Comment by amoshebb
9 days ago
I’m not a business person, but they’re already at the “hundreds of thousands of servers” scale, what about the 41st data center be organizationally far more expensive than the first 40?
9 days ago
I’m not a business person, but they’re already at the “hundreds of thousands of servers” scale, what about the 41st data center be organizationally far more expensive than the first 40?
Simple example: Pizza delivery service. The company runs very well, customers are happy, demand increases. At some point the demand gets so high, that they need to buy a second car for deliveries and a second pizza oven.
They look at the numbers and see the risk of making less profit than before, if they expand. Especially if demand decreases at some point, instead of growing further. So they decide to just raise the prices, lower demand and make even more money without additional risk.
GP's point is this isn't the 2nd car, this is the 41st car. If they had 1 car it'd be a 2x increase. If they have 40 cars, the only way the 41st car would lead to a 2x increase is if that single car cost as much as 40 other cars.
That's what the post you're responding to was asking.
The real question is whether it's actually just the 41st car or if the demand is such that they'd have to go from 40 cars to 200 and then risk having the demand fall back off after they've already sign on to making 160 more car payments.
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It's a business that seems to have high operational leverage. Effectively, similar to airlines. Enormous capital outlays with low marginal costs, so once the current infra has been built at cost x, the additional data centre at cost 5x (or whatever multiple) might mean that it's not profitable to keep serving at the current prices.
Businesses charge their customers as much as they can. Businesses want to raise prices almost regardless of what their input costs are.
It is wrong to believe that a product's "correct" price is simply its cost plus a reasonable markup.
There's other factors that might limit how much a business can charge their customers. But an ideal business acts more like a monopoly and charges far far more than is 'fair'.
In theory competition keeps prices in check: in practice competition doesn't work as advertised.
> Businesses charge their customers as much as they can
That's very imprecise.
There are multiple optima on the price/demand elasticity curve.
At the two ends: Few expensive items and many inexpensive items, Hetzner has consistently operated at low margins and massive volume.
Which means they charge customers as little as they can to get as many customers as possible.
You'll see that evident on any price comparison chart prior to these adjustments.
They're probably still cheaper than everyone else in spite of 3x'ing the price of some products.
Your overall point is true - but I'm unsure whether you are clarifying or trying to ackshualise.
And well actually, "price/demand elasticity curve" appears to be ambiguous word-salad (although a human mistake;)
I do appreciate your response: it makes me think about what I should have written. You are correct that my comment was rather unclear. Most of us misunderstand how businesses maximize profits. I find economics hard.
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