Leading from the Front: Cloud computing is not just a trend. It is changing the way IT organizations drive business value

Spot pricing for cloud

The concept of market-based pricing takes on a new meaning in cloud business models with Amazon.comintroducing a spot market for its EC2 services.  Market forces govern the spot-pricing model i.e., when computing and storage resources are in high demand, the spot market will drive the price of services higher.  Conversely, when resources are in low demand, the spot market will drive the price lower offering opportunities for bargain hunters.

Cloud chargeback

Chargeback is a term used in IT (cloud computing) and implies the cost charged for providing cloud computing services to organizations for using cloud services: that is, making the consumer pay for the usage.

A chargeback model in the cloud delivers many benefits, including:

  • Correlating utilization back to cloud consumers or corporate departments, so that usage can be charged if desired
  • Providing visibility into resource utilization
  • Facilitating capacity planning, forecasting, and budgeting
  • Encouraging the use of emerging technologies, which might be priced lower than other services as an incentive (For example, virtual machines will cost less than physical servers)
  • Bringing transparency to enterprise IT, which is a pivotal step in the transformation of enterprise IT from a cost center to a business enabler
  • Providing a mechanism for the enterprise IT function to justify and allocate their costs to their stakeholder business units

While designing a chargeback service, a cloud service provider must take note that the chargeback model should be:

  • Accurate: assess charges for actual resource usage accurately and fully
  • Auditable: store and retrieve detailed records on all charges to handle billing inquiries and disputes
  • Flexible: modify easily to handle pricing variations, for example, for promotions and specials that might vary over time or by region
  • Scalable: scale components easily to handle cloud-sized workloads

The methodology for defining and deploying a chargeback service can be applied to private or public clouds, as well as hybrid clouds.

Still a long way to go

Leading analysts such as Gartner, Inc. believe that within five years almost all corporations, organizations, and governmental agencies will leverage the cloud. The reason being – the cloud brings much needed agilitynot just for IT, but also for the business as a whole and allows organizations to focus on strategic business issues. The cloud also enables organizations to realize significant cost savingson account oftransforming capital investments to operating expenses.

The adoption of cloud technology is being driven by the trends like reducing product lifecycle, aggressive time to market, increasing risk of technology obsolescence, proliferation of new devices, applications getting resource intensive, increase in mobile forces, and the organizational need to focus on core competencies. Most significantly, these developments foretell the changing role of IT within the enterprise toward becoming a true partner to the business.

The three different service models for the delivery of cloud computing, IaaS, Saas, and PaaS, provide enterprises with the ability to mix and match the best service model to the business needs of their organization based upon requirements and payment options. The availability of cloud infrastructure options, including private, public, and hybrid models, enable enterprises to pick and choose the best cloud technology depending upon the vertical industry, regulatory requirements, risk tolerance, and the specific applications portfolio.

From a pricing perspective, Cloud service providers need to understand who the buyer (business or IT decision maker) is for their cloud services and tailor their pricing models to accommodate buyer preference. Some providers will find that their brand and reputation will allow them to price based on value delivered from their services, rather than purely based on hourly usage rates. The challenge is determining how to measure this value and how to capture that value through pricing. In future, strategic customers will command better pricing and higher levels of service.

It is obvious that cloud providers have their work cut out in terms of simplifying pricing models, beefing up security and providing SLAs that guarantee better reliability. The market is evolving fast, and today’s dominant players could be history in a quarter’s time!

About the Author: Gopan is Product Manager: Cloud Computing Services, Netmagic Solutions Pvt. Ltd. and has expertise in managing products and services in various market scenarios and life cycle stages. His experiences ranges from introducing cutting edge innovations in existing products, existing markets to new technology, new markets.

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