[HN Gopher] Why SaaS prices are still going up when companies ar...
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Why SaaS prices are still going up when companies are spending less
Author : awwstn
Score : 73 points
Date : 2023-09-10 18:39 UTC (4 hours ago)
(HTM) web link (www.vendr.com)
(TXT) w3m dump (www.vendr.com)
| anotheraccount9 wrote:
| Some might be testing price elasticity with the changing market.
| This could be temporary.
| karaterobot wrote:
| > Software price hikes are driven in part by inflation. The cost
| of living has surged post-pandemic in most economies. Higher
| electricity costs, chip shortages, and rising wages all increase
| the cost of doing business.
|
| Not that there hasn't been inflation, but prices have gone up
| much more in the last year than inflation itself has. Inflation
| is 3.2%, lower than the 100-year average in the U.S. It was
| higher a year ago, but still only about 9%. All of the price
| increases in that article are significantly higher than that,
| most are multiples of that. Even if they hadn't raised their
| prices for a few years prior, that still doesn't add up. I don't
| buy inflation as a valid excuse, though I would it as an invalid
| excuse they're still using because people perceive it as true.
| [deleted]
| [deleted]
| zakary wrote:
| If the published inflation rate is significantly less than the
| increase in price of a wide variety of goods, then doesn't that
| indicate that the inflation rate isn't being calculated
| correctly? My understanding is the inflation rate should
| generally reflect how much more expensive things are getting
| each year
| ShadowBanThis01 wrote:
| The ever-more-tiresome issue is that the textbook, accepted-
| by-rote relationship of interest rates to inflation hasn't
| held up. The Fed has raised, raised, raised rates for what, a
| couple of years now? To negligible effect.
|
| That's because nobody is calling the administration to task
| for allowing the REAL cause of recent spiraling costs:
| monopoly and oligopoly. This is straight-up corporate
| profiteering and price-gouging. It's infuriating to see the
| dereliction of the press's duty in its failure to demand
| answers, and to regurgitate embarrassing circular "logic" by
| saying "higher prices are driving inflation!"
|
| In other news: The heat is driving up temperatures around the
| world.
| killingtime74 wrote:
| It's a weighted basket of goods and services meant to
| represent average consumer. Not everything in the basket has
| to increase at the same rate.
|
| https://www.abs.gov.au/statistics/economy/price-indexes-
| and-...
|
| Here is the latest quarter and each element's contribution
| https://www.abs.gov.au/statistics/economy/price-indexes-
| and-...
| jefftk wrote:
| It's typical that prices change by different amounts in
| different areas. For example, if you go to
| https://www.bls.gov/cpi/ you'll see that the overall +3.2%
| for June is broken up into +4.9% for food, -12.5% for energy,
| and +4.7% for everything else. The more finely you slice, the
| more often you'll see something moving very differently from
| the rest of the economy.
| DoughnutHole wrote:
| It's not caused by general inflation, it's a response to the
| attempts to mitigate inflation.
|
| Increased interest rates have meant an end to cheap credit and
| put a damper on stock prices.
|
| Companies are trying to shore up their valuation by signalling
| to investors that they are driving towards profitability rather
| than debt-driven growth. This means raising the price of their
| product and cutting costs (ie layoffs).
| anonymous344 wrote:
| SaaS companies are owned by billionaire-investors. or actually
| investor-companies. The ones at the top of the world. Same ones
| who get the printed dollad on their hands first to spend it
| before other common folks wake up to the fact that it was printed
| and starts loosing value
|
| I red somewhere that 80% of dollars were printed (=made up
| digitally) in the last 3 years. so the inflation is now coming
| fast, 1$ = 20$.. that's 5x the prices. And most common things
| have only gone up 50 to 150%.. more to come
| alpaca128 wrote:
| > 80% of dollars were printed (=made up digitally) in the last
| 3 years
|
| Doesn't seem like it [0]:
|
| > [...] so it printed about 8% of the currency. An
| approximately equal amount of currency was destroyed
|
| > The reason for the sharp upturn in M1 in 2020 is that the
| measure was redefined in May 2020
|
| [0] https://skeptics.stackexchange.com/a/53092
| steveBK123 wrote:
| Long term rug pull on CTOs who thought the cloud would somehow be
| better, easier & cheaper.
