Cloud Utility Price Models

Utility models are metered price models whereby your us-age of the service is monitored and you pay accordingly. Originating from the price plans that utility companies have adopted, they are characterized by regular payments, often monthly, to the cloud service provider. Three utility price models are discussed here: consumption, transac-tion, and subscription based price models. The consumption price model is a commonly used model for IaaS and PaaS. You pay for the computing resources that you use, for example, amount of storage (in Megabytes or Gigabytes), computing or processing power (in terms of CPU cycles or number of processor cores used), and memory (in Megabytes or Gigabytes). An average consumption rate of these resources is computed over a day, week, or month and you pay for the average utilization. This is a rather crude model that does not scale well for SaaS, INaaS, or BPaaS, since for these resources you want to be charged in a meaningful way when it comes to how your business operates. For instance, for an INaaS service that provides you with the latest tax rules, you really ought not to care how many CPU cores or memory is used in delivering that information to you. But, for the cloud service provider, there could be other components that contribute to the cost of providing the service such as application licenses,

Consumption-Based Price Model

data gathering, and maintenance costs. So for SaaS, INaaS,or BPaaS, other price models are more appropriate.Transaction based model models.Transaction-based pric-ing uses transactions, instead of computing resources, as the basis for pricing. The transactions can be business related, such as invoices processed for an invoicing BPaaS, data related for INaaS, or application related for SaaS. You can also have transaction-based pricing with IaaS and PaaS, for example, by using the bandwidth as an indicatorof computing resource utilization; thus, a consumption-based price model can be converted to a transaction-based model byassessing the band widt hused bye ach transaction.The cost of a transaction is calculated by dividing the cost of providing a cloud service by the estimated trans-action volume over a given period. This is then the unit transaction price. This price model is suitable under the following circumstances:

  • Transaction volumes are known and predictable.
  • Your business process can be defined clearly and can be measured in discrete units to represent a transaction.
  • The transaction volume is tied to your cost drivers.
  • From the cloud service provider’s perspective: when business processes are standardized and driven by transactions.
  • Transaction pricing is more appropriate for the analysis of INaaS and BPaaS analysis, and so on according to all cloud deployment models.For example, when you subscribe to a magazine, you pay for a regular fee whether you really read this, some of it, or in any of its articles. With the introduction of web-based magazines or news portals, this content is refreshed quite frequent, so the content is not a fixed amount with the paper magazine. You can eat the subscription for such service as a model, your ability to consume reduces the rate of new content prepared. Sometimes there is a contract period


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