
Switching Costs in Software Development - beekums
http://blog.professorbeekums.com/2016/09/switching-costs-in-software-development.html
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nickbauman
Amazon has a great service, but when I experiment with things on AWS the cost
always seems to end up at $30-$100 to run the experiment on AWS where when I
use Google they typically send me a bill for $1.48 or more recently I got a
$0.24 bill. It always seems more expensive to even kick the tires on something
with AWS versus GCP.

Having said that the company I work for now was spending so much on AWS they
had to do something to reverse the trend. We changed how we provision and
deploy services on AWS and it has brought our costs down approximately $75,000
/ mo. I don't know what we were paying before versus now though so I'm not
sure how much we saved as a percentage.

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pc86
If you have an MSDN license through your employer, Azure offers $50-150/mo
credits depending on license types for dev and test environments. I've never
run into issues getting feedback on prototypes in test from real customers,
nor have I ever broken through that credit on a single app. Occasionally I'd
pass $150 if we were running 3-5 apps simultaneously all with some measurable
load but often the "usage" was in the $5-50/mo range.

Whether your employer will let you use their credits for personal use is
another issue entirely (I've had several who didn't use them at all and
several who let you use some).

~~~
Gaessaki
On a similar note, startups can take advantage of the Azure credits through
Microsoft's BizSpark program[1], which is essentially a handful of free MSDN
subscriptions.

[1]
[http://bizspark.microsoft.com/default.aspx](http://bizspark.microsoft.com/default.aspx)

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ChuckMcM
I think it is an interesting point but it doesn't really compel me to use GCE
over AWS. Now if he had written, "here is our abstraction library and we run
on _both_ AWS and GCE so switching to either one is seamless." that would have
been a good example of containing the risk of having to switch vendors.

The argument is much better if you say, "While I'm using vendor X, I'm putting
together the technology to use other vendors easily so that I won't be a
victim of sudden switching costs." And I suppose that would also be followed
by "Our company isn't based on data from one company I can get no where else."

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jrochkind1
> With all the important things being equal, I choose the service with the
> much smaller market share and encourage others to do so as well.

The problem with this is it increases your risk that the company will simply
go out of business, which could be even worse than raising prices 10x as in
the example.

I think it can also raise risk that the company will significantly change it's
pricing model too, they don't want to be a 3% market share.

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andrewfong
This. I'm struggling to remember the right game theory term here, but there's
a mismatch between what you want for yourself and what you want others to do.
It's great if _other_ people to pick the service with the smaller market
share, thereby increasing competition, but you yourself probably want to stick
with the larger service because of the various network effects associated with
being part of the larger service (e.g. not going out of business, third party
service compatibility, etc.).

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haser_au
[https://en.wikipedia.org/wiki/Prisoner%27s_dilemma](https://en.wikipedia.org/wiki/Prisoner%27s_dilemma)

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imron
A financial company I used to work for had a legacy software product used by
banks, that the banks themselves had estimated would cost something on the
order of $50 million to replace.

The product licensing fees reflected that fact and it was basically a cash cow
for the company.

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haser_au
Ditto. I used to work for a bank and they had this same issue. Requesting
changes to the system cost a lot more than was actually involved.

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AGresvig
Sounds like our experience when Tutum, now "Docker Cloud" decided to go out of
beta with a pricing model that punished users with many containers, and little
data/usage. Like startups..

We jumped to Rancher.

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Spooky23
I don't understand the correlation between the opening of the story and AWS
vs. GCE at all.

Establishing a long-term dependency on "Scaling R Us" was the problem, not
Amazon. If you diversify AWS with GCE so that you have established choices,
that's cool -- but "Scaling R Us" is still a problem.

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mgberlin
I'm not at all following the argument that being cognizant of switching cost
should lead one to choose the underdog. Am I missing something?

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driusan
The argument is that if no one chooses the underdogs, then eventually there'll
be a monopoly and no choice, regardless of switching costs..

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_Codemonkeyism
I always wonder why people think the only 'fair' pricing is pricing based on
costs. This is not how free markets work.

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phkahler
>> I always wonder why people think the only 'fair' pricing is pricing based
on costs. This is not how free markets work.

In a real free market that is how it should turn out. If someone is charging
too high above cost, a competitor will likely step in to grab market share by
offering the same thing at a lower cost. Companies go to great lengths to make
the playing field uneven - "unfair" practices, unfair employment agreements,
patents (government granted monopolies), lobbying for barriers to entry,
etc...

Lots of people like to talk about "free markets" when they really want no such
thing. In a real free market, everything tends toward commodity pricing.

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_Codemonkeyism
"In a real free market, everything tends toward commodity pricing."

No.

This assumes people only buy products based on price and would choose cheaper
alternatives.

Doesn't look like this to me, e.g. I'm a consultant, I base my pricing on
value not cost (what is my cost anyway?) and people pay on value. Other
consultants are not undercutting my prices, for various reasons, e.g. because
reducing prices would diminish value perception. I'm not a commodity and never
will be (perhaps if AI makes great leaps forward).

Same happens with Apple devices which are far from cost based pricing.
Assuming others have the same product - I don't want to get into quality,
brand recognition etc. just pretend - if they base their products on cost and
undercut Apple, they would move out of the luxury/premium segment. One could
argue Apple pricing is high because of an 'Apple monopoly on Apple devices',
but the same works for any premium segment (Nike and Adidas premium shoes for
example).

Beside the premium argument there are other examples where "In a real free
market, not everything tends towards commodity pricing" \- in particular only
commodities do.

(Interesting side note: Read about value maps, evolution of products towards
commodities and strategies from Simon Wardley)

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phkahler
>> I'm not a commodity and never will be

Consultants can be somewhat specialized and can have high demand. Gold is a
commodity, but scarcity (or perceived scarcity) makes it higher priced than
other metals. If there weren't as many consultants out there, you might be
able to charge even more.

Android is a cheaper alternative to iPhone, as is Nokia. You are correct that
there are other factors at play that make the situation less like a commodity
market. Copyrights and patents - both government sanctioned monopolies - are
the primary thing enabling Apples high prices. That's not to say I'm against
those things, just pointing to the real reason for what's going on.

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_Codemonkeyism
No.

Brand is the primary thing enabling Apples high prices.

