Comment by ianmcgowan
6 years ago
That generous free tier probably costs more to run than all the paying customers combined, depending on how generous we're talking and the proportion of free to paying. There was likely also no revenue for a significant time, but still salaries to pay, and other costs to be borne.
If you really think the profit margin is 99.96% for that tier two customer, it should be pretty easy to create a competing business to provide the trivial service and charge a lot less. Like $0.02 and have a 50% profit margin :-) But I think you're underestimating how much it costs to run a business, even if compute costs are cheap.
I’m not thinking in terms of business here. Look what has happened to iPhone apps. You can get all sorts of great apps for free. Writing an app, no matter how hard it is is no longer enough to be a business. Look at open source: people spending half their lives writing free programming languages. When was the last time someone purchased a compiler?
The tech ideas talked about in the article could help commoditise at the saas level. You’d no longer need an engineering team because the app is designed to work with generic cloud services. The engineering is done by digitalocean or whoever. The software is free or maybe $100 one off license for forms say. Like a desktop application of yore.
It’s a separation of concerns between features and infrastructure. A bit like desktop apps. You don’t need to buy a new computer for each app, so why pay a computers cost in cash every year for form filling or value add file storage or whatever.