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Today @joeweinman kicked off a thought provoking piece, outlining some of the latest thinking in behavioral economics and applied it to the cloud computing market. Unlike Joe, I’m not a deep expert on all of the cognitive science behind these economic models, but I have a pretty simple equation that has pragmatically guided my working life straddling the business and technology DMZ. 

Want to see it? No problem I’ve written it out for you in my notebook:

P3

What are the variables? Its a very simple construction:

P= Perception

B= Benefit

C= Cost

V= Value

The most important part of the equation for me is that P is multiplicative; it can go to 0 (no awareness, or complete bias), or it can get much lager than B itself. I view many of @joeweinman’s 1-10’s as expert methods of describing a range of the P effects in buyer behavior. 

Second, the P value affects both B and C, independently, and could rightfully be described as a separate trail each time its called (P1, P2 etc). Joe’s rule #8 is a great example of cost perception irrationality/shift. 

Businesses are always looking for core “use case” examples and customers for new technologies, precisely because the ‘P‘ variable is so powerful. Even intelligent customers can’t always discern the validity and benefits of a new technology without some supporting social proof and narrative (we are sick of Animoto, but it was an epic social proof to the web-start up community around the cloud story). 

Pvalue_1

This simple math leads to a V output: sweet, a customer now has a value ranking for the offer. 

Now the magic really happens: time for marketing theory to kick in. We need to define the ‘zone of tolerance,’ or the range in which variability in ratios of offering V1, to offering V2 will not result in a change in buying behaviors. This can vary by product categories, but generally if an offering has a more than 40% higher V rating it will be seen not just as an alternative, but as a whole new category unto itself.

As an extreme example, compare the costs of buying and provisioning a new server and database from scratch with or without a cloud computing offering. For a buyer looking to have such a stack provisioned in less than a few hours the ratios of costs etc between traditional and cloud oriented offerings would be in the thousands of percent ranges. That buyer might also be less concerned about the long lasting operating variables of the solution–their need was immediacy. Sound familiar? This is exactly how cloud computing began to dominate the purchasing behaviors of undeserved developers even in large enterprises.

Its why the #1 template on Rightscale is an all in one LAMP development stack in a VM. 

P2

P has classically also had very strong association with brand based powers. Its interesting to see how people will potentially leverage their brands to affect the customer P in the cloud. A few off the cuff thoughts:

Microsoft: Integrated, easier, all in one

Amazon: lowest cost, highest convenience 

VMware: Highly adaptable, portable/flexible, uniquely powerful engineering, next generation stack  (disclosure, I work there, but I’m not speaking for any official party line, just some thoughts) 

Rackspace: customer commitment, customer commitment

IBM: trusted advisor, holistic researcher, can I sell you a mainframe

As I observe the powerful swirl of emerging customer use cases, product launches, brand reinforcement, FUDing, and more I keep this little equation close by. It might not always tell me exactly how to formulate the the all important P variable, but it gives me a framework for understanding what’s at stake, and how, at a high level, market competition is taking place. 

One thought on “From perception to disruption in the cloud: an equation

  1. @joeWas a pleasure seeing you at #Structureconf and speaking more about these dynamics in person. You nailed it in the response here, bringing a level detail up, and testing the quotient appropriately. What’s interesting about the equation is that it mixes irrational and rational inputs, but in a consistent way. Sometimes the arguments swing to polar extremes–which is what I hope to avoid in my take here. Your rules then plug in nicely with the (P), allowing the business practitioner a chance in hell of modeling the buyer.

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