|
| CTOs get lots of free credits, downsize their infra staffing.
|
| Start using the basic building blocks, but then of the basic
| building blocks (servers & storage) are marked up and expensive.
|
| Next, to find cost savings their org need to move deeper and
| deeper into alphabet soup of cloud vendor proprietary stack, at
| which point they are locked in.
| [deleted]
| farco12 wrote:
| And that's about the time they jump ship and make those
| repercussions someone else's problem. I'm sure those vendor
| kickbacks were nice.
| theropost wrote:
| Cloud is the greatest thing ever; for big tech companies.
| oriettaxx wrote:
| exactly
| lowbloodsugar wrote:
| They aren't talking an out PaaS like Azure or AWS. They are
| talking about things like Salesforce and Google Workplace.
| api wrote:
| They're even more locked into cloud now than it seems because
| not only have they shut down their in house ops but they've
| lost the skills and the work force.
|
| Now SaaS and cloud is free to squeeze as hard as they want. The
| lock in is strong.
|
| Saw this coming miles away. Nobody listened of course. This
| industry worships fads. When the buzz becomes "everyone is
| doing X" it becomes truly hard not to do it too. All your
| bosses, employees, investors, etc push for it.
|
| You're not going all cloud? What are you? _Old?_
| SoftTalker wrote:
| > They're even more locked into cloud now than it seems
| because not only have they shut down their in house ops but
| they've lost the skills and the work force.
|
| On the other hand now they are free to concentrate their
| labor on their core business and competencies. Why on earth
| would they want to tie up payroll and benefits on people
| running the company email?
| hjhffyuu57 wrote:
| [dead]
| steveBK123 wrote:
| Right, and a lot of the cloud naive make lofty positive
| assumptions that aren't true.
|
| For example, you can't lose data in the cloud. There are very
| much operational mistakes you can make with combinations of
| S3 settings around versioning and deletes, that result in
| permanent irretrievable dataloss.
|
| My last shop managed to do this and then was implementing
| some sort of cloud data backup scheme.. in the cloud, lol.
|
| The other assumption is that sure compute is costly, but
| since you can spin it up&down you'll save so much. As it
| turns out, most apps, most of the time, do not have bursty
| use cases that merit paying 2-3x for compute in hopes of
| spinning it down when idle. The funny thing is the same
| people selling this line are also the ones telling you to
| negotiate savings with some of those annual agreements that
| require a minimum amount of compute/spend.
|
| The last one is assumptions about hockey stick compute growth
| needs, and that of course choosing AWS will make this easier
| than having to constantly procure servers. Maybe! But few
| have hockey stick compute growth needs for long. And it's not
| that impossible to trade your servers out every 18 months to
| get your compute density growth. And you aren't always
| guaranteed AWS compute at prices you want, as we've seen
| shortages of certain classes compute and needs to reserve up
| front, etc.
| dilyevsky wrote:
| Literally no one could see this coming...
| faeriechangling wrote:
| Because SaaS business models were built around operating at a
| loss in order to gain a monopoly and rent seek?
| rglover wrote:
| Turns out building massive workforces on top of software business
| that don't require them isn't good business.
|
| The big mistake most companies made is that they applied the old-
| school "Fortune 500" way of company building to software
| businesses (i.e., bigger is better). Humorous, because the
| promise of software was that it _reduced_ the need for that
| behavior.
|
| The end result is that they've built companies which ironically
| have great margins (or at least, should), but they burn cash like
| they're still in their seed round. Even worse, this behavior
| pushes out most of the early talent which means you need ever-
| more people to fill in the skill gap created by hiring lower
| quality talent. This also creates the problem of a once-great
| product deteriorating into mediocrity over time which also
| threatens grip on market share.
| [deleted]
| _fat_santa wrote:
| As a co-founder of a SaaS company, I look at my (much much)
| larger competitors as a competitive advantage rather than a
| disadvantage. Most of our competitors in our space have much
| higher pricing because they have 1000+ person headcounts to
| maintain. We will certainly make less money than our
| competitors but the general idea is there is a sweet spot where
| we can charge less for our service and still walk away rich
| because there's less things to burn cash on.
