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newhouseb 449 days ago | link | parent

It's more implicit due to the underlying economics than explicitly so. As long as Zencoder runs on AWS, barring some magic encoding technology, it can never be cheaper than Amazon could theoretically go. This assumes that transcoding services are competitive primarily along price (which may be an incorrect assumption - I'm not in the business). The bottom limit of the price Amazon can charge is a function of their dominant (but admittedly not monopolistic) position in the cloud computing market.


mdasen 449 days ago | link

There's no question that this new service will be a huge problem for Zencoder. However, I'd argue that many companies build on top of competitors and survive. For example, in the cellular world, we get companies like StraightTalk and Simple Mobile who are doing nothing other than reselling service from one of the major carrier, but are often selling for cheaper. With AWS itself, Engine Yard resells instances on top of EC2.

Zencoder's pricing has been high to say the least. For example, for a Medium High-CPU instance (about 2x 2.5GHz processors) I should be able to encode video faster than real time (encoding a minute of video should take under a minute). At $0.165/hour, that's $0.003/minute. Zencoder is charging 10x that amount for many people (Zencoder charges 2-5 cents per minute depending on whether you commit to a large package of minutes or not). Plus, Zencoder can possibly combine spot instances and reserved instances to get better. Now, that's not to say I haven't been a happy Zencoder customer - for the volume of video that my company does, it wouldn't pay for us to run a server ourselves. Zencoder is immensely cheaper than rolling our own solution. However, it seems like it's also a place where another company could come in and disrupt Zencoder a bit. Even if you weren't Amazon, if you built up enough of a customer base, you could likely have undercut Zencoder's rates.

I think one thing to note is that companies don't offer the lowest price they can. In fact, in an oligopolistic market like this, economics suggests that the price (if services were undifferentiated) would drop to the Nash equilibrium. Looking at Amazon's pricing, it seems clear that they want to provide a good value proposition compared to Zencoder, but they're still charging nearly $1/hr which certainly allows competitors to match that price on EC2 hardware and shows that Amazon isn't offering the bottom of the barrel price.

It's never fun to compete with your infrastructure provider (or any well-run company like Amazon even if you aren't relying on them). However, we see these things happen and companies on both sides survive.

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jbigelow76 449 days ago | link

    >As long as Zencoder runs on AWS, barring some magic encoding technology, it can never be cheaper than Amazon could theoretically go.
Nobody is forcing Zencoder to stay on AWS, if it no longer makes business sense to stay there then they need to move. If Zencoder believes that isn't feasible they need to find different value adds to make themselves more attractive than Amazon. This isn't anti-competitive at all.

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kcg 449 days ago | link

That's not anticompetitive though, it's purely competitive. Amazon has better underlying economics (because it has deployed capital to build infrastructure) and therefore is able to offer the same service at a lower price.

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njharman 449 days ago | link

Not saying this is the case. But there is such a thing as a vertical monopoly. Anticompetitive and illegal.

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jessaustin 449 days ago | link

It's very hard to imagine a situation in which Amazon could lock new entrants out of the video encoding market. All you need to enter this market are a fast connection and a server farm, both of which you can get for yourself or rent from numerous IaaS providers.

Amazon might very well have a price advantage, but other parties that can offer better quality of service or better L10n or whatever will still attract customers. This is how markets are "supposed" to work.

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wmf 449 days ago | link

It would be shady if Amazon set their prices for video encoding below the price of raw EC2, because then competitors would be in trouble. But they haven't done that.

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zikzikzik 449 days ago | link

Why (on Earth) would it be shady?!

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