Cloud pricing: It’s (really) complicated

In theory, cloud computing offers a fairly straightforward model for consuming compute and storage resources. Customers request capacity, it is provided by a vendor and it is paid for. Customers should be able to spin up and down resources as they need to and only pay for what they use.

Unfortunately, cloud pricing models are complicated, which makes purchasing decisions for consumers difficult and comparing across providers a challenge as well, a new report from the 451 Research Group shows.

There is a large range of pricing models, as well as complicated and jargon-filled terms that can make cloud pricing ambiguous for consumers. “Cloud computing once promised simple, usage-based charging for resources, similar to other utilities such as electricity; unfortunately, the current reality is far from this ideal,” the report states.

[MORE CLOUD: Google Compute Engine vs. Amazon Web Services cloud: The battle is on]

451 found that there is a large differentiation among providers when it comes to pricing, which it says is because the market is still “finding its feet” so there are not standards for anything across providers, and especially with pricing. “Obviously this isn’t great for consumers, who have to understand each method and weigh every option when selecting a provider. Furthermore, comparing the total price of an application between providers – and working out the value of a number of offerings – is a difficult task.”

There are some themes though. Many consumers start using the cloud by testing it out, rather than committing to a long-term use. Most cloud providers make this easy by providing pay-as-you-go pricing of cloud services, meaning that consumers request a service, it is spun up and users only pay for the amount of services they’ve requested. Once a user gets more comfortable using the cloud, they can use alternative pricing models, such as reserving instances for a longer period of time (such as for up to a year) to secure lower costs.

Other general ways that cloud companies break down the pricing include whether the virtual machine is in a multi-tenant or dedicated environment, or some cloud companies offer “spot-market” pricing in which users bid on excess capacity in the provider’s cloud. Costs are split up by compute, storage and networking use and charged on a per GB basis, and often customers do not anticipate the networking and storage costs. Complicating the issue is the fact that of the out of more than 60 IaaS providers 451 examined, 36% did not provide pricing metrics on its website.

For all these reasons, 451 recommends evaluating providers based on not just price, but features as well. Some consumers can choose their cloud provider based on a unique or market-leading feature their cloud provider may be able to offer.

To provide a clue into the complexity of cloud pricing, here are just some of the ways 451 found that cloud providers priced their services:

• On-demand pricing: Customers are billed for consumption of virtual machines using a fixed unit price
• Reserved instances: Customers are billed a flat fee in advance for a service and receive a discounted rate for consumption
• Spot pricing: The price of a resource varies with time, and customers must bid to gain access to these resources
• Prepaid VM access: Customers pay a single fixed fee to access a specifically sized instance at the beginning of a term; customers have unlimited access to the VM over the term. Can be done in a recurring plan as well, which is renewed usually monthly.
• Recurring resource pooling: Customers commit to purchase a quantity of resources (number of CPU cores, quantity of RAM, etc.) in advance on a recurring basis
• Prepaid Consumption: Customers pay a set amount at the beginning of a term, and costs of consumption are debited from this prepaid amount. Can be done in a recurring plan as well.

451 provides a list of pros and cons for each of these methods from both the provider and consumer point of view. The report does not detail the actual price of cloud computing resources, likely because those change frequently as part of what some have dubbed a price war and race to the bottom among IaaS providers. But, it does show what some of the pricing models are of the big players in the industry. Among Amazon, Google, Rackspace and Microsoft Amazon Web Services is the only one to offer on-demand, spot instance and reserved instance pricing.

Senior Writer Brandon Butler covers cloud computing for Network World and NetworkWorld.com. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW. Read his Cloud Chronicles here.