The difficulty in pricing Cloud services arise, when customers begin to compare the cost of using Cloud services vis-à-vis the cost of building their own IT infrastructure. In all fairness, they are not comparing apples with apples. They are comparing the cost of oranges with the cost of apples. Build is not equal to bill and never can be.

It should be remembered that the Cloud sells service, and not the infrastructure itself.  Service acquisition is revenue expenditure and not capital expenditure. Like all revenue expenses, it is recurring, spread over a period of time and chargeable on a usage basis to the profit and loss account. At best, you can charge the flat subscription fee to your asset account.

Unfortunately, Cloud service providers are forced to demonstrate the “tangible economic value” they create by comparing costs of the service and the cost of building IT infrastructure over a long term (including costs of any upgrades, maintenance, capacity planning exercises, innovation and technology change, and HR training, management, etc).  They are forced to list out possible opportunity costs that may be incurred or benefits of eliminating uncertainties of the process of acquiring and building up the IT infrastructure for the enterprise. While it may draw the attention of the customer to the overall economic viability of the Cloud and may sell the concept of the Cloud to the customer, it is not really necessary to point out the difference between apples and oranges. It is time for customers to acknowledge that “build your own infrastructure” pricing cannot be the basis for evaluating or comparing Cloud pricing. It can at best be the basis for decision making. CIOs and the top management can use the data to understand the benefits that may accrue to the organization by transitioning their data to the Cloud.

Having said that let us start again. The customer is purchasing a service, a utility. The focus of the customer should be on the quality of the service obtained for the money paid out. The concern should be centered on “consumption patterns”, “optimal network usage”, and “efficiencies gained”. Questions should be asked about “peak hour workloads” and “volume pricing” programs of the service provider.  The pricing model has to be based on other factors which are of immediate relevance to the delivery and use of the Cloud service.

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