Pure-ism is financially dangerous

As the world around changes, services are rapidly changing from human rendered services, to bots and applications that run on your mobile device. Ranging from your local pizza shop, to a multi-billion corporation – all are rapidly moving to the bot/application economy paradigm – in order to facilitate growth and lower their TCO.

According to SkyHigh Networks study, the following may come as a shock to most – but most  enterprises will use up to 900 different cloud applications. These require an amazing number  of over 1,500 different cloud services in order to work. Out of these 1,500 cloud services, a group of 50 top-most cloud services can be observed, normally relating directly to infrastructure – we’ll call these “Super Clouds”.

The “Super Clouds” can be divided into several “Primary” groups:

– Infrastructure Clouds (Amazon AWS, Google Compute, Microsoft Azure, etc.)
– Customer Relation Clouds (Salesforce, ZenDesk, etc.)
– Real Time Communication Clouds (Twilio, Nexmo, Tropo, etc.)

It is very common for a company to work solely with various cloud services – in order to provide a service. However, using cloud services has a tipping point, which is: “When is a cloud service no longer commercially viable for my service?” – or in other words: “When do I become Uber for  Twilio?”

Twilio’s stock recently dropped significantly, following Uber’s announcement – http://bit.ly/2rVbzxG. Judging from the PR, Uber was paying Twilio over $12M a year for their services, which means that for same cash, Uber could actually buyout a telecom company to do the same service. And apparently, this is exactly what’s going to happen, as Uber works to establish the same level of service with internal resources.

Now, the question that comes to mind is the following: “What is my tipping point?” – and while most will not agree with my writing (specifically if they are working for an RTC Cloud service), every, and I do mean EVERY type of service has a tipping point. To figure out an estimate your tipping point, try following the below rules to provide an “educated guess” of your tipping point – before getting there.

Rules of Thumb

  • Your infrastructure cloud is the least of your worries
    As storage, CPU, networking and bandwidth costs drop world-wide – so does your infrastructure costs. IaaS and PaaS providers are constantly updating prices and are in constant competition. In addition, when you commit to certain sizing, they can be negotiated with. I have several colleagues working at the 3 main competitors – they are in such competition, where they are willing to pay the migration prices and render services for up to 12 or 24 months for free, in order to get new business.
  • Customer Relation Clouds hold your most critical data
    As your service/product is consumer oriented, your customers are your most important asset. Take great care at choosing your partner and make sure you don’t outgrow them. In addition, make sure that if you use one, you truly need their service. Sometimes, a simple VTiger or other self hosted CRM will be enough. In other words, Salesforce isn’t always the answer.
  • Understand your business
    If your business is selling rides (Uber, Lyft, Via, etc), tools like Twilio are a pure expense. If your business is building premium rate services or providing custom IVR services, Twilio is part of your pricing model. Understand how each and every cloud provider affects your business, your bottom line and most importantly, its affect on the consumer.

Normally, most companies in the RTC space will start using Amazon AWS as their IaaS and services such as Twilio, Plivo, Tropo and others as their CPaas. Now, let us examine a hypothetical service use case:

– Step 1: User uses an application to dial into an IVR
– Step 2: IVR uses speech recognition to analyze the caller intent
– Step 3: IVR forwards the call to a PSTN line and records the call for future transcription

Let us assume that we utilize Twilio to store the recordings, Google Speech API for transcription, Twilio for the IVR application and we’re forwarding to a phone number in the US. Now, let’s assume that the average call duration is 5 minutes. Thus, we can extrapolate the following:

– Cost of transcription using Google Speech API: $0.06 USD
– Cost of call termination: $0.065 USD
– Cost of call recording: $0.0125 USD
– Cost of IVR handling at Twilio: $0.06 USD

So, where is the tipping point for this use case? Let’s try and separate into 2 distinct business cases: a chargeable service (a transcription service) and a free service (eg. Uber Driver Connection).

  • A Chargeable Service
    Assumption: we charge a flat $0.25 USD per minute
    Let’s calculate our monthly revenue and expense according to the number of users and minutes served.

– Up-to 1,000 users – generating 50,000 monthly minutes: $12,500 – $9,625 = $2,875
– Up-to 10,000 users – generating 500,000 monthly minutes: $125,000 – $96,250 = $28,750
– Up-to 50,000 users – generating 2,500,000 monthly minutes: $625,000 – $481,250 = $143,750

Honestly, not a bad model for a medium size business. But the minute you take in the multitude of marketing costs, office costs, operational costs, etc – you need around 500,000 users in order to truly make your business profitable. Yes, I can negotiate some volume discounts with Twilio and the Google, but still, even after that, my overall discount will be 20%? maybe 30% – so the math will look like this:

– Up-to 1,000 users – generating 50,000 monthly minutes: $12,500 – $9,625 = $2,875
– Up-to 10,000 users – generating 500,000 monthly minutes with a 30% discount: $125,000 – $48,475 = $57,625
– Up-to 50,000 users – generating 2,500,000 monthly minutes with a 30% discount: $625,000 – $336,875 = $288,125

But, just to be honest with ourselves, even at a monthly cost of $48,475 USD, I can actually build my own platform to do the same thing. In this case, the 500,000 minutes mark is very much a tipping point.

  • A Free Service
    Assumption: we charge a flat $0.00 USD per minute
    Let’s calculate our monthly revenue and expense according to the number of users and minutes served.

– Up-to 1,000 users – generating 50,000 monthly minutes: $9,625
– Up-to 10,000 users – generating 500,000 monthly minutes with a 30% discount: $48,475
– Up-to 50,000 users – generating 2,500,000 monthly minutes with a 30% discount: $336,875

In this case, there is just no case in building this service using Twilio or a similar service, because it will be too darn expensive from the start. Twilio will provide a wonderful test bed and PoV environment, but when push comes to shove – it will just not hold up the financial aspects.This is a major part why services such as Uber, Lyft, Gett and others will eventually leave Twilio type services, simply due to the fact that at some point, the service they are consuming becomes too expensive – and they must take the service back home to make sure they are competitive and profitable.

When Greenfield started working on Cloudonix – we understood from the start the above growth issue, and that’s why Cloudonix isn’t priced or serviced in such a way. In addition, as Cloudonix includes the ability to obtain your own slice of Cloudonix or even your own on premise installation – your investment is always safe.

To learn more about our Cloudonix CPaaS and our On-premise offering, click here.