The Cloud computing model has gained a foothold in the market, and is well on its way to establishing itself as a viable alternate to build and own infrastructure based computing.  But, what are the business considerations that shape the Cloud business model? Why do Cloud vendors structure their services the way they do?

First, the Cloud is all about maximizing asset utilization.  The Cloud vendor must enforce and encourage the customers to make “optimization of resource use” the cornerstone of their decision to migrate to the Cloud.  The customer behavior must be modified and customer must be made to feel that “provisioning for scalable capacity” is not as profitable as “scaling up capacity on demand”. To this end, the Cloud must be elastic enough to scale up or down to match the peaks and troughs of the customer’s business and reinforce the changed behavior.

Second, the Cloud is about optimizing costs. A granular pricing structure encourages customers to focus on “cost saving” activities and optimize on service utilization.  Cloud type selection, data categorization, data archival and software design optimization are some factors customers must be encouraged to consider as imperatives for effective cost reduction. This cost saving behavior may be “directed” by providing the right tools and interfaces to customers.

Third, traditional measures of Capital IT investment costs such as Return on Investment (ROI) cannot be applied to Cloud computing. Cloud computing can only be compared to “utility” pricing models, and the focus should be on quantity and quality of service utilized.

Fourth, the Cloud is a buyer’s market and customization makes pricing more non standard and negotiable and hence unattractive to customers. As a result, Cloud vendors make customizations more expensive to prevent leech out of benefits that may be derived from customers who want basic services. Moreover, the shared nature of Cloud services makes innovation possible only for subsets of customers. Therefore, additional features cannot be provided at the point of configuring the service and standard service must be distinguished from customized or special services.

Finally, national regulations or local regulations can force define the Cloud business model. For instance, geographical dispersion of data centers or replication of data in alternate locations for high availability of service may be restricted by extant legal mandates.

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