As more organizations shift their IT strategy to focus on business value creation, they’re seeking a strategic partner that optimizes their technical operations. One area of optimization is associated with cloud pricing models. Just as consumers have choices when it comes to paying for utilities, cloud users can select between a usage-based model, fixed pricing and configuration model or a combination of both. Today, many of the hyperscale cloud providers are promoting and utilizing usage-based billing, but that doesn’t accommodate organizations that prefer to avoid cost overruns.
At FNTS, we help organizations optimize their environments through a multi-cloud strategy and a hybrid approach to pricing. We anticipate this trend to evolve rapidly over the next few years as managed service providers expand their ability to measure and “right-size” workloads for best cost efficacy. The ability to shift workloads to the best performing cloud and most cost-effective model will lead to new opportunities to measure and automate these processes to demonstrate additional benefits to clients.
When determining the best strategy for your business, it’s important to understand key concepts of each model.
The Usage-Based (Pay-as-you-go Model)
A usage-based or consumption-based model measures the consumption of resources across one or more technical metrics and derives a cost based on what has been consumed over a given period of time.
When determining if this model is a good fit, organizations should have good knowledge of the amount of change and variability their technical workloads may require. They also should gauge their tolerance for the corresponding shifts in period-to-period billing.
At FNTS, we provide our clients with the flexibility to make changes on a frequent basis so they can adjust the scale and performance of their technical workloads. However, since billing is tied to metrics, such as average consumption over a period, this model may somewhat limit the cost impact of changes.
Usage-based model benefits:
- Billing is tied most directly to what is being used by the organization.
- There is a reduction in slack capacity, so you are not paying for unused resources.
Usage-based model drawbacks:
- Technical environments require consistent oversight to ensure sizing and capacity are being adjusted, especially as workloads are no longer required.
- Cost overruns can occur if environments that are no longer needed are left online or are under or over capacity, which can create performance issues or additional cost if there are “bursting” penalties applied for misconfiguration. Bursting is when usage increases due to factors such as seasonal volume or batch processing and it can have an impact on performance and ultimately billing. Public cloud platforms sometimes have additional charges for network volume or capacity usage that need to be accounted for.
- Billing can sometimes vary dramatically from period to period, making cost budgeting more unpredictable.
The usage-based model has become very popular due to its “pay-as-you-go” approach. It’s best for organizations that have dynamic workloads with frequent changes to requirements or are subject to regular swings in capacity utilized. It is also useful for organizations that build and then deprecate workloads or technical landscapes on a consistent basis.
The primary value is in the ability to rapidly change the technical footprint and minimize the cost of operation. This requires consistent management but can yield significant business agility.
The Fixed Pricing and Configuration Model:
Many clients favor a “set it and forget it” model for workloads that are well understood. Organizations utilizing a fixed pricing and configuration model will have the capacity and technical footprint of workloads determined up front and outlined in a statement of work.
To ensure this model is effective, organizations should have a clear view of the requirements for their workloads and a sense they will not change a great degree over time. In most cases, changes can only be made during contract renewal, which is typically each year or at a predetermined and agreed upon checkpoint such as semi-annually or quarterly.
Fixed pricing model benefits:
- The cost predictability and consistent performance make a fixed model desirable.
- Period-to-period billing is predefined and allows for more predictable budgeting with no billing surprises.
Fixed pricing model drawbacks:
- If requirements haven’t been measured sufficiently or if usage conditions change, organizations may need to add additional capacity for a contracted period or have slack capacity that is paid for but not used.
Workloads that have well-understood capacity or performance characteristics are ideal for a fixed pricing model. Technology providers are typically able to offer lower costs per unit for guaranteed capacity usage, and organizations with predictable needs can often gain longer term cost benefits.
Predictable cost outlays and limited management are the major value points to this model.
The FNTS Advantage
FNTS engineers and support teams actively work with organizations to evaluate the nature of their technical workloads and find the model and platform that creates the best value and cost benefit for each workload over time. Part of the FNTS approach is to tailor each client’s needs to the available options, whether these are public or private cloud environments, as not all pricing models are available in all cloud environments and may have different measurements and restrictions. Our ongoing cost and performance optimization is a key component of our managed service strategy and one that our customers find particularly valuable. We help clients model their expected usage and account for variations that might occur due to bursting, arriving at the cost model that provides the capacity that’s required at the lowest cost point. We frequently recommend changes based on clients’ consumption trends since they may lack the internal resources or time necessary to consistently review and optimize their workloads.
To consult with an FNTS expert about cloud pricing models, email us at firstname.lastname@example.org or call us at 800-820-6924.
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