CXO

K-cup coffee and a lesson for IT

The IT organization that can rapidly integrate IT services with existing environments and connect diverse components to create new offerings will rule the day.

Several weeks ago, my wife sent me an article about the wildly successful K-cup single-serve coffee format. For the uninitiated, rather than a traditional coffee maker that requires measuring, filters, and a carafe, the K-cup machines have a slot for a small plastic cup. The user puts his or her favorite mug under the spout, drops in a plastic K-cup, hits a button, and in a minute or so has a single cup of joe.

There are obvious benefits to this type of machine. You're never left with a half-empty pot of stale coffee, and everyone can get his or her favorite flavor or caffeinated versus decaffeinated coffee, since coffee is made one cup at a time. Drinks are generally consistent, and a wide variety of different flavors and styles of coffee are available. What was interesting about the article was that K-cups are astronomically expensive when considered in the context of coffee purchased by weight. A bag of ground coffee might be $3-$5, while a K-cup works out to around a buck a glass. These prices are shocking to a generation used to buying one pound or one kilo bags of coffee at the grocery store; however, the current crop of consumers has been "reeducated" to consider coffee pricing in terms of cups due to mass-market coffee chains. In the context of the average coffee chain, a $1 cup of coffee looks surprisingly reasonable compared to the usual $4 chain offering, not to mention the convenience of a cup at home or work, without travelling to the nearest chain outlet.

Clouds and per-cup pricing

We're undergoing a similar conceptual shift in IT. Where IT service delivery used to be a project- and infrastructure-focused activity, you can now purchase IT services by single servings, with most cloud providers pricing by user, time period, or on a transactional basis. Just as today's coffee consumer is thoroughly confused by grandma's calculations of coffee prices in kilos of beans, IT consumers are finding fixed implementation and infrastructure costs increasingly complex in a growing era of "single serving" pricing.

Many IT organizations have tried to adopt some semblance of this pricing model, combined with chargebacks to pay for the service, diligently tallying up infrastructure, implementation, support, and staff costs, and dividing by the number of users served. In most cases, the math never adds up, since cloud providers can readily undercut internal providers through sheer economies of scale. What's generally missing is a focus on key business problems rather than fighting the loss of core, commodity infrastructure.

Solving the business problem

As K-cups have demonstrated, people are willing to pay handsomely for convenience and control over their coffee experience. Coffee manufacturers that have licensed the K-cup technology are laughing their way to the bank, even while purchasing traditional beans or pre-ground has obviously superior economics. For IT leaders, clinging desperately to internal infrastructure and fighting new service delivery models based on economic arguments is often a losing battle.

However, if you can offer superior convenience, or focus on solving higher-end business problems, then there is a way for internal IT to stay relevant and even increase its organizational influence. As "single serving" IT services become increasingly available, the IT organization that can rapidly integrate them with existing environments and connect diverse components to create new offerings will rule the day. Rather than complex chargeback schemes that generate laughably inflated per-user costs, you can essentially provide high-value integration services and leave the hassles of core enterprise functions to someone else.

Like the K-cup, most organizations have evolved to where cost is not the primary concern when considering technology, although it can be used as a red herring to guide an outcome. Superior value and integration, rather than baseline infrastructure, will move IT forward in the era of "single serving" pricing.

About

Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent ...

7 comments
info
info

...consumer conditioning for higher prices for perceived convenience. We're all taught that our time is valuable. I think a lot of us OVER-value our time. We spend tons more money for these toys and then, in the end, we're out a whole lot more money. Another K-Cup analogy is that I've tasted the results of these products, from the Keurig to the Tossimo to the Nespresso, and others. Coffee and hot chocolate, stand-alones and lattes... For some reason, they all taste the same to me, and are watery, to boot! Comparing that with home-brew, and especially a premium 'bought' cup at a chain, is no comparison at all... How long will it take for people to realize that, I wonder?

eclypse
eclypse

I personally hate coffee and don't even like the smell of it as it stinks up the hallways near the coffee pots and machines. I do, however, love Coca-Cola and want to know where my free pot of Coca-Cola is? It is really annoying to me that coffee drinkers get their beverages for free and the rest of us do not. Now, to the point of the article and all of these single serve IT services. Without internal infrastructure, how are you going to connect to them? To get the same performance as you would get for local stuff, what size internet pipe do you have to have and how much does that cost? When they break or don't work, who is going to support them? Sure, it's nice to be able to point the finger at someone else and say, "it's their fault Jane can't do her work this morning," but if it takes their support nearly a week to fix something simple (using my last "cloud" provider experience here), that's not too good and Jane's work still isn't getting done.

