Stop Talking About Costs

I was at the recent Melbourne launch of Pure Storage, and a single word permeated much of the conversation: cost.

It was a central part of their pitch that day. Pure were spruiking their gear as being at cost-parity with spinning disk for “effective storage”, meaning after their special-sauce software had done all its dedupe and compression magic, they could squeeze just as many photos onto their fancy Flash arrays as you could on something using spinning rust.

I’m not going into that argument today, though it’s a rich topic for discussion. No, to keep with my current marketing and IT theme, I want to question the underlying premise: that the cost matters.

Don’t get me wrong, it’s not totally irrelevant, but as far as humans go: it’s never just about the price.

The Obsession With Cost

You see, IT departments are obsessed with cost, and it’s not a healthy obsession. To focus on the cost game is to turn yourself into a commodity, and that’s a game that you and your IT department are going to lose.

If price is the only difference between two products, they’re a commodity. In a functionally efficient market with plenty of competitors vying for customers, there’s plenty of incentive for other players in the market to undercut your prices, and attract more buyers. If another vendor has lower production costs than you, they get to keep more of the money at that price than you do. You either have to get your costs down, or you’ll go bankrupt. When this kind of undercutting breaks out, it’s called a price war, and smart companies know to avoid them.

In a price war, the company with the lowest production costs wins. And, like the great 80s movie The Highlander, there can be only one.

For IT departments, it just doesn’t make any sense to play this game. You don’t have the scale of Amazon or Walmart. You also haven’t been spending the same amount on R&D as Amazon famously have. How on earth are you going to get the cost of virtual machines down to where they are for AWS? Or Rackspace? Or Azure? You’re nowhere near the cost leader. In fact, you’re probably not even in the top 50.

By playing the cost game, you’re setting yourselves up to have the business switch over to any one of a dozen other companies who are doing what you do, only cheaper. And by continually obsessing about costs (i.e. prices), you’re training your customers (the business) to focus on the prices you charge and compare them to AWS and Salesforce.com. Do you really thing you can win?

IT has let the business browbeat them into outsourcing their own jobs. And it’s time to stop.

Why is Water So Expensive?

Let’s look at another ostensible commodity: water. Bottled water costs, at least, $3.88 a litre. Water comes out of my taps for 2000 times less. Bottled doesn’t have fluoride, so it’s worse for your teeth. Actually, in some cases, it pretty much is tap water!

Why do people buy it? Because it’s not just about price.

If you’ve never read it, I highly encourage you to pick up Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone. It will change the way you look at prices forever.

Humans are deeply irrational when it comes to prices. There are circumstances when we will pay more for an objectively worse deal [PDF link].

Instead of focussing on cost, IT should instead be thinking about value, specifically perceived value.

Perceived value is why people buy diamonds, which are objectively just shiny dirt. It’s why they’ll pay thousands of dollars for a handbag. It’s why they’ll line up around the block for the latest Apple product, and why they buy designer jeans, and why they eat at nice restaurants, or hire consulting companies. It’s why people will frequently pay a lot, lot more than what something costs.

It’s Value Time

What value does IT provide to the business, according to what the business believes? If it isn’t larger than what it costs, then the business will feel they’re getting a bad deal. And that’s exactly what’s been going on for years.

All this time, IT has been focussing on costs, and has been reducing them, sometimes dramatically. But the business doesn’t love IT because it costs less than it used to. Clearly cost isn’t the most important thing in the customers’ world. If, instead, IT spends at least as much time talking about the value they provide to the business in areas the business cares about then the perceived value of IT will go up.

All other successful retailers get this, from those selling SSDs to sugar to cars to tax returns. You have to talk about value. No marketer worth their salt says something is “cheap”. They say “value for money”.

When I put the question to the Pure Storage audience, the conversation really came alive. People were eager to talk about the value they provided, or the value that could be delivered by high performance storage. Talk of costs kept creeping back in, but it was encouraging that the desire to talk about value does exist. It’s so exciting and energising to hear people explain how they can now send MRI scans of a broken arm across the planet to a world-renowned  expert in real-time. That’s the value of IT.

The most succinct response on the day from was Vaughn Stewart, Chief Evangelist at Pure Storage. He said: “Our goal is to drive the cost element out of [the decision] and then offer you a business proposition: If I can make your storage 10 times faster, at the same price point or less, why wouldn’t you? And think about the possibilities that brings to bear.” [emphasis mine]

It’s not about doing the same thing that you did yesterday for 5 cents less today. It’s about what IT can do that will drive additional value for the business. If all you think about is cost, you’re not going to provide the sort of value that makes you a valued partner with the business, and it’ll be all too easy to ship your job off to India, or Africa, or wherever the lowest costs are. We’ve already seen that happen time and time again.

IT has become so used to talking about costs that it’s hard to get away from. Costs are easy to talk about because they’re the most visible, and easy to describe.

But they’re not the most important.

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