No problem per-se, but to give a simple example:
Suppose a developer, let's call him Salvatore, lives in a modest apartment in, say Italy, and would live very comfortably indeed on three hundred thousand euros a year.
And let's say three cloud providers, call them, Jungle, Blue, and Lots, agree to give Salvatore a hundred thousand a year each to keep developing a, I don't know, a high-performance in-memory database. Lucky Salvatore, plenty of money for doing what he loves anyway.
Let's say that this database is quite good, and Jungle, Blue, and Lots each make a cool hundred million a year in pure profit renting out instances that run Salvatore's code.
So, whilst Salvatore has done perhaps better with the cost-plus model than he was before, he is capturing just 0.1% of the economic surplus that is being generated by his code.
And that is the problem in this scenario: if all elements of the value chain are cost-plus except one, that one element captures all of the surplus even though it may not be deserved.
Suppose a developer, let's call him Salvatore, lives in a modest apartment in, say Italy, and would live very comfortably indeed on three hundred thousand euros a year.
And let's say three cloud providers, call them, Jungle, Blue, and Lots, agree to give Salvatore a hundred thousand a year each to keep developing a, I don't know, a high-performance in-memory database. Lucky Salvatore, plenty of money for doing what he loves anyway.
Let's say that this database is quite good, and Jungle, Blue, and Lots each make a cool hundred million a year in pure profit renting out instances that run Salvatore's code.
So, whilst Salvatore has done perhaps better with the cost-plus model than he was before, he is capturing just 0.1% of the economic surplus that is being generated by his code.
And that is the problem in this scenario: if all elements of the value chain are cost-plus except one, that one element captures all of the surplus even though it may not be deserved.