Pricing the Cloud: An Auction Approach

PRICING THE CLOUD: AN AUCTION APPROACH Yang Lu Old Dominion University, 2020 Chair: Dr. Li D. Xu Cloud computing has changed the processing and service modes of information communication technology and has affected the transformation, upgrading and innovation of the IT-related industry systems. The rapid development of cloud computing in business practice has spawned a whole new field of interdisciplinary, providing opportunities and challenges for business management research. One of the critical factors impacting cloud computing is how to price cloud services. An appropriate pricing strategy has important practical means to stakeholders, especially to providers and customers. This study addressed and discussed research findings on cloud computing pricing strategies, such as fixed pricing, bidding pricing, and dynamic pricing. Another key factor for cloud computing is Quality of Service (QoS), such as availability, reliability, latency, security, throughput, capacity, scalability, elasticity, etc. Cloud providers seek to improve QoS to attract more potential customers; while, customers intend to find QoS matching services that do not exceed their budget constraints. Based on the existing study, a hybrid QoS-based pricing mechanism, which consists of subscription and dynamic auction design, is proposed and illustrated to cloud services. The results indicate that our hybrid pricing mechanism has potential to better allocate available cloud resources, aiming at increasing revenues for providers and reducing expenses for customers in practice. The proposed hybrid QoS-based pricing mechanism has the following advantages. (1) Solving problems of fixed pricing strategy. The price of a resource cannot be dynamically modified based on resource usage between supply and demand. Cloud providers will suffer potential revenue loss due to more potential customers will be involved and price will be fluctuated. The QoS level and performance of the cloud services obtained is directly related to the expenses a customer needs to pay. If the same amount of cloud services is used, the higher the performance or the higher QoS level of cloud services a customer requires, the higher prices of the related cloud services will be. (2) The QoS-based pricing model can present a clear reserved price to both providers and customers. Differentiated QoS threshold represents different prices to cloud services; the price itself reflects the user's preference for QoS. Overall, the hybrid pricing mechanism can explore both the two pricing strategies’ advantages and to provide supplier and customer expected benefits. (3) Attractive to customers. Based on budget constraints, customers could customize cloud services as they expect. Customers have good opportunity to price/bid the expected cloud services. As a research on cloud computing, this study is one of leading papers that focus on estimating values of various types of cloud services by mathematical auction design and operational allocation. Some study explores the ideas about fixed pricing strategies, such as payper-use, subscription, tiered pricing, and free-of-charge; some study pays more attention on different dynamic pricing mechanisms, such as financial mathematical models and auction designs. This thesis is the first writing talking about a hybrid pricing design that is consists of subscription and dynamic auction design for both existing and newcomers of companies to develop cloud computing in the markets. More important, a QoS-based reference price is proposed for both provider and customer, ideally, most of popular QoS indicators are embedded in the reserved pricing model. This study is a very good attempt to explore cloud pricing strategy. Most of the studies discuss various cloud pricing strategies from technological or mathematical perspective, but the pricing mechanisms are difficult to implement in practice because they ignore marketing conditions, such as supply and demand, and difficulties of companies, such as usage preference or budget constraint. In this thesis, a real marketing environment is constructed, both existing companies and newcomers would obtain some insights and benefits if they have chance to put the hybrid pricing mechanisms into practice. Firstly, companies can judge the development status of its cloud computing, such as the initiating, developing, and maturing stages. Secondly, providers can improve the comprehensive quality of cloud resources based on different QoS expectations from end-users, such as scalability, elasticity, availability, latency, reliability, security, throughput, capacity, etc. Thirdly, both providers and customers can obtain an accurate estimated reference price. The hybrid QoS-based pricing mechanism has potential to guide providers and customers in the cloud industry.