Instacart’s IPO Triggers Snowflake Pricing Review

November 16, 2023
IT Snowflake

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In the intricate web of IT vendor intelligence, sometimes the most revealing insights come from unexpected sources. Instacart’s recent S-1 filing, a prerequisite for its IPO, has inadvertently put a spotlight on the competitive dynamics and behaviors of cloud solution providers, particularly Snowflake pricing. This revelation not only sparked a battle among industry giants but also raised crucial questions about cloud computing costs for businesses.

Here’s how things transpired: Snowflake CEO Frank Slootman sits on Instacart’s board of directors. Instacart is a major customer of Snowflake’s cloud-based data warehousing services. Ahead of Instacart’s IPO, the company had to disclose details of the business relationship between the two companies including financial history.

The drama unfolded with the discovery that Snowflake had drastically reduced its fees by over 70%. This significant drop, made public through Instacart’s IPO disclosures, set off a chain reaction. It forced Instacart and Snowflake to issue statements explaining why. Snowflake’s rival, Databricks, also joined the fray by claiming part of the drop was due to Instacart moving workloads away from Snowflake onto its own architecture.

As the public spat ensued, many Snowflake customers were left wondering if the drop-off in payments reflected a decline in Instacart’s usage – or perhaps that Instacart had received better pricing from Snowflake. We may never know exactly what happened (Snowflake’s comments are rather limited in scope), but it’s reasonable to expect the decrease in costs is a combination of Snowflake reducing fees and optimizing workloads as well as Databricks taking on more of Instacart’s business.

There is wisdom for Snowflake customers to gain from the controversy. Namely, now is a good time to inspect their current Snowflake pricing for savings opportunities.

Take an Objective Look at Current Snowflake Pricing

Snowflake pricing is notoriously opaque, making it difficult for customers to know if they are paying a fair price. The vendor’s discounts only tell part of the story. If you haven’t benchmarked pricing to see how your deal compares to best-in-class pricing targets, now is the time to do so. On the heels of the Instacart controversy, Snowflake customers may find themselves in a position to secure more competitive pricing and contractual business terms. In particular, NPI suggests looking at the history of any “optimization” efforts as well as how much compute fees may have increased over time.

Use Upcoming Renewals to Broach Optimization Conversations 

Snowflake’s comments regarding Instacart indicate that “optimizations” were a major reason that vendor fees were slashed. NPI finds that optimization as well as pricing improvements are often warranted in larger Snowflake spends as many large enterprise customers are often paying rates that are above fair market value and there are cost- and workload-related opportunities to drive down spending. If you have a renewal on the horizon, and you confirm your pricing is above fair market value, take Instacart’s lead and start the optimization conversation. What changes to pricing, contractual terms and workloads can be made to bring costs into line?

Position Competition Where Necessary to Drive Snowflake Pricing Concessions

Databricks has positioned itself as the natural competitor to Snowflake in this situation, but many other vendors are vying for market share. Knowing when and where to apply competitive pressure during purchase and renewal negotiations is key – especially given the competitive sensitivity that has unfolded around the Snowflake-Instacart-Databricks controversy. In addition to Databricks, NPI recommends bringing at least one other competitor to the table. Contenders we see frequently are AWS Redshift, Microsoft Azure, Teradata, and/or Oracle Exadata.

Know Your Blind Spots

Snowflake customers have a unique opportunity to use recent events as leverage in contract negotiations. But those conversations need to be backed by external pricing data that validates whether or not the customer is receiving pricing, discounts and contract terms that truly competitive and best in class. Come to the table prepared!

If you’re interested in performing price benchmarking on your Snowflake purchase or renewal, NPI can help. Contact us to learn more.

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