If you’ve used Priceline, You Understand UCX

Written March 28, 2016 by
Jack Bouroudjian
Chief Economist

I am a Priceline addict. It has been the only way that I’ve booked hotel rooms for more than 15 years. It’s become a game for me. When the page pops up that tells me my low-ball bid was accepted, it gives me a rush that I assume is similar to an addicted gambler betting on an underdog that covers the spread with a last second basket.

It all began in 2000, when a colleague told me that he just purchased a 4-star hotel room in Boston for $75 from a new website.  I tried it the next day. I bid on a Mid-Town West, 4-star hotel room in New York for $80. At that time, 4-star hotel rooms in that part of Manhattan typically sold for $225 – $275. To my surprise, my bid was accepted  by the New York Hilton on 6th Avenue. I was instantly hooked.

Before I used Priceline, I often would attempt to secure better prices for hotel rooms by employing a tactic known as a “walk-up rate”. I’d walk into hotels, ask for the manager and essentially make bid for a room by offering the manager the price I was willing to pay.  If the hotel had empty rooms, the manager was likely to accept my bid. I often got what I thought was a great deal, but I had no realistic way of comparing the prices of all the hotels in a given area before making my bid. Whether or not I negotiated the best deal was never verified.

I wouldn’t be surprised if the founders of Priceline were former walk-up bidders themselves, who used the power and speed of the internet to enable buyers to quickly compare the prices of multiple hotels, and make a “digital walk-in bid” to hotels that specifically fit the buyer’s requirements and had an excess supply of rooms.

Since Priceline, dozens of competing services for airfare, hotels, and rent-a-cars have appeared. The concept has expanded to other vertical markets, as well. GolfNow for tee times, AirBnB for overnight stays in private residences, and OpenTable for seating in restaurants, are all based on the same business model. It is predictable in this digital age that any inefficient market can be significantly improved with the help of a Priceline type service.

Before the creation of UCX, buyers of cloud compute resources found it impossible to compare the price and service levels between cloud service providers (CSPs), and had to accept the industry pricing models offered by the CSPs, which are allocation based and do not encourage full utilization, (but this will be a subject for a subsequent blog). The point is that the CSPs had all the power and created a business model that is not in the customer’s best interest. Enterprises buy cloud compute resources to be prepared to handle peak periods and disaster recovery. As such, they’re paying for those resources 24/7, which are rarely if ever used.

The creation of the UCX trading platform solved both problems. In addition to being an outlet for CSPs to monetize idle assets, UCX uses a single unit of measure to enable buyers to quickly and accurately compare the offerings of CSPs, and make bids to purchase compute resources at the price they are willing to pay.  Like Priceline, CSPs can choose whether to accept the bid, or make a counter offer. More importantly, computer resources are metered, so buyers only pay for the resources they actually use, just like we pay for electricity.

While UCX was founded by former commodity traders, who developed the business model to reflect the fundamental principles of a commodities market, I see many similarities to the Priceline model.

UCX, like Priceline, operates on the principle that excess supply in the market can be monetized.

Buyers on both can quickly and effectively compare quality and price offered by competing sellers.

Similar to enabling the buyer on Priceline to choose the star rating and location, member buyers of UCX  have specific requirements for their cloud computing needs, such as level of service, minimum CPU, etc…

The business models of both Priceline and UCX gives the buyer a distinct advantage by putting sellers in the position of competing for the buyer’s business.

Make no mistake, UCX is an exchange, exactly like its major partner, the Chicago Mercantile Exchange.  UCX has far more features and benefits than I’ve described here. But for those of you looking to acquire cloud compute resources from the exchange for the first time, think about UCX in the way you think about Priceline. The only significant difference I see between the two is the maturity of the businesses. However, UCX continues to add member providers and buyers every day. With each new buyer or seller, the exchange becomes more efficient.  The inevitability that UCX will become the central location for enterprises to acquire compute resources is a foregone conclusion. I’m not a gambler or a handicapper, but I’m convinced that betting on the growth of UCX is a sure thing.