| dilyevsky wrote:
| That is definitely the case but also a lot of those saas
| companies dont even have great margins and were pure zirp.
| That's because they also keep building their stack like they're
| in seed stage.
| api wrote:
| Zero interest rates. You raise big rounds so now you have to
| spend it. You raised at crazy valuations so now you need
| massive ARR and have to enshittify and raise prices.
|
| The whole phenomenon of huge SaaS companies with huge prices
| and huge workforces seems like a zero interest rate phenomenon.
| tamimio wrote:
| Another reason why I never used SaaS.
| [deleted]
| jbs8877 wrote:
| The cost of capital of tech companies has gone up - it's actually
| turned positive! Shocker.
| [deleted]
| Phlarp wrote:
| Greed.
| paulddraper wrote:
| Ah greed.
|
| A shame companies started being greedy in 2023.
| 15457345234 wrote:
| [dead]
| Jensson wrote:
| They focused on growth before. Growth phase and then greed
| phase is very common in this industry, you start out offering
| everything for free to grow, then you remove the free
| offering and force people to pay to stay with you, that is
| the greed phase.
|
| With diminishing access to venture capital we see companies
| go to the greed phase faster than usual.
| throwitaway156 wrote:
| If they had given you a seat that gives you power, money and
| influence, and you had the knowledge to expand it both for
| yourself and them, what would you do?
|
| Nothing? Well that seat would vanish pretty quickly.
| dboreham wrote:
| This is complete nonsense, right? SaaS prices have nothing to do
| with input costs --- prices are plucked out the air (or from
| somewhere else...) based on some guess about what the market
| might bear vs aspirations for volume. Then, once the smoke
| clears, you jack the price up a bit in order to buy a new boat.
| mym1990 wrote:
| I think this is called price discovery.
| [deleted]
| SoftTalker wrote:
| As TFA says, these companies know that their "all in one" cloud
| offerings are sticky. My employer just spent the last few years
| going all in on Microsoft's cloud. We use it for email,
| productivity suite, Teams, storage.
|
| This was after several years of using Google's tools (though
| not with the same level of commitment -- we still used Office,
| and had Exchange and AD on premises). Google jacked their
| prices for Workplace so that was the motivation to move to
| Microsoft. I fully expect Microsoft to do the same, in another
| year or two, but this time around I don't think we'll change --
| this time we're too invested, it would be too big a project and
| have too many ancillary costs.
|
| If we had been more "all in" on Google, we probably would have
| just paid the increase.
| randomdata wrote:
| _> SaaS prices have nothing to do with input costs_
|
| Price always has nothing to do with input costs. That is not
| unique to SaaS.
| [deleted]
| renegade-otter wrote:
| Companies are going through the "reduce our cloud bill NOW"
| exercise. They have to cut the unnecessary, wasteful
| infrastructure _and_ raise prices.
|
| So, after all these years of hearing "who cares about performance
| and cost - just buy more engineers, CPU, and memory", gravity is
| once again being the bitch that it is.
| marktangotango wrote:
| The aws/gcp/azure tax is starting to bite hard. At least we
| have choices. IBM rode a similar gravy train for many many
| years.
| [deleted]
| adrr wrote:
| We don't have VCs subsidizing everything and now profitability
| matters.
| throwawaysleep wrote:
| Price has little to do with cost. Price should be the maximum the
| market can afford while still beating ones competition.
| japhyr wrote:
| > Price should be the maximum the market can afford while still
| beating ones competition.
|
| This is such a frustrating perspective. I have so much respect
| for people who build projects and companies with a profit
| margin that lets them earn a comfortable living, without trying
| to extract as much as they possibly can from everyone around
| them.
| dougmwne wrote:
| This approach has an actual name in my industry. "The
| Nonprofit Starvation Cycle."