seanferd
seanferd

into which you put your own coffee of choice. Or go all the way back and get a decent pot when you're in an environment where multiple cups of coffee are served simultaneously anyway. Serving a lot of coffee? You can have more than one coffee maker and a wait staff who know exactly what is needed for coffee on premises. You can have exactly what you need without the restaurant/coffeehouse markup. But then, people always seem to be willing to pay way more for something outsourced than for something in-house, so the cloud has a business model in this. I wonder what the cloud services companies will do when they get bored and want to buy servings from someone else to resell?

Vulpinemac
Vulpinemac

As clarv02 notes above, it is easy to buy K-cups in quantity for little more than buying in bulk for premium coffees--especially when you consider that there is far less waste when compared to making a pot at a time only to drink one or two cups. So the analogy would be "quality task-specific IT service" compared to "generic" one-flavor-does-all service. As far as the claimed environmental aspects mentioned, that really depends on the K-cup user. A dedicated recycler will strip the cups apart to separate the plastic cup from the aluminum cover and mesh screen inside. Admittedly we're not all dedicated recyclers but then, IT departments don't seem to be very good at recycling either--preferring to junk reusable components rather than making them available for re-use.

clarv02
clarv02

Just a little perspective on the cost of K-cups. First we should clarify that K-cups are premium coffees, so we shouldn't compare to inexpensive bags of coffee. When I was still grinding (premium) beans, I was paying around $3.50 for a quarter pound. I have read that one can get from 32 - 40 cups of coffee from a pound, depending on brew strength. Let's go with 32 for easy math, which would yield about 8 cups in a quarter pound. That would be about 44 cents per cup. I order K-cups online (not mass quantities - about 2 months worth), and the per cup cost is under 55 cents. That's almost no difference in price and doesn't even include all the convenience factors. That being said, you do have to factor in the cost of the "K" machine and how it compares to the cost of a nice coffee brewer.

CACASEY
CACASEY

Patrick - I applaud your attempt at trying to draw an analogy between K-Cups and IT purchases. But your conclusions are difficult to accept. Here's why: 1. K-cups are designed for and limited to a single-serving model. Try offering coffee to a party of 10 and you will rapidly create a queue where the 10th person will have to wait 20 minutes before the machine is available. You can temporaily solve this problem by adding more machines, but the cost (especially if you include space and power) will quickly become prohibitive. The same is true for "single serving" IT. In some instances the model will work, but in many (and for those who do the math) it will not. 2. Consumer conditioning to higher prices for substituted products is a well known economic behavior. But in the IT world, we have all been shown that things get radically cheaper over time. Since most businesses exist to make a profit, doing things that are inherently wasteful (economically speaking) like spending $85/month for year for 1 Tb of cloud storage ($1,020 per year - current Google Cloud storage prices), when the same Tb can be had in a fixed infrastructure environment for a capital cost of one half of one months rent, will quickly inflate IT's budget. As pressure from the business to do more things with less money, the "shocklingly high" prices will become unsupportable. So your statement of cloud-services undercutting internal providers may be true for very narrowly defined usage, but overall all it doesn't add up. 3. While I agree that complex, artificially inflated chargeback schemes add little value, to suggest that rapid integration of a cost-is-not-a-factor "single serving" model is the future of IT flies in the face of reality. While it may be a model that works well for small enterprises with limited resources and few employees, it becomes unsustainable for large scale enterprises. Did the article your wife gave you say anything about the environmental problems K-cups are causing? This falls into the realm of the law of unintended consequences. Applied to IT, one way this would manifest itself is in needing additional labor and technical resources to manage all of the rapid integration points. To me, when combined with a high acquisition cost, this activity adds very little value to the business. I'm sure there's an appropriate K-Cup/IT analogy out there. But it's not the one you've presented. - CASEY

james
james

Don't forget you can also buy a re-usable K-cup that you can fill with your own ground beans. That gives you the same cost per cup, but allows you to make individual cups and save on un-used waste.