Understanding the cloud pricing models

Cloud computing offers infrastructure and resources to organizations at a lower cost than traditional systems. Ideally, the cloud computing services are maintenance-free resources, helping to save efforts of the development and operational teams. These services are mainly classified as Iaas (Infrastructure as a service), PaaS (Platform as a service) and SaaS (Software as a service). However, customers need to use these resources and services as per workload and usage needs, otherwise, they might end up spending more.

 

Choosing right-sizing resources and required services is not enough, for cost reduction both – IT and engineer teams need to work on the same level. It’s been observed that IT teams have more knowledge about the internal server processes, storage, and load balancing, whereas engineers are left with just integration to the cloud services into their respective projects. The communication gap management, finance, and developers often leads to an increase in the overall budget.

If engineering teams are informed about the cost management of the service model and associated component-vice drill down, the chances of over-budgeting and project ramp-downs would reduce.

 

Cloud cost management means finding cost-effective ways to ultimately maximize cloud usage and efficiency. It’s organizational planning which allows enterprises to understand, choose the cloud technology models, evaluate and manage the cost associated with the deployment of an application. The on-demand model might appear to be the simple model that provides flexibility to increase or reduce the resources based on the business requirements. In fact, without proper knowledge, skill set, design, and planning, the cloud infrastructure can result in messy and complex models that are difficult to track and maintain. Integration, utilization, and maintenance of cloud technology is not the job of one team. Engineering teams should be aware of the pricing models of cloud services which will result in significant savings, appropriate management, and better decision making. A cloud cost management strategy can help to control the costs as it depends upon obvious deriving factors like Storage, Network Traffic, Web services, VM instances, licenses, subscription, and training and support, etc.

 

The engineering teams and other departments must understand the two types of cloud pricing models used on the cloud – fixed and dynamic.

 

Fixed Pricing Models

It is also known as static pricing as the price is stable for a long period. This model is further categorized as:

 

• Pay-per-use – The users only have to pay for what they use. This can be dependent on the time frame or quantity being consumed on a specific service.
• Subscription – The users pay repeatedly to access the elements of a service. This gives flexibility to customers to subscribe to a specific combination of pre-selected service units for a fixed and longer frame of time like monthly and yearly.
• Hybrid – This combines the features of the above to models. The prices are set based on the subscription model while the use is limited to the pay-per-use model.

 

Dynamic Pricing Model

It is also known as real-time pricing. This model is more flexible and can vary based on parameters like cost, time, and location, etc. The cost is calculated whenever a request for the service is made. The service providers keep changing the price lists regularly and the customers can utilize it to gain larger profit gains as compared to fixed pricing models. The cost of the project can vary based on several factors like competitor price, prices set based on the location of the customer, or the distance between the service center to the service being used.

The latest is dynamic pricing models like Serverless computing, Database services, or Analytic services which are attracting the companies.

As the consumer of cloud services, the companies expect the highest level of Quality Of Service (QoS) available at a reasonable price. While the cloud computing provider typically focuses on maximizing their revenues by different pricing schemes for the services. So for both parties, cost plays a vital role. It becomes even more important for the customer to understand the cost accounting of the services for which they are paying. Holistically, cloud computing pricing has two aspects.

• Firstly, it is related to the resource-consumption, system design, configuration, and optimization, etc.
• Secondly, pricing based on quality, maintenance, depreciation, and other economic factors.

 

Below are the several categories on which the pricing calculation is based on. Teams should work in collaboration and perform cost accounting checks at each step.

 

1. Time-based: Pricing is based on how long service is being used.
2. Volume-based: Pricing is based on the capacity of a metric.
3. Priority pricing: Services are labelled and priced according to their priority.
4. Responsive pricing: Charging is activated only on service congestion.
5. Session-oriented: Pricing is based on the use given to the session.
6. Usage-based: Pricing is based on the general use of the service for a period, e.g. weekly, monthly.

 

cloud cost optimization open source tools

aws lambda cost calculator

Cloud pricing models made easy

In theory, you need to run your own private cloud to enjoy the ultimate in customizability. In practice, mainstream public clouds are likely to have more than enough customization options to satisfy even the most demanding of customers. There are literally millions of combinations of options and that’s even before you get to the different pricing models including dynamic pricing. Staying on top of all this can be a real nightmare, but it doesn’t have to be.

 

1. Tagging and SKUs can clear the chaos

While you may have many questions you would like your billing reports to answer, most of them revolve around two key issues.

 

1. 1. • What is the unit cost of X?
      • Who should pay for this?

 

The way to figure out the answer to either or both questions is to link back any asset used to a deployment item, which should have an owner. In principle, you could just link each SKU directly to a deployment item, but in practice, most companies are going to want a much greater level of detail. This means that you’re usually aiming to link an SKU with a component of a deployment item. Generally, this will be achieved by tagging.

 

For the sake of completeness, if you’re working in the multicloud, you’ll want to create a tagging system that works across all providers. This means you will need to standardize your syntax based on what is available at the provider with the most restrictive options.

 

2. Check SKUs first and instances second (if at all)

The problem with using instance reports to try to work out the costs of a deployment item is that it’s usually much easier to see what was being used than to see why it was being used. As a result, it can be difficult, or even impossible, to be sure that you are linking any instance with the right deployment item.

 

In many cases, the real value of instance reports is as a “hygiene” check to ensure that instances are being used responsibly. For example, if you see that instances are regularly being spun up late on a Friday and left running until Monday, then you may want to check if this is a legitimate out-of-hours task or if people are just forgetting to shut them down before they leave for the weekend.

 

3. Reformat billing reports so that they reflect the architecture of your system

Another advantage of working via SKUs rather than instance types is that it should make it possible for you to reformat the billing reports so that they reflect the architecture of your system. This can go a long way to getting financial and management staff on the same page as technical staff.

 

Just as financial staff do not necessarily understand the details of technology, so technical staff may struggle with billing reports. Presenting the financial costs in a way that clearly links them with the underlying infrastructure can make billing data much more understandable for both sets of staff.

 

As a bonus, this approach can also make it much easier to see where billing does not tally with your expectations and/or where there is room for economies to be made.

 

4. Focus on usage first and payment terms second

Cloud costs reflect both the economy of your usage and the economy of your payment terms. If your cloud costs are higher than you’d expect, you usually want to start by checking what you can do at your end and only move on to looking at payment terms once you are confident that you have done everything you can to make your applications work as efficiently as possible.

 

In this context, remember that a lot of cloud cost optimization ultimately boils down to creating applications that minimize if not eliminate the movement of data, especially between different sectors (whatever name they are given in any specific cloud platform).

 

There are two reasons for taking this approach. The first is that you might already have the most economical deal. If that’s the case, then you’ll be wasting time and hence wasting money trying to look for a better one since the problem lies with you rather than your cloud platform. Secondly, by making your applications as efficient as they can be, you put yourself in a much better position to work out what the best deal for you actually is.

5. Remember there’s more to the cloud than headline price

 

Having just explained how to understand cloud pricing models, it’s worth closing with a reminder that price is only one fact to consider in cloud deployments. There are many others, particularly security, reliability, and flexibility.

 

It’s also worth remembering that cloud pricing models change frequently and that when they do, you need to think carefully about the advantages of updating your usage and/or payment terms to take advantage of them versus the effort required to do so. What this often means in practice is that it makes more sense to fine-tune your usage with an existing provider than to keep switching between providers in search of a better deal.

multi cloud cost management