Question on 95th percentile and Over-usage transit pricing

Thu Sep 22 20:52:10 UTC 2011

On Thu, Sep 22, 2011 at 10:31:34AM -0700, Ryan Malayter wrote:
> On Sep 22, 12:54 am, PC <paul4... at gmail.com> wrote:
> > An optimal solution would be a tiered system where the adjusted price only
> > applies to traffic units over the price tier threshold and not retroactively
> > to all traffic units.
> 
> I have seen a more "optimal" scheme about 15 years ago. Pricing was a
> smooth function, but it was for software licensing, not networking.
> 
> As I recall, their scheme went something like:
> invoice_amount = some_constant * (quantity)^0.75
> 
> This seemed smart to me. It gave the customer incentives to invest
> more, but also got rid of silly discontinuities that would cause
> irrational customer and salesperson behavior.
> 
> Has anyone seen something similar in the service provider world? All I
> ever see are arbitrary step functions.

I actually had this discussion quite recently with The Powers, as we have
some fairly interesting issues with the results of our newly adjusted
pricing steps.

The rationale behind sticking with the steps was "everyone else does it that
way, so when customers are making comparisons they need to be able to make a
meaningful comparison" and "continuous functions are too hard".  Given that
we're not a market leader in network traffic, I somewhat see the logic
behind the first, and given the average customer has trouble understanding
that XGB per month at $Y/GB => $X*Y, I totally see the point on the second,
*in general*.

However, if you want it, ask for it.  Go so far as to say that you'll only
consider pricing functions that are continuous, and therefore will be making
an apples-for-apples comparison.  You'll exclude a lot of the market, simply
because the contracts can't be modified like that or the billing system
can't handle it, but I'm fairly confident that the data to create such a
function exists at every sanely-run network provider.

- Matt

-- 
"For once, Microsoft wasn't exaggerating when they named it the 'Jet Engine'
-- your data's the seagull."
		-- Chris Adams