Pay as you use or subscription based pricing. What to choose?

Author: Bit Software
Date: 27- 04- 2012

When it comes to the cost of the cloud, it is important to analyze all cloud`s models: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). Those three different service models for the delivery of cloud computing provide companies with the ability to mix and match the best service model to the business needs of their organization, based on requirements and payment options and depending on the vertical industry and specific applications portfolio.

Then choose the model or combination of models that offers you the most benefits at the lowest cost. Because each model has its own costs, based on a various factors, from storage space needed to monthly traffic. To arrive at a total pricing for a cloud service, user organizations must take note of individual service elements that a provider bills for and how these are calculated. For instance, does the provider bill based on within server traffic, storage space needed, server CPU time or a combination of these factors along with other elements?

Another important factor in determining the total cost is the type of service required: dedicated server to running applications in the cloud, cloud-based backup or basic hosted storage. The easiest way to break down pricing is to focus on the primary services offered, because most cloud providers split their services into three areas: servers in the cloud, storage in the cloud, sites and applications in the cloud.

You must know that there are two pricing models for cloud computing services: pay as you use or subscription based pricing. Under first pricing model, customers are charged based on their usage and consumption of a service. This pricing structure makes users fully aware of the cost of doing business and consuming a resource, since the cost comes out of their pockets, or, in the enterprise world, their own budgets. The second model is the simplest pricing option, where the customer is billed on a fixed monthly basis. For example, a virtual machine can be offered at a fixed cost per month. The consumer is billed the same amount every month without consideration for actual usage.

To determine a pricing model that provides profit to a company that uses cloud services, it is necessary to know the direct and indirect costs of providing these services. Costs can be initial or ongoing. Initial costs, also known as capital expenditures, or CapEx, include the costs to acquire assets such as hardware and facilities (power and cooling infrastructure, server, network, and storage hardware, software licenses, including operating system and application software, cables, etc). Ongoing costs (OpEx) include all costs for keeping the business or facility running, such as: payroll, facilities, hardware and software maintenance, backend cost, etc.

When you calculate the monthly cost for cloud computing deployment, you must take into account both capital and operational expenditures. For capital expense cost items, the cost of each item needs to be amortized over the life of the item. By combining the OpEx with CapEx, the total monthly costs of the cloud deployment can be determined.

If you have a limited budget, work with projects or cannot predict which resources you'll need over a longer period, then you choose “the pay as you use” pricing model. If you require more control over the hosting budget and want to use the cloud for a longer period, you must choose the subscription based pricing.


Sources: Cloud Spend Management, Google Tools, ComputerWorld, PC World, Cloud Tweak, Cisco Systems