Optimising Observability with Consumption Pricing and Billing

From word processors and simple firewalls to complex, multi-layered cloud native stacks, the evolution of technology in recent years has changed the world.

Businesses are now firmly reliant on their tech to be able to function – customers and employees alike are so used to the convenience it supplies. Online presence, customer experience, productivity; all are underpinned by their need for properly functioning software.

But to keep the various layers of the software stack operational, real-time understanding of its performance is essential. To accomplish this, an increasing number of businesses are ramping up their observability practices, which allow engineers to resolve errors before their customers experience them, ensuring the delivery of a seamless user experience. Already, according to New Relic’s 2022 Observability Forecast, over 50% of IT decision makers view observability as a key enabler for hitting core business goals.

With economic turbulence set to be a defining factor of 2023, cost-saving measures will become increasingly critical for any business. Observability provides methods of maximising cost-saving, while providing the essential visibility that is becoming a priority for many businesses.

Uncontrolled Spending

Observability was originally only available through rigid pricing models. Traditional pricing is host-based, or infrastructure-based, also commonly referred to as quantity-based. This means that the observability platforms that subscribe to this model bundle together product pricing for each individual type of monitoring, spreading costs across multiple pricing units, including hosts, nodes, agents, and containers. Users then pay for each metric on a monthly use-it-or-lose-it basis.

However, with modern, cloud-managed architectures built on abstracted underlying infrastructures, it has become increasingly difficult to count hosts and accurately predict costs. Often, customers are also required to bundle adjacent use cases, which can result in having to pay for more monitoring than they need.

Overall, businesses that use host-based pricing for observability often see prices driven up beyond their control. Due to this, engineers are forced to reduce their instrumentation coverage and the amount of telemetry data they ingest. Instead, they have to sample data, count agents, and create custom metrics. At the same time, they still may be hit with surprise or hidden fees, or would have to curb infrastructure growth to ensure they remain aligned with observability budget requirements.

The reality is that host-based pricing didn’t match the way modern technology operates. Businesses need to be prepared to scale up quickly even as external factors like the pandemic or sudden economic shifts may see data usage plummet. Observability pricing models need to be able to flex alongside the market, and so in response, New Relic switched to a consumption-based pricing and billing model.

A Different Way to Pay

The consumption model has been well received, with businesses across the globe economising their operations. In fact, several of our new customers – including Tibber, a European energy-based company, and Tesco, one of the UK’s largest retailers – have cited the consumption pricing model as a reason for signing with the observability company.

By using just two pricing dimensions – the number of users and the amount of data used – businesses only pay for what they use, effectively getting rid of shelfware. New Relic’s 2022 Observability Forecast found that having the flexibility to scale usage on consumption without being tied into a monthly minimum is the most important feature for customers. Meanwhile, a 2021 playbook by OpenView found that customers gradually raise their expenditure with usage-based models as they can directly link the costs with the value received.

Strengthening Channel Relationships

The 2021 Observability Forecast found that two thirds (65%) of respondents were migrating from subscription-based models, like host-based pricing, to a consumption model (23% of respondents). As a result, the vendor/customer relationship is drastically changing, with a focus on creating longer-lasting relationships, and customers seeing significant value. By putting the emphasis on incremental consumption and gradual increase in expenditure, vendors remain invested in their customers’ success beyond the initial sale.

Consumption-based models enable the expansion of observability practices as needed, helping businesses to monitor and control spending. Observability can act like a silent guardian, continually keeping an eye on operations when its scope isn’t limited. By switching to consumption-based pricing, businesses can more efficiently monitor the entirety of their software stacks.

About the Author

Mark Crawford is VP, Strategy and Execution at New Relic. New Relic helps engineers and developers do their best work every day — using data, not opinions — at every stage of the software lifecycle. The world’s best engineering teams rely on New Relic to visualize, analyze and troubleshoot their software. New Relic One is the most powerful cloud-based observability platform built to help companies create more perfect software. Learn why customers trust New Relic for improved uptime and performance, greater scale and efficiency, and accelerated time to market at newrelic.com.

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