Ed Sullivan, CEO of Aria Systems, a SaaS billing provider, has written a thought piece looking at how customers spend in an iPad world, and how that could be improved for all concerned. As always, we invite guest posts from industry insiders – drop us a line to discuss.
Apple’s introduction of the iPad is the latest example of innovation in the consumer experience. It’s a model of evolution on many fronts – not just that it’s a sleek, sexy, multi-function device, but that it creates huge opportunities for other ecosystems like application developers, publishers, and service providers.
But even as Apple has made huge strides from the once-revolutionary iPhone to today’s iPad, I wonder if they and others are ignoring the user’s experience beyond the physical device itself. Sure, my iPhone plays games, lets me call people, do e-mail, or find highly-rated restaurants nearby. But I still get 2 bills and have to manage 2 accounts – one for AT&T’s wireless services, and one for music and app purchases on iTunes. Why? And why can’t I apply unused rollover minutes to purchase a song? Why don’t I get a one-dollar loyalty credit for my phone services when I spend $100 on apps?
While this is a fairly small example of an annoyance, it speaks to a very large opportunity that many emerging platform vendors (“platform” in this sense meaning anything from the iPad to the Android operating system to Amazon Web Services or FaceBook) are missing. There are two fundamental issues:
1) They haven’t given enough thought to the behind-the-scenes experience of their customers, like in the “2 bills” example above.
2) They don’t incent third-party application or content providers to nearly the extent that they could.
On point #2, Amazon Web Services is a good example. Amazon created their DevPay service in part to make their cloud platform more attractive to application developers by providing an integrated, out-of-the-box billing service. Developers can outsource the billing to Amazon, avoiding the need to create the service themselves, and allowing the customer to get a single bill that includes both Amazon’s cloud infrastructure costs – storage, bandwidth, and CPU usage – as well as one-time or recurring charges for the developer’s application.
But how does a developer monetize the value of their application as the value of that application grows for their customer? Today, they’ve only got two options. They bill the customer separately, but consider the incredible macro-level inefficiency of such a model as each developer now need their own finance department just to bill their customers. Alternatively, the developer can bill based on a mark-up of Amazon’s infrastructure charges. The problem with marking up Amazon’s infrastructure charges is that in most cases, an application’s real value to the customer is NOT best measured in storage, CPU, or bandwidth.
Amazon is imposing Amazon’s incremental-value-monetization model on application developers, rather than giving the application developer the ability to charge per user, per transaction, per “instance”, per archive, per patient, or any of the other thousands of ways value can be delivered by an application. So you mark up the Amazon hourly CPU charge by 70 cents, and if your customer ends up using more and more CPUs over time, you’ll make more money. But in most cases, your increased revenues aren’t really scaling as the value you’re providing scales.
Apple’s iTunes store is even worse. It’s one-time-charge only, unless you want to set up your own system and bill your customer separately.
Of course, iTunes and Amazon Web Services are just examples chosen because they’re so widely used and well-known, but this problem exists in many other places. Wouldn’t an application developer want to use a platform that let them monetize the real value of their application based on their own pricing strategy, rather than the very narrow limits of the application platform?
As competition for third-party developer support heats up, platform providers will start to wake up to this reality and recognize that they have a significant opportunity to improve both the account management experience of their users, and the economics of their platform for third-party developers and content providers.
