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Cloud Payment Models

The different cloud payment models are, in keeping with so many things on the topic, a source of both benefit and contention. It’s another classic example of the flexibility of cloud and how it is disrupting traditional IT sourcing models. Sadly, it’s another classic example of the industry, its observers and analysts, seeking to cannibalise itself with unhelpful in-fighting. We shall attempt to clear up the confusion and explain the options.

How We Used to Do Things

In the past, ICT services were inherently tied to the hardware that enabled them and constrained by traditional sourcing models. The vast majority of us bought dedicated hardware, usually with a 3 to 5 year depreciation cycle. The minority went down a managed service or outsourcing route, often with even longer contract terms.

Pay-As-You-Go

This is the bit that’s new. Prior to cloud, it simply wasn’t possible to consume compute and storage resources on a very time-limited basis. The combination of high-speed networking and virtualisation as enablers has meant that centralised multi-tenant platforms, inherently elastic and scalable, are feasible. This allows PAYG models (along with self-service). As discussed under elasticity of cloud, this is fantastic for those who need it.

Monthly Contract

This is where new meets old. The old is a more traditional contract approach – e.g. the customer contracts with the supplier for X months of service based on Y service level for Z amount per month (or per month per user/per application etc). The new is flexibility – often the contract is a “managed” one, including some burstability/elasticity. And the contracts are usually 12 months or less, as opposed to traditional hosting/colocation contracts (3 to 5 years).

Hybrid Scenario

Arguably, this is the best of both worlds. The customer has a monthly contract for their baseline service level with PAYG during times of bursting – e.g. they pay extra only when they need it, for however long they need it. Most cloud service providers can offer all three – e.g. PAYG, contracts and a mix of the two, putting choice in the customers’ hands.

What Are the Advantages?

PAYG advantages are clear – you pay for what you need, as you consume it, not a penny more. However, there is often a premium associated with this sort of dynamic sourcing, which is where a contract can be advantageous. It varies by supplier but there is usually a healthy discount associated with taking out a contract – in exactly the same way as mobile phones work – where the customer has more of a “bundle” of services available, whether they use them or not. Many customers also crave the safety of a contract (and its associated SLA). Why? Simply because they have gone through the upfront cost and upheaval for moving some/all of their technology estate to “the cloud” and they want to know exactly what they are going to pay each month, every month, for the service they need. Moreover, it eliminates “price jacking” risk – e.g. if they are in a PAYG model, there’s nothing to stop the cloud provider hiking their costs once migration has taken place. For most customers, hybrid flexibility will be the optimal approach, even if it’s just for the comfort of knowing both options are available.

Why is it Contentious

Frankly, it’s beyond our comprehension. In all our collective experience, we’ve never heard a real end-user customer take issue with any of the above. They pick the model that suits them or their business best, and get on with it. However, many analysts, observers and journalists seem to feel that contracts are somehow “wrong” and that true cloud is only PAYG, with the implication that cloud providers offering only contract models are somehow cheating. This is nonsense, clearly. If customers felt that way, they would vote with their feet. Unhelpful commentary