Will On-Demand Support Options Raise Prices for All?

Cloud vendors such as AT&T Synaptic are starting to offer on-demand support options for their public cloud services. While these options appear to have a higher price tag than subscription-based support services, they may be  more cost effective for some users. However, their widespread adoption could result in higher support prices for others.

 

Priority Support

This optional support enhancement allows you to call the cloud support team 24x7x365 for assistance with urgent issues. The service can be enabled or disabled at anytime through your CaaS SMB user interface. The price for Priority Support is the greater of $500 or 20 percent of your usage fees in a given month. Charges are not prorated and will be applied in any month the service is active.

 

It is possible to draw some analogies between support contracts and insurance. By design, insurance plans are meant to smooth unpredictable future cost. When you get sick and need to make a very large payment, the insurance company will cover it (at least in theory). However, insurance is able to charge customers less in regular premiums because most of them will not require big payouts for their care. Support contracts are similar. The effective cost of support depends on how much it is used.  With subscription-based support programs, the overall cost for most customers is lower than the cost of servicing an incident because some customers will draw on the support less, or not at all, and those savings are passed on to the ones who do draw on support.

Some shrewd analyst will see parallels between this scheme and the smart phone industry. For instance, customers who use smart phone data plan to check email may favor a tiered service over those who spend all waking hours on Youtube and Facebook. That is because the low-end users are subsidizing the usage of the social media addicts

For support contracts, the vendors’ top customers, i.e. those who use support a lot, are going to cost more. For a cloud offering, it is unlikely that the service contract can be offered by a third party, so customers effectively have no choice but to acquire support from the cloud service provider, and the vendor will probably offer either on Demand or subscription-based support. However, if this pricing model moves into software or hardware, where third party support offerings are common, the existence of Support on Demand would lead to adverse selection, which will translate to higher prices for subscription-based support users. Here again we have the insurance analogy. The heavy users will gravitate towards the flat-fee, subscription-based contracts, while the light users will choose the On Demand option (click here for demo). The end-result of this split is that service providers may have to raise the prices for flat-fee contracts, because they can no longer support the heavy users as low-demand users are being poached by on-demand offerings.

There is one benefit for Support on Demand vendors, though, which could help to control their costs: On Demand customers are likely to be choosier when drawing on support, as they try to find the solution themselves first more often in order to save money. This diligence prevents calls where the customer and vendor could have saved time if the former had simply “Googled it.” That benefit may be a selling point for all.