The marginal cost of No/Low-code Apps (Power Platform)

No/Low-code development platform (Power Platform in particular) aims to make it easier to build applications by removing as much of the hand-coding as possible. Such technologies become even more important as companies have to build applications to work across a wider range of devices, including smartphones, and be more agile i.e. developing new solutions in weeks instead of months/years (cf. COVID-19).

Beyond the obvious benefit from the reduction of the apps development cost, CIOs will have the inherent duty to demonstrate the Power Platform value to their departments.

There are many factors to consider when looking at the business value of the Power Platform: most of the time companies are just looking at license cost and are not really considering the overall platform value.  Indeed once such solution is deployed, numerous applications can be deployed which would generate substantial value for the business. Here I would like to introduce the concept of marginal cost when looking at cost and value equation of a low/no code platform. 

Introduction : What is the Marginal Cost ? 

In economics, the marginal cost is the change in total cost that comes from making or producing one additional business apps. To calculate marginal cost, divide the change in development costs by the change in quantity. Typical apps cost includes : cost of development, cost of maintenance and licenses.

The purpose of analysing marginal cost with Power Platform is to determine at what point an organization can achieve economies of scale to optimize application development cost. If the marginal cost of producing one additional business app is lower than the per-unit value, the company has the potential to achieve a large profit. 

Price is what you pay, Value is what you get

Chances are you are already on Office 365 - so this means you have a free version of PowerApps which allows you to create an unlimited amount of PowerApps that connect to Office 365 data.

If you are looking for a way to create complex data tables, form structure, and business process flows, you will need PowerApps premium licensing in order to be able to connect to the premium data sources (CDS) or connect to third parties systems. For end users, the licensing cost is € 34/user per month. View the  for more details.

When considering a company wide deployment, this correspond to an important investment however typical value derived from this technologies is substantial and can easily justify the cost. Here in order to compare the cost to the value I would propose to use the marginal cost concept. 

… so let look at the marginal cost of Power Platform. 

Developers are expensive. Talented developers even more so. No-code solutions give you a way to bypass that. It takes away a lot of the overhead cost that comes with requiring a skilled team of developers on staff all the time.

In many cases, given the Power Platform capabilities, an Apps can be produced with limited effort (man-days) and hence for close to zero cost. This lead to consider the apps being developed at a marginal cost of zero (1,2) as the license cost has been paid at the beginning of the project. Over all the cost marginal cost of the technology can be illustrated as follow. 

Once a company has acquired Power Platform license, the marginal cost for an additional apps is the cost of developing that apps which is close to zero, because the costs incurred by the company for any additional apps are not affected by the licence cost.

The benefits based on various implementation we see ROI per apps in less than 1 months i.e. the cost to develop is covered by one month of benefits.

Notes :

(1) The term “zero marginal costs” is commonly used to refer to cases where the marginal cost of producing the application is actually not quite zero but is so close to it that units of the good can often be treated as if they were.

(2) By the way - saying that an additional unit of some commodity can be produced at zero marginal cost is not the same as saying that the commodity in general can be produced for free.