~~~
phkahler
>> Brand is the primary thing enabling Apples high prices.

Trademarks are another government enforced monopoly.

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hbz
I like all the guesses on which company “Scaling R Us” represents. My guess is
RightScale.

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TimothyFitz
I wish more web services provided opensource versions (Service-as-a-Software).
Large orgs would still pay for service contracts even if they self host, and
just having the option makes everyone more likely to invest on top of your
service.

~~~
rwallace
This is a very good point. Even if you don't want to self-host and you'd
rather use a service, having the software available as open source so you can
self-host if you so choose, makes it more rational to use the service, because
it makes it harder for you to be screwed the way OP's startup was.

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z3t4
I wonder if and how you plan this economically, like adding a future cost for
each hour of work sunk into the platform. Where you eventually reach a margin
where it's no longer economical to sunk more hours into the irreplaceable.

~~~
jrochkind1
I think the "sunk cost fallacy" is related here, although I'm not sure how to
draw it out.

In general, it seem obvious if any third-party platform is irreplaceable for
your business, you are running a significant risk. I'm not sure
"irreplaceable" is always correlated with number of hours you've sunk into it.

It could be irreplaceable despite having very few hours sunk into it.

Also, even if you've sunk a bazillion hours into it, if there's a viable
replacement that could be put into place _without_ spending a corresponding
bazillion hours on it, it might not be irreplaceable at all. (This part might
be the 'sunk cost fallacy' \-- just cause you've spent a lot of hours on it,
doesn't neccesarily mean it would be a bad idea to throw all that away and
start over -- if you can afford to.)

Anyway, the hard part, of course, is avoiding an irreplaceable dependency on a
third-party platform. Especially because using such third-party platforms
significantly decreases your total cost to launch or operate. The trick is
figuring out how to take advantage without making them irreplaceable. I'm not
sure there are any obvious or easy answers. Using the option with the smallest
market share, as the OP suggests, might help encourage a better marketplace,
but probably _increases_ your actual direct local risk.

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nolite
cough... __EngineYard __...cough.. cough...

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neogodless
As an East-coaster, it's always a delight to hear about products "in the wild"
where you've actually met people that worked on it!

