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How Tech Pricing is Like Airplane Tickets

by Chris Gaun  |  January 10, 2013  |  1 Comment

Image Source: Boeing Dreamscape

The AP recently pointed out that technology-driven ticketing services are now struggling with airlines that withhold some pricing data from third parties. It explains:

Global distribution systems that supply flight and fare data to travel agents and online ticketing services like Orbitz and Expedia, accounting for half of all U.S. airline tickets, complain that airlines won’t provide fee information in a way that lets them make it handy for consumers trying to find the best deal.

The airlines do usually supply their basic costs to get from point A to B. This stripped pricing, with no extras, is what is needed by travel services to produce an apples-to-apples comparison. Similarly, Tech Planner from Gartner uses basic server configurations to help users come up with ball-park comparisons of the costs of different suppliers. Users can add options from the Tech Planner database to these basic server configurations. But, they should not compare a heavily provisioned server (say, with tons of memory) with a light one from an alternative supplier. Still, the ability to perform objective, baseline comparisons of the costs for different solutions is an important requirement for enabling a healthy market. What online ticketing services aim to accomplish in the travel market is enable a comparison of total travel cost, a variable that IT customers struggle with as well. The airlines want access to online markets – which are enabled by the third-party, tech-driven ticketing services – but they do not want to commoditize options like extra leg room. A perfectly competitive system, which commodities come closest to, earn normal profits. With normal profits, the cost to produce one unit of a good (including management cost, interest on capital, etc.) is equal to the revenue received for that good. There is no extra profit on top of the cost. Analyst spend a lot of time comparing one technology vs. another, and pricing has to be part of that process. As with airline ticketing services, delivering objective pricing comparisons makes the IT market more competitive and drives down the cost for end users.

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Category: total-cost  

Chris Gaun
Research Analyst
4 years at Gartner
7 years IT industry

Chris Gaun is an Analyst with Ideas Research. ...Read Full Bio

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