The Cloud Giant changed its pricing strategy, using Free to create more lock-in.
When Amazon Web Services announced this week that they were "going Freemium" I started immediately receiving emails and tweets from people around the world asking what my take on it was. My initial reaction was that this certainly takes the wind out of arguments that only startups with nothing to lose do Freemium. This is a perfect example of a company that is very successful - not a startup - deciding to use "Free" to disrupt their competition and gain even more new market share.
After reading over their site - which is not incredibly user friendly and certainly not treated as a marketing site - I've come to the following conclusions about Amazon Web Services' (AWS) "Freemium" move. I think that this move by AWS is two-fold; disruption and lock-in. If you look at the use of free for the core services offered by AWS - EC2, S3, EBS, ELB - it is really just a super long Free Trial (1 year!) of a relatively limited amount of compute power/storage/bandwidth. And AWS has been able to parlay this announcement into a massive amount of publicity, which of course goes back to our mantra of Pricing is Marketing.
Now of course, there is another side to this, but certainly not anywhere near what we've seen before. Some people have become upset that the free tier of the core services are only available to new customers, but when you look at it like the free trial that it is, it makes sense; free trials are generally for new customers, right? Perhaps they should not have referred to this part of the offering as the "Free Tier" and rather what it really is - a free trial for new customers to kick the tires and see if they like AWS better than other cloud or traditional shared hosts.
But it is a Free Trial and we need to all understand the distinction between a Free Trial and a "Free Tier" or Freemium, where there is a free-in-perpetuity - meaning there is no time limit on use - offering. A Free Trial has defined characteristics and expectations - by both the vendor and the customer. It is meant to try before you you buy, kick the tires, etc. and the expectation is at the end that you will either pay or stop using the service. Some companies are combining an actual Free-forever offering with a traditional free trial so that if the customer opts not to buy at the end of the trial they are downgraded to the often quite feature or usage-limited free version.
This is a growing trend and certainly a topic for its own post later on. But, the expectations and psychology around a free-forever version of a product are much different. There aren't really any expectations from either side that the user will buy, it is very difficult to ask someone to pay for something they've been using for free so the value proposition of the premium version must be quite compelling to overcome that penny gap, etc.
What is more interesting to me about the AWS "Free Tier" announcement is that their non-core services like SQS,SNS,SDB - are actually Freemium and not just free trials, meaning that they have a free tier of usage that is free in perpetuity for anyone starting November 1, 2010 - not just new customers - and you are only charged if you exceed that free tier. The use of Freemium for their ancillary services means potentially greater adoption of those services.
But the big question is why does that matter if they are doing Freemium for only these "ancillary" services? My take is that those services are unique to Amazon and once you are using them - which requires deep integration into your application - you are effectively locked-into AWS at some level. You can always move your app from EC2 to your own data center, you can move your objects from S3 to another file host, but the *services* that AWS provides like Queueing, Notifications, Non-Relational Datastore, etc. you cannot (easily) move.
The point here is that these are true services offered by AWS - proprietary and closed even if behind an "open" API - and are not just technologies. Freemium success requires that your customers become invested in your service to a point where they at some point will need / want to pay, but there is no requirement that what they pay for - how you monetize - simply be a "premium" version of the free product within which they've become invested. So in this case, it would appear that it is much cheaper bandwidth-wise to leverage those ancillary AWS services from a server within AWS than it is to use a server outside of AWS making the decision about whether to leverage AWS core services perhaps easier - perhaps a no-brainer.
By allowing a relatively high amount of usage before requiring payment for the services covered by this Freemium strategy ensures that the AWS customers will become invested at a level they might not have if they were required to pay for even simple use cases. It would be interesting to know how this affects adoption of these ancillary services - I suspect it will rise substantially.
Overall, this seems to be a brilliant use of Free, even if not 100% true Freemium - by an already very successful company, no less.
But that is my take... what's yours? I'd love to hear from you; the comments are open!
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