Introduction to Cloud Cost Models

Introduction to Cloud Cost Models

6 mins read11.8K Views Comment
Updated on Aug 1, 2022 15:20 IST

The cloud cost models are dynamic. The demand drives the value-based model, and supply drives the cost-based model.

2022_07_MicrosoftTeams-image-14-1.jpg

This article will discuss cloud cost models such as consumption-based, retail-based, expenditure-based, advertising-based, market-based, online-based models, etc. We will also discuss various cloud cost components and several strategies for cloud cost management. 

Cloud Cost Models

Cloud cost models are dynamic given the erratic nature of supply and demand. These are auction-based, time-based, or cost-based, depending on various factors. There are three cloud pricing strategies: value-based, fact-based, and market-based. Value-based costs are driven by demand, cost-based costs are driven by supply, and an equilibrium of supply and demand drives the market-based cloud model.

In cloud cost models, demand drives the value-based model, and supply drives the cost-based model; however, the market-based cloud model is driven by a balance of both market interests. Many individuals are unaware of the numerous unique pricing structures available for cloud computing. It is essential to comprehend these models so that you may select one and determine how you will be charged under each one.

You can also explore – What is cloud computing?

Cloud Cost Components 

The three primary factors listed below decide how much cloud computing services cost:

  • Compute: Most cloud service providers offer various compute instance types, each with a different set of CPU and memory capabilities and, occasionally, specialized hardware like fast networking or graphics acceleration. The customer pays depending on how many, what kind, and how long each instance is used.
  • Networking: Most cloud services charge clients based on the amount of data transported into, out of, or both into the cloud service. There can be additional fees for virtualized network services such as static IP addresses, load balancers, and gateways.
  • Storage: Storage as a service is provided by cloud providers. Customers that use elastic storage services pay per GB-month of actual storage used. Customers pay for a complete storage volume for managed storage services, such as managed discs attached to compute instances, regardless of how much storage is used up on the volume.

You can also explore – Introduction to cloud computing

Cloud Costs v/s Traditional Infrastructure

The three major types of expenses that are usually involved in establishing and sustaining on-premises infrastructure are:

  • Capital Cost: Includes Server software, hardware, and licensing, as well as storage environments, network infrastructure, and backup systems
  • Operational Cost: support for server and network infrastructure, storage warranties, data center amenities, current system administration personnel costs, and IT employee training and turnover are all included.
  • Indirect Business Cost: Includes planned and unplanned downtime. 

List of Models

Consumption-Based Pricing Model

You only pay for the services you utilize in this arrangement, which is typical of Infrastructure as a Service. In these models, you merely make up for the number of resources you use, such as storage space, CPU time, and network traffic.

Performance Based Pricing Model

It is a strategy in which the dealer is paid following the execution of a cloud service or model. It is connected to the customer’s business outcome, determined by precise execution measurements. Applications of the current approach include telecom services like mobile apps, multi-party video chats, and satellite connectivity.

Subscription-Based Pricing Model

It is a strategy in which the dealer is paid for the actual execution of a cloud service or model. It is connected to the customer’s business outcome, determined by precise execution measurements. Applications of the current approach include telecom services like mobile apps, multi-party video chats, and satellite connectivity.

Auction and Online-Based Pricing Model

The model decides on the price. Asuncion Monahan claims that an auction is a market tool that operates under specified norms to determine who will receive at least one thing and at what cost. Without forward and backward handling steps, it is transparent and generally faster.

Advertising Based Pricing Model

In a pricing structure based on advertising, the service is free or inexpensive but still includes advertising. As a result, the customer receives service at a significant discount or for free, and the provider receives the majority of their revenue from ads.

Market-Based Pricing Model

According to an hour of CPU time, there is a market price for a service in this model. Over time, the market price changes depending on supply and demand. You can start using it right now and pay the current price to use the service. Alternately, you can offer to use the service for less money; if the market price equals your offer price, your assignment will be carried out, and you will be paid that amount.

Customer Value-Based Pricing Model

It establishes a cost for a consumer from an emotional standpoint while concentrating on the client’s value delivery. This model can be divided into four categories: hedonic, psychological, feature-based, and perceived-based models. These models’ creation is influenced by sociology, psychology, psychology, and economics.

Retail Based Pricing Model

It depends on a select group of customers who make purchases in physical stores or other retail sites. The business-to-consumer model is affected. Discriminatory, promotional, product mixing and discount & allowances pricing are its four subcategories of the cost model.

Expenditure-Based Pricing Model

Utilizing the application for a central component as a unit of charge, a cost is decided upon. Cost models come in three different flavors: percentage, goal return, and cost-plus model.

You can also explore – Evolution of Cloud Computing

Cloud Cost Management Strategies

Businesses can maximize their return on investment in cloud technology, improve productivity, and understand and centrally control the costs related to cloud technology through cloud cost management (also known as cloud cost optimization).

Let us look at the strategies below to improve cloud cost management:

Budget Control: Budgets for cloud services must be established by businesses, and teams must be made aware of them and prevented from going over the allocated amount for a given project.

Right Sizing: Another strategy is making sure that compute instances, storage volumes, and other services are provisioned at the level that the company truly needs. It frequently happens that cloud resources are deployed but not completely used.

AutoScaling: According to application demand, dynamically scale resources up and down to ensure you only pay for additional cloud resources during peak usage.

Scheduling: Numerous cloud services can be scheduled to shut down when not in use because they are not always required. Services used by a team situated in the US, for instance, might be suspended outside of US business hours.

Detecting Unused resources: It is simple to build and then forget resources such as compute instances, storage volumes, load balancers, snapshots, and many others. To cut expenses, businesses need to be able to search their cloud deployment for idle resources and delete them.

Smartly applying discounts: Spot instances and other discounted pricing models can drastically reduce cloud expenses, but they must be handled properly. You may determine which of your applications and workloads is best suited for discounted price models by using tools like Cloud Analyzer from Spot by NetApp.

Conclusion

In this article, we have discussed various cloud-based models. In cloud cost models, demand drives the value-based model, and supply drives the cost-based model; however, the market-based cloud model is driven by a balance of both market interests. Several cloud models that we have discussed are retail-based, expenditure-based, advertising-based, market based, etc., along with how the model works. We have also discussed various cloud cost components and several strategies for cloud cost management. 

About the Author

This is a collection of insightful articles from domain experts in the fields of Cloud Computing, DevOps, AWS, Data Science, Machine Learning, AI, and Natural Language Processing. The range of topics caters to upski... Read Full Bio