For Enterprise IT, Cloud Pricing Isn’t Simple

By Samuel Greengard

It’s no secret that cloud computing has changed the dynamics of business and IT. But along with significant gains, there have been plenty of growing pains. Understanding pricing models and increasingly complex business agreements is at the center of the challenges for CIOs.

“Cloud has long been thought as analogous to electricity, allowing consumers to ‘plug-in’ and consume IT resources, paying only for what they need. Unfortunately, the IaaS market is far, far away from being a utility, and there is a confusing array of pricing methods, chargeable line items, metrics and pre-configured bundles,” observes Owen Rogers, cloud economist at 451 Research.

In fact, comparing like-for-like offerings and fully understanding the pros and cons of different cloud offerings is currently a “nightmarish task,” he says. Different providers use different and often confusing terminology, and most claim that their cloud products offer the best value.

As a result, 451 Research has recently introduced a cloud pricing guidebook, dubbed the Cloud Pricing Codex, which attempts to simplify an increasingly complex cloud environment and help CIOs more accurately gauge the true costs of cloud computing services. The Codex breaks down pricing for a number of factors, including service bundling, billable attributes, usage metrics, how charges appear and how they are measured.

“Understanding exactly what might appear on a monthly invoice is a difficult task, particularly because many services are bundled,” Rogers explains. For each pricing method, the Codex provides a detailed review of the related financial risks so that executives can prepare for issues pre-deployment and post-deployment.

At the heart of the issue, Rogers says, is understanding pricing models up front and balancing costs with overall business risk. “On-demand pricing is a fairly low risk… because resources can be stopped and started at will, with no commitment or sunk cost. The provider essentially absorbs this risk,” he explains. “Alternative pricing methods put some of this risk back in the consumer’s hands through recurring commitments or pre-payment, but reward the consumer with a discount.”

The upshot? “Canny CIOs use alternative pricing methods with an assessed and understood level of risk to reduce their costs, while using on-demand pricing to burst into extra capacity, so the business can scale in times of growth. Providers and consumers both win by combining on-demand with alternative pricing methods,” he points out.

Rogers recommends that CIOs and other executives shop for cloud services by asking a cloud provider to justify why its solution is the most cost-effective option; compare products in an “apples to apples” way; and fully understand the costs associated with scaling and auto-scaling clouds. In addition, “What happens if the cloud provider goes bankrupt? How much will it cost to migrate our data if we change provider? What happens if we fail to meet our financial commitment?”

It’s also important to maintain a broad perspective. “There are lots of cloud providers seeking your business,” Rogers concludes. “If you think a cloud provider is hiding behind a wall of pricing complexity, demand a simpler and more transparent method.”

About the Author

Samuel Greengard is a contributing writer for CIO Insight.

Samuel Greengard
Samuel Greengard
Samuel Greengard writes about business, technology and other topics. His book, The Internet of Things (MIT Press) was released in the spring of 2015.

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