What Are The Cloud Cost Models? Top 9 Cloud Cost Models Explained

Prominent businesses prefer the cloud for their apps to serve, win, and retain customers. The demand for cloud computing is growing in all its forms. According to the Market Research Firm Gartner’s new market forecast, this growth is estimated to be 18% by 2020. The worldwide revenue has increased from 209 billion USD (United States Dollar) to 246.8 billion USD.

Each company’s infrastructure is unique, and thus cloud computing service demands are different for every client. Cloud computing service providers supply cloud computing models based on customer’s demand suitable to the infrastructure and market.   

There are different categories of cloud computing cost models depending on four major parameters viz.: fact, value, demand, and supply. Other several factors such as cloud technology, business strategy, competitive market environment, investment budget, and targeted customers are considered while mapping cloud cost models into different categories and strategies. There are three strategies for costing and a 3X3 matrix for the value that defines a conceptual framework to examine systematic cloud cost models.

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What are the Cloud Cost Models?

Cloud cost models are dynamic in nature as the supply and demand keep fluctuating. These depend on multiple characteristics and are auction-based, time-based, or cost-based. There are three cloud pricing strategies that are subjective (value), objective (fact), and market-based. Demand drives value-based cost; supply drives cost-based cloud model; whereas an equilibrium of both supply and demand drives the market-based cloud model.

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Cloud cost modeling has research challenges that include moving from pure cost-based to both value-based and cost-based cloud cost modeling. Other challenges are moving from statefulness to stateless pricing, transferring from mutable to immutable pricing, and developing cloud cost models that attract cloud customers. Sixty different cloud cost models are determined as per this analysis.

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Let us understand what different cloud service cost models are:

1. Service-Based Cost Model

It emphasizes value delivery with physical product-oriented pricing. Service-based cost models are used in banking, airline, travel, legal consultant, insurance, hospital, and so forth. The service-based model’s value is measured using the unit of a level, tier, per device, user, and priority. The value of this model can be identified and predicted. 

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2. Performance-Based Cost Model

It is an arrangement in which the seller pays based on the actual performance of a cloud model or service as per M. McNair’s definition. It is connected to the client’s business outcome that relies on specific performance metrics. Examples of this model’s applications include telecom services such as mobile apps, multi-party video conferences, satellite connectivity. 

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3. Customer Value-Based Cost Model

It sets a price from a subjective view of a client focusing on the client’s value delivery. There are four categories of value-based cost models: perceived value, feature, psychological and hedonic-based model. The construction of these models is based on perception, sociology (large environment), psychology, and economics (utility). The customer value-based cost model maximizes the business’s profit and leads in the market.

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4. Free Upfront and Pay Later Cost Model

The competition among cloud service providers is increasing along with its demand. Many cloud service providers offer free upfront and pay later cost models to leverage their products with basic features to gain more customers and make profits from premium clients. Three cost models are available viz. free product cost on advertising, freemium, and razor and blades cost model.

5. Auction and Online-Based Cost Model

Auction based cost model decides the pricing. As per Asuncion Monchan, an Auction is a market mechanism, operating under specific rules that determine whom one or more items will be awarded and at what price. It is relatively faster and transparent, with no backward and forward processing steps.  

6. Retail-Based Cost Model

It is based on a small number of customers that buy from physical locations/ retail outlets. It applies to the B2C (Business-to-Consumer) model. It has four subcategories of cost model: discount and allowances, product mixing, promotional and discriminatory pricing.

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7. Expenditure Based Cost Model

A cost is decided on using the application for a central component as a unit of charge. It has three types of cost models: cost-plus, target return, and percentage cost model.

8. Resource-Based Cost Model

This cost model depends on the consumption of services. It is one of the categories of cost-based cost model strategy.

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9. Utility-Based Cost Model

As per Nayan B. Ruparelia’s definition, “Utility models are metered price models whereby your usage of the service is monitored, and you pay accordingly.”

Customers need updated cloud models and resist accepting obsolete hardware-based costing. They demand renewation in contracts as per the metering of utility-based IaaS (Infrastructure as a Service), PaaS (Platform as a Service), and SaaS (Software as a Service) models. Cloud cost models vary as per unique discount options and frequent price cuts to attract customers.

Also Read: Cloud Computing Applications 


A range of models from pure subscription (Pay Per USer) to resource-based on demand is available for customers. In the subscription model, payment is charged whether the client uses services or not, but cost models based on the market are set only when services are used (Pay As You Go).  A combination of both can be provided with subscription offers depending on the cloud service provider.

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Ques1. Why is Cloud Computing cost-effective?

Ans: Cloud Computing can be highly cost-effective for enterprises. Reduction in hardware costs is one advantage of public Cloud computing. Instead of purchasing any in-house equipment, all the hardware needs are left to the vendor, and the cost of repairing or replacing equipment is passed to the vendors. It also prevents internal power cuts and saves space. Cloud solutions can also lead to a decrease in labour and maintenance costs. Eliminating routine maintenance can free your IT staff to focus on important initiatives increasing workforce productivity. Also, Cloud solutions are available in a pay-as-you-go pricing model, and hence, your company doesn’t have to pay for software that isn’t being utilised, saving costs.

Ques2. What is virtualisation in Cloud Computing?

Ans: Virtualisation refers to the creation of a virtual rather than an actual version of something. It could be a server, a desktop, an operating system, or a storage device. The technique allows you to share a single physical instance of a resource or an application among multiple customers and organisations. In other words, one of the most cost-effective, hardware reducing, and energy-saving techniques used by Cloud providers is virtualization. Hardware virtualization, operating system virtualization, server virtualization and storage virtualization are the four types of virtualization.

Ques3. What do we mean by Cloud storage, and how does it work?

Ans: Cloud storage is a storage space available to store data on remote servers which can be accessed from the Cloud. It uses data centres with massive computer servers that physically store the data and make it available online. It works simply. In Cloud storage, information is stored in data centres located anywhere in the world and maintained by the third party. Cloud storage saves one a lot of money; otherwise, you would have to spend on more strong servers as your business needs increase. With Cloud storage, you only pay for the space occupied by your data in the Cloud.

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