|
| The basic premise is that in a very resource constrained
| environment, there's never enough money to invest in
| infrastructure and the continuous improvement of process and
| product. This affects most vendors that serve the nonprofit
| market exclusively. The price you can charge your customers
| lets you earn a modest profit and pay your employees, but
| eventually your chronic lack of resources to invest in your
| people and product kills your business when a fresh product
| with fresh funding comes onto the market. The cycle then
| repeats as that new vendor is unable to make the investments
| needed to keep up with the broader industry state of the art.
|
| So file this under one of those things that sounds nice in
| theory but kills your business as competitors eat your lunch
| in practice.
| lotsofpulp wrote:
| Problem with this approach is your competitors who price
| higher will end up with a bigger pile of money which they can
| use to outcompete you for land, people, equipment, and other
| resources.
|
| For example, you are bidding for a business, and buyer A
| models max profit/lowest costs, and buyer B models less
| profit/higher costs (such as paying employees more), buyer A
| is going to be able to offer more money and secure the asset.
| rapind wrote:
| True and yet companies will cite costs when they raise their
| prices, so ignore that marketing BS too.
| throwawaysleep wrote:
| Costs set a minimum price, as below that it is not worth
| providing the service. They don't lead to a maximum though.
| activitypea wrote:
| Why? What do you mean by "the market can afford"?
| hjhffyuu57 wrote:
| [dead]
| sokoloff wrote:
| Why does a bottle of water at a ballgame cost $5, at a food
| truck $1, and at a supermarket $0.15?
|
| Personally, I find the ballgame price exploitive, but the
| food truck has added a bunch of convenience (and a few
| pennies of refrigeration cost) and that's worth paying $0.85
| extra to a lot of people.
| dgb23 wrote:
| Companies try to set prices to either maximize their profit
| or to bully out competitors at a net loss.
|
| You can translate "the market can afford" to "customers are
| still paying".
| hjhffyuu57 wrote:
| It would be interesting to see what the corresponding figures are
| like for on-prem, although they would be much more difficult to
| calculate and would vary wildly between companies.
|
| The only thing that really stood out to me was the Google storage
| price increase, which seems rather large, as in way out of line
| in comparison to our 2023 spend and 2024 budgeting.
|
| It would also be nice to see what exactly is meant by SaaS vs
| presumably IaaS. I.e. would Amazon Glacier (random selection
| since we've been comparing the pricing with tape recently) fall
| under their definition of SaaS.
| londons_explore wrote:
| Storage prices depend on the reliability you want.
|
| Someone like Google _cannot_ ever lose data of any customer. So
| if you pay for 1GB of storage, they probably actually store 5GB
| of data or more for you. It will be redundantly stored within
| the datacenter across different racks, but also stored (also
| redundantly) in different datacenters in case of flood /fire.
| Theres probably a copy on tape incase of a catastrophic
| software bug that wipes all the drives. Or two copies on tape
| because if there were a software bug that wiped all the drives,
| the chances that every single tape was readable for a restore
| is low - so more redundancy needed.
|
| However, if you go for a smaller player, they probably still
| keep multiple copies of your data, but it might be a RAID-5
| -like setup, requiring only 1.3GB of storage for each GB you
| store with them. It can survive a drive failure, but two drive
| failures or a datacenter fire or an engineer fat-fingering an
| erase-all command and your data is all gone.
|
| Thats (part of) why the big players charge so much for storage.
| I actually wish I could choose less reliable yet far cheaper
| storage option with a big player, but they don't want to offer
| that because of the PR hit when they do lose customer data.
| hjhffyuu57 wrote:
| That makes sense and is a factor in our calculations, we
| store everything at least twice (as in RAID + actual copies
| not including tape off-site results in ~ 2GB stored for every
| GB), with at least a third replicated to DR off site backup.
| That explains the on paper per-GB price difference (which we
| would expect to be more expensive in the cloud, the main
| advantage being that we don't have to coordinate all of that,
| so there are areas where we would save, its just very
| difficult to do a price comparison given we don't know the
| details of their system).
|
| It doesn't explain a huge percentage increase though.
| Presumably they (Google) were already doing due diligence
| there with respect to reliability.
|
| Essentially agreeing with you on all those points though.
