Amazon Web Services is experimenting with a new way to charge customers (AMZN)
- Amazon Web Services recently launched WorkLink, a service that helps employees securely access their corporate apps from a smartphone.
- The service is unusual because of the way Amazon is charging for it: per user.
- Amazon has typically charged based on how much of its cloud services you use, not on how many users try it.
- Per-user pricing is a very old school business model, and it could be a slippery slope for the cloud computing giant.
Amazon recently introduced a new service called WorkLink that lets employees easily access their secure corporate networks, documents and apps from their smartphones.
And the service is causing some of Amazon's rivals to sit up and take notice — not because of what WorkLink does, but because of how Amazon is charging for it.
Amazon is charging on a per user basis — specifically, $5 per active user per month — instead of charging by the amount of time customers actually use the service. Note that by charging per active user, Amazon promises that it won't charge for users who didn't use the service that month.
WorkLink is billed as an alternative to the corporate network security technology known as a virtual private network. A VPN makes employees sign into the corporate network with a password, and encrypts all the data as it travels from the mobile device to the network and back. It is a $20 billion a year market, according to Statisca, dominated by Cisco. Instead of encryption, WorkLink makes use of containers, another new cloud technology, such that users can log in from anywhere, no VPN required. Amazon also offers its own traditional VPN service, by the way, and it charges by the amount of time the service is being used, not by the number of users.
Indeed, per-user pricing is the classic, old-school method of charging for IT services; the kind of business model that gave rise to the last round of tech giants like Cisco, Microsoft, Oracle, IBM, or VMware.
It's exactly the kind of business model that AWS has all but obliterated with its pioneering cloud computing service. With cloud services, especially Amazon's cloud services, companies typically pay for what they actually used: how many minutes per month a service is used, for examples, or how much data is transmitted or stored. It's typically not billed by the person signed up for the service.
To be sure, WorkLink isn't the first and only service where Amazon charges per user.
It is basically doing the same for a service called Amazon Cognito introduced in 2014. Cognito synchronizes data across devices, so developers can build apps that allow users login to an app or game on one device, and have their place remembered on another device. However, Cognito charges by the total number of devices that accessed the app, not the individual users. Similarly, Amazon charges per-user for Chime, its online meeting-hosting service, but the fee is based on how often the service is actually used.
The closest other service that charges per user is Amazon WorkDocs, its competitor to the likes of Dropbox and Box, which allows people to store and collaborate on documents. That costs $5 to $8/month plus storage fees, if a customer's storage exceeds the included amount.
So what's the big deal with WorkLink billing?
So what's the big deal about this way of charging for a cloud service? The slippery slope.
Companies tend to want to negotiate per user pricing. They don't want to pay the same monthly fee for an employee using the service 100 times a day as they would for a contractor using it once a month. These would-be corporate buyers have been well-trained to negotiate on pricing with a vendor's salespeople.
If the customer is big enough or important enough, such negotiations tend to lead to what's known as "tiered" pricing — paying different fees for different levels of user. In turn, tiered pricing tends to lead to software licensing audits, where a software vendor comes in and verifies that the customer isn't overpaying or underpaying for their service. The audit process is one of the main reasons that customers become frustrated with their IT providers.
And all of that is one of the things that made cloud computing so popular to begin with: the promise of paying for what you actually use.
To be sure, Amazon has not tumbled far down the slippery slope. AWS execs insist that it's never likely to tumble to the dark side because the company is so focused on pleasing customers, not antagonizing them with things like troublesome things like audits.
But there's no question that it is experimenting with different types of products and different business models, including the old-school ones. It is even currently ramping up its efforts to get into the last major area of IT that it doesn't dominate: private data centers, sometimes called "private clouds." This is an area still owned by classic tech companies, dominated by classic business models and negotiated prices.
And one thing is certain: as Amazon explores these old-school pricing methods, its rivals have taken notice.
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