Business model

How your company can adopt a usage-based business model like AWS – TechCrunch

Among the 300+ services that Amazon Web Services (AWS) has launched over the years, not a single one has had to be canceled for not being properly priced.

It is not a coincidence.

Usage-Based Pricing (UBP) delivers very high levels of revenue growth and product adoption. Any business operating in the cloud can (and should) adopt a usage-based pricing model enabled by best practices and frameworks that maximize the value delivered to the customer.

I worked for a few years as a general manager at AWS, where I personally oversaw Amazon CloudSearch and some of the related services as they grew to over $1 billion in revenue through a pricing model based on use. Later, when we launched Amazon OpenSearch, the same model contributed to its massive success and adoption.

The usage-based model is the only one that makes sense in the cloud. Given the elastic nature of the underlying infrastructure, everything on top of it needs to be equally flexible, including pricing. Below I outline seven steps for getting started with a usage-based pricing model in your business.

The most important reason counting exists as its own artifact is because of what it’s specifically designed to do: track usage.

Step 1: Implement usage measurement

Many companies make the mistake of starting with a pricing model and then trying to work backwards to measure usage.

This is the wrong approach. The first step should be to measure all your technological artifacts. If you’re a startup building from the ground up, implementing counting from the start will give you a huge advantage.

Knowing who is using what, when, where, and how much will help unlock valuable insights across all functional groups and teams, and will make pricing much easier.

Look for a purpose-built counting service

Don’t fall into the trap of only measuring (instrumenting usage) what is dictated by pricing plans. Measure your tech stack holistically. You should think metering first, then move on to pricing and billing, not back to metering from pricing and billing.

Here’s a good way to internalize that:

Let’s say you want to charge for API calls and you start by considering a tiered pricing model for API calls based on count. Coming back to measurement, you will come to the conclusion that you need to measure the number of API calls.

Compare this with the forward measurement approach. You first determine that you should use instrument API calls because it is one of the key features of how your customers interact with your product. Then you wonder what is a holistic way to instrument the use of an API call?