Look no further than their marketplace, which is the largest third party provider of OTHER PEOPLE’S SOFTARE in the world.
You need Crowdstrike? You need Snowflake? You need “Insert name of random Series B Cyber Security”? They got you, homes.
It makes total sense why AWS wouldn’t bleed you dry on the appetizer if they can milk you over the course of 17 entrees. That’s a much higher LTV.
It kinda sorta reminds me of this scene from the Big Short:
Vinnie Daniel : How are you screwing us?
Jared Vennett : When you come for the payday, I'm gonna rip your eyes out. I'm gonna make a fortune. The good news is Vinnie, you're not going to care cause you're gonna make so much money. That's what I get out of it. Wanna know what you get out of it? You get the ice cream, the hot fudge, the banana and the nuts. Right now I get the sprinkles, and ya - if this goes thru, I get the cherry. But you get the sundae Vinny. You get the sundae.
Vinnie Daniel : All right. I buy that. Thank you.
4. Competition
It’s pretty hard to change the electric company your house uses. Chances are, the entire neighborhood is wedded to them (which is why there are regional regulations around how much they can charge). Where I grew up, it was basically Eversource, or rub some sticks together.
But it’s potentially easier to change from AWS to, say, GCP or Azure. I’ll admit it would be a nightmare and multi year journey for a Netflix or Salesforce to leave their cloud provider, but if you’re a startup that’s just gaining traction, you can jump ship.
At the end of the day, each company’s basic hosting products are commodities. It’s the electric to make your house run. And the stiff three-sided competition between Microsoft, Google and Amazon makes it perfectly possible to convert dissatisfied customers. So it’s critical for AWS to be affordable to startups before they blow up.
5. Efficiency favors everyone in the long run
I asked an AWS rep if I got it right. He texted me back:
“I mean, it’s kinda the ethos of why AWS created the concept of the cloud. Only pay for what you use, save money, innovate faster with less capital expenses and resources.
If you asked a Dell EMC Hardware rep why cloud is bad, their only response would be that it can get really expensive.
But that’s only if you don’t practice cloud econ. Like you could have someone turn on a really expensive instance that could cost millions per month and forget they turned it on.
We don’t want that to happen. Because we know for most tech companies we become 20% of your overall revenue, so we know if they make a commitment to stick with us for years, we will always do well.”
In the long run, AWS will make a lot of money if they do right by you on the most basic of basic products they sell. They have enough evidence that if you run the relationship out long enough, by hook or by crook, they’ll get to a substantial amount of your run rate spend.
The truth is, they want you to be more efficient and stop focusing on your baseline infrastructure cost, so you can work with them on cool (and expensive) stuff like:
AI / ML
IOT
Serverless
Quantum Computing
Extremely advanced databases.
In the long run, they don’t want you to leave the water running, because that would ruin the foundation of your house, and they’d love to help you build a third floor.
But before you go – I’m partnering with Rho to survey finance leaders like you to understand: How are finance orgs running today & how could that change in the future?
Mostly Ice Cream
Quote I’ve Been Pondering
“Pyrex man, yeah, you know my handle
Play with them pots 'cause Butch don't gamble
But I'm in Vegas with least 'bout a hundred
In all blue strips, that's only two handfuls”-Benny the
ButcherAccountant, “Kostas”
Benny returns 🙏🏼🙏🏼