| Especially the bit about the PR hit. It's a constant factor
| in our budgeting with the understanding that if you "lose the
| backups", you are probably out of a job.
| dilyevsky wrote:
| > So if you pay for 1GB of storage, they probably actually
| store 5GB of data or more for you
|
| The actual factor is most likely around 1.4-1.5x and for sure
| can't be any more than 2.2x in this day and age. Dumbest
| possible implementation will be "only" 3x so no it's nowhere
| close to 5gb
|
| Edit: looks like it's public so i can actually tell you that
| google uses RS 3,2 which gives 1.5 replication factor. When i
| was there a few years ago storage folks told me they never
| lost a single stripe of data
| pclmulqdq wrote:
| Those numbers are for Colossus. Blobstore, which backs the
| cloud object store, is different, and used to be a lot
| higher.
| dilyevsky wrote:
| Yeah those aren't public afaik, iirc they adjusted
| replication for cold data
| killingtime74 wrote:
| What does RS 3,2 stand for? Thanks
| [deleted]
| dilyevsky wrote:
| Reed-Solomon erasure coding. 2 data blocks, one parity.
| Basically raid-6 but distributed
| teraflop wrote:
| Presumably Google also keeps backups, though, right?
| dilyevsky wrote:
| Yes they also store to tape
| AuthorizedCust wrote:
| That means 2X at a minimum. Then RAID overhead. Possibly
| other hot or warm copies ready to take over instantly.
| dilyevsky wrote:
| And tape costs same as ssd/spindles in your calculations?
| londons_explore wrote:
| But thats within one cell... But data will be stored in
| more than one cell to deal with scheduled and unscheduled
| downtime of the cell...
| dilyevsky wrote:
| You have pay more for that
| londons_explore wrote:
| The user doesn't. There are no scheduled outages for GCS,
| but the actual computers are powered off for ~1 week per
| year while inspections and upgrades are done. Therefore
| there must be multiple copies to account for that.
| pests wrote:
| A common problem would be throughput though. Storage
| capacity scales much faster than access speed. If you are
| storing an item only 3 times and lets say each storage
| location gives you 50,000 IOPS max then you can only ever
| service 150,000 IOPS of this item which might not be
| enough.
| dilyevsky wrote:
| Vast majority of data rarely (if ever) gets read so you
| use a cache for that
| beebmam wrote:
| Terms like SaaS, IaaS, PaaS are pretty fluid outside of
| specific contexts.
| mozman wrote:
| I did a detailed price cost calculation of onprem vs AWS as I
| worked at a MSP. Our cost of compute and storage including DC
| construction over 10y was about half the cost of AWS.
|
| We also used cheap supermicro and had no service contracts or
| warranties we had on site staff. Their salaries were included.
|
| Small DC 2mw.
| lowbloodsugar wrote:
| If you can afford to build a data center and know you have
| that fixed amount of capacity for 10y then you're not talking
| about 99.99% of businesses. For everyone else the cloud is
| cheaper. In fact, to your customers, you are the cloud, so
| I'm not sure what you are arguing.
| endisneigh wrote:
| I don't think they're arguing anything.
|
| The parent wondered:
|
| > It would be interesting to see what the corresponding
| figures are like for on-prem
|
| They replied. Not everything is an argument.
|
| Also, they didn't say anything about fixed capacity -
| they're likely just talking about 10Y deprecation which is
| a very common accounting thing to use - and "For everyone
| else the cloud is cheaper" is definitely not true. It
| depends on workload and architecture. If you're in the
| business of selling infrastructure, for example, using the
| cloud will eat most of your margins (this is not to say
| that it's not done, but usually there's some caveats, e.g.
| maybe you will get some cheap VMs provisioned and do your
| own fleet management ontop instead of building everything
| on top of say, firebase or dynamodb).
| happytiger wrote:
| I think Cloud has never been a question of costs -- it's
| generally about not having to become operational experts in
| house and maintain that expertise as it's not a core business
| function (hard for SMEs for example, to retain talent outside
| of overhaul and project cycles), overall desire by senior
| management to single source vendor management, and a "throat
| to choke" that keeps you from losing your job if problems
| arise.
