Pricing Strategies for Consumers of Information Technology

When you buy Internet-based information technology solutions like web hosting or online backups, here's a tip on making sure you're getting the most bang-for-your-buck.

PRO-TIP: Does the Internet-based service you use improve every one to two years?

In general terms, something should have doubled every 18 months to bring down the price.  The hosting company must have upgraded something in that time, doubling their capacity in some way.  That pressure should have translated to more bang-for-your-buck.  If not, then the hosting company is keeping the profit for themselves (which is their choice) and you need to look to their competitor or else you are paying too much and getting nothing in return (which is your choice).

The most notorious offender is your (ISP) Internet Service Provider.  If you pay the same amount every month with no improvement for years, there's a good chance you're being screwed.  But there is a caveat to this.  I'll explain.

There's many ways to measure this "bang-for-buck" unit.  Let's assume it's a web hosting service.  How can a web hosting service improve every one or two years?  Does the hosting service give you more space and/or more bandwidth over that time or are you having to delete content?  Do pages load in a measurably better way or is it getting worse over time?  Does the monthly service fee go down or is it staying the same?  Do they add perks like improved backups or are there no improvements at all?

They don't have to improve all of the above every year, but at least one thing should improve.  And if nothing improves, you should consider getting rid of that over-priced service and switching to some other solution.

I would say the only exception to this rule is if the service offers any kind of unlimited feature that you use.  So a web hosting service that offers unlimited bandwidth might be worth keeping even if nothing else improves over time.  But if you don't use that unlimited feature and you're paying for something you don't need, it's as if there was a limit and you should consider another solution.

Also remember that the 18 months is a rough guess.  You may recognize the 18 months number as that of Moore's Law.  But it is incorrect to assume Moore's Law applies to all aspects information technology.  Moore's Law is very specific to the number of transistors density.  It does not necessarily translate to other aspects of information technology.  It's just a rough estimate.

Bottom line is, if you've been using any Internet-based solutions for two years or more and not a single aspect of that solution has ever changed, nothing is unlimited, and not even the price has dropped, it's time to look for an alternative.  Even if the price stays the same, relative price inflation usually cannot account for any improvement.  Meaning, even if the price has never kept up with the rate of inflation, that doesn't mean you're paying less in real terms because information technology generally outpaces inflation.

Back to what I was saying about ISPs.  Typically, you pay the same, month after month, and you get unlimited bandwidth.  But do you actually need it?  It's rare to find a domestic ISP that actually meters bandwidth.  Typically, your phone company or cable company gives you unlimited bandwidth specifically because it's easier to calculate.  But do you actually use this feature?

I would rather pay an extra $200 a year for going over my bandwidth limit on occasion if the monthly fee is lower.  But those kinds of services are pretty unusual for domestic Internet access.

Posted via email from Anthony Martin's Weblog