Cloud Services and Pricing Strategies for Sustainable Business Models: Analytical and Numerical Approaches

Abstract

Previous studies have introduced different potential pricing strategies for cloud services. However, not much research has been done comparing subscription pricing and pay-per-use pricing, which are commonly used pricing schemes. Also, there are very few studies which analyze a two-part tariff pricing scheme for cloud services, even though this option may increasingly attract service providers as the cloud market becomes more competitive and the profit margin grows narrower. Previous research has focused on firms' profitability rather than social welfare due to the limitations of free services. This study uses theoretical and numerical analysis to compare the social welfare and profitability of three pricing schemes commonly used by firms: subscription pricing, pay-per-use pricing, and two-part tariff pricing. It shows that the pay-per-use pricing is the best solution from the perspective of social welfare, which contrasts with the conclusion of a previous study stating that social welfare is maximized under a two-part tariff. This paper also shows that the two-part tariff is the most profitable pricing scheme for firms.Sustainability 2020, 12, 49 2 of 15 but a comparative analysis of subscription pricing and pay-per-use pricing has not been done, although these pricing methods are commonly used in cloud service systems. Also, an analytical study is required for the two-part tariff pricing scheme, since the concept of a two-part tariff is nowadays adopted as a cloud services' pricing strategy and could gain in popularity among service providers as the cloud market becomes more competitive and the profit margin grows narrower. Previous research has focused on firms' profitability with respect to the limitations of free services. Chun and Choi [7] analyzed the two pricing schemes of subscription and pay-per-use pricing models from a provider's standpoint and discussed their implications for consumer surplus and social welfare. Chun et al. [8] compared the three pricing schemes of subscription pricing, pay-per-use pricing, and two-part tariff from the perspectives of a provider's profit, consumer surplus, and social welfare.This study differentiates itself from previous ones in several aspects. Firstly, I applied two-part tariff pricing to cloud services by considering subscription pricing and pay-per-use pricing and extended the previous two-part tariff to a more generalized customer heterogeneous model, in order to utilize it for a cloud service pricing strategy. Secondly, I clarified the previous two-part tariff model and compared the results from subscription, pay-per-use, and two-part tariff pricing with those obtained from analytical and numerical approaches and recent real-world examples. In particular, I show how two-part tariff pricing can include the other two pricing schemes of subscription and pay-per-use pricing, through theoretical and numerical analysis. Thirdly, I discuss some possible conflicting issues between customers and providers, in terms of consumer and producer surpluses.This paper shows tha...

Generic Costing Scheme Using General Equilibrium Theory for Fair Cloud Service Charging

“…The equilibrium supply-demand in Cloud competitive market and agreeable service price are significant criteria to reduce conflicting needs between CSPs and users. We further compared our costing scheme with pricing strategies proposed by the authors in [5] and [22]. Specifically, all strategies are applied different costing schemes to determine the optimal price but working on the same market behaviours; complement between providers and users.…”

“…It acts as a resource sharing pool that provides services to multiple users through the Internet that makes service cost varied. Current issue in Cloud environment is the users no longer look into on the processing power and data storage capacity but on service charges [1][2][3][4][5]. The Cloud services that leased to end users are charged using a 'pay-per-use' model [2,4].…”

“…The availability of Cloud service on a continuous basis might be incurring more expense. Cloud computing has a significant market potential, but it needs a pricing model to determine appropriate prices for various Cloud services [5][6][7][8]. A payment model is normally determined when, how many and for how long such services are required by the users [2,5,6].…”

“…Cloud computing has a significant market potential, but it needs a pricing model to determine appropriate prices for various Cloud services [5][6][7][8]. A payment model is normally determined when, how many and for how long such services are required by the users [2,5,6]. There is still a limited solution for pricing determination procedure towards sharing and managing Cloud services especially in terms of suitable payment model [6][7][8].…”

“…It raises conflicting in fulfilling the SLAs. Due to the service quotation is made according to the CSPs terms and definitions [4,5,14], the users have limited access in taking parts into the agreement process especially in negotiating the service price. Hence, even though there are sophisticated Cloud services, constrained in 'buy power' from the user's side leads to underutilized services.…”