|
| These are the drivers I've seen, with cost a distant third,
| fourth or fifth. Can't wait to see what happens this economic
| cycle.
| hjhffyuu57 wrote:
| [dead]
| mulmen wrote:
| Thanks for this insight. It's a perspective I don't have. Did
| you build the site? Is it performing as expected?
|
| I know "nobody got fired for choosing AWS" but the real value
| seems to be in burst loads. If you have predictable, stable
| workloads I can see on prem or hybrid making more sense.
| [deleted]
| sokoloff wrote:
| So long as stable also means "unchanging" (in the sense of
| no new machines are being deployed). Our biggest win from
| AWS was never having to think about DDoS; our second
| biggest win was never having to wait for our Ops team (who
| was very good overall) to have the discussions about how to
| deploy new hardware, new storage, etc.
|
| I get annoyed when a new EC2 instance takes 2 minutes to
| launch now. That time used to be not productive to measure
| in hours.
| mulmen wrote:
| Yes the benefit of the cloud is the ability to change
| deployed capacity quickly.
| Closi wrote:
| We also need to bear in mind that SaaS vs On Prem also often
| implies 'subscription' licensing vs perpetual software
| licensing (one off + support payments).
|
| If a SaaS product is $100k per year (subscription) the
| equivalent perpetual license cost is probably $200k (one off)
| + $40k annual maintenance (my very rough rule of thumb after
| doing lots of tenders - a perpetual license is usually two
| years of the subscription fee plus 20% of the perpetual
| license cost as support fees).
| cavisne wrote:
| GCS launched as an S3 competitor (with an S3 compatible API).
| So their pricing was basically copy pasted from S3.
|
| From the start though they offered more expensive to run
| features (a consistent list api, 1GBit transfer per file vs
| 100mbit for S3 at the time, Glacier-like storage with instant
| retrieval).
|
| I think this pricing jump is mostly pricing it at what it
| always should have been. Plus a bit of the now being so focused
| on enterprises that the list price means less and its all about
| "call sales for more information".
|
| S3 has built most of those features since then though, without
| a price increase.
| [deleted]
| knightofmars wrote:
| Um, capitalism?
| pcurve wrote:
| Customers have become hostages and captors have more chips to
| play with.
| [deleted]
| [deleted]
| dgb23 wrote:
| I propose a new term "TDaaS": Tech Debt as a Service.
|
| (Feel free to modify the name to something less clunky.)
|
| A SaaS can provide a useful tradeoff. Just don't get scared by
| FUD marketing tactics, like "Why you shouldn't build your own X"
| etc. It's a tradeoff: you introduce an external dependency and
| give up control.
| mooreds wrote:
| > It's a tradeoff: you introduce an external dependency and
| give up control.
|
| I think this is why self-hostable solutions are becoming more
| common.
|
| When a solution is self-hostable, both sides win.
|
| The SaaS provider can operate the solution, which offers
| revenue. Customers like it because they can get going quickly.
|
| Or the customer can host it. This allows them to control where
| the data goes and minimize costs. I like the way this tweet
| puts it "The real reason to buy SAAS is for someone else to do
| the ops work"[0].
|
| In both cases the customer benefits from the continued
| development of the software (similar to how a library improving
| benefits all applications which depend on the library).
|
| And the ability to self-host removes a business risk. If the
| SaaS vendor fails, well, we have to support it ourselves. If it
| is OSS or we have the code in escrow, all the better.
|
| [0]: https://twitter.com/rickasaurus/status/1700697140492648454
| paulddraper wrote:
| For the same reason they are spending less....to stop the red
| [deleted]
| sacnoradhq wrote:
| The profit-price spiral of the greater economy is why. Everyone
| raises their prices so everyone raises their prices. 60% of
| inflation in this post-pandemic echo was measured to be due to
| corporate profiteering, e.g., greed.
| [deleted]
| cyanydeez wrote:
| Lockin.
|
| It's the basic economics of SaaS, endoflife was just too soon.
| [deleted]
| darklycan51 wrote:
| As long as companies and quarterly earnings exist they will abuse
| their market position
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