R0ML's Ratio
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Once, a team at my old job wanted to try A/B testing for the first time. After some research, they picked a SaaS tool to make it quick. Simple, right? Just sign up and go.
Of course not. First they had to go through THE PROCUREMENT! (dun dun dun dun)
Those legends weren’t about to let us limp along on a humble pro plan. They wheeled, dealed, and months later emerged triumphant: a glorious three-year enterprise contract. SLAs! Volume discounts! The whole nine yards. The art of the deal baby!
Small snag: by the time the ink dried, the original team had moved on. New PM, new priorities. No one even generated an API key during the whole time we paid for this top-tier enterprise service.
This is the same logic as over buying at the grocery store. The unit cost of bulk items may be less, but if the surplus is just gonna spoil you’ve wasted money in the difference.
1.0 * N * discount_rate * price <= certainty * N * 1.0 * price
—> discount_rate / certainty <= 1.0
—> discount_rate <= certainty
In the event your confidence/usage is lower than the discounted rate - say discounted to 80% of sticker price but you expect 60% utilization - this might suggest you buy 60% of your capacity at the bulk rate and fill any further demand with on-demand full-price option.
Never mind that most of that capacity will sit around unused for years. The real problem is that by the time they get around to filling the last half of the capacity, the exponential march of Moore's law -- or the equivalents for storage and networking -- will have discounted the cost of that capacity by 50% or more anyway.
Similarly, I saw a corporation "lock in" a sweet discount for the WAN network provider for 7 years where they got an upgrade from 1 Mbps to 2 Mbps and a discount of 40%. At the same time, residential broadband was already 25 Mbps minimum and business-grade fibre had three-digit Mbps speeds within months. The sales rep that got that deal signed probably laughed his ass off.
It's a fundamental misunderstanding that it's easier or better to purchase things in big stair-step increments when following an exponential curve. The waste will be exponentially higher the longer the steps. Ideally, one would want to purchase hardware in the smallest possible time-steps, following product release cycles exactly. That's one of the benefits of the public cloud, you can switch CPUs (or whatever) with a button-press.
The example of this that's burned into my mind is that a vendor (Dell or HPE, I can't remember) convinced a government department to buy a 48-core AMD EPYC server for bioinformatics. This is one of those problems where you want the biggest possible single box because of the way the algorithms scale ("up", not "out"). They're stuck with that box for the next five or so years. Meanwhile the cloud public cloud is making available these monsters: https://techcommunity.microsoft.com/blog/azurehighperformanc...
Check out that beautiful exponential curve! If you "lock in" just 2 or 3 generations back, you're missing out on 90% of what you could be using.
In the public cloud, you can almost always just pick another AZ, another region, or another SKU. Because of how Spot priced compute works, a PayG customer will essentially always be able to provision something, somewhere.
Its actually one of the least bad ISP business models. Its fantastic for capacity planning. I worked for an ISP that got a lot of businesses signed up on 700 buck per month EOC services, 4-5 year terms, before the NBN rolled out and provided 20 times the bandwidth for 50 bucks.
Thing is, when the NBN passed those customers, they would reach out and try and move them sideways. Extend the contract for 2 years, drop 700 bucks down to 400 and bundle in voice and managed router services. Add in fixed wireless for backup. Offer them 100M business fibre for a transition up to 1k/ month.
An ISP that can do this can afford service techs, upgrades, more peering and transit. It can breathe. Trying to sell a 40 dollar TC-4 NBN service for 42 dollars is a losing proposition. The customer feels good when they get a good deal but they lose out when the ISP starts downsizing or crawling back costly transit. And if its month to month, the constant churn is crazy.
I'm sure we've all had an experience at least once where we've bought something in a larger container from the grocery store thinking we were getting a deal, only to find that we didn't get through it as fast as we thought we would, it started spoiling, and we got to scrape our savings into the trash can.
And many of us have had an experience where someone higher up in the company has insisted that we use a tool that isn't very good "because we've already paid for it", so it's clearly needed advice, even if it's not groundbreaking. Everyone sometimes needs "obvious" conclusions pointed out to them, I think. It's a quirk of our mental processing as humans.
Dressing up an obvious idea with fancy-sounding math formulas and pages of text is exactly how you get trapped by someone good at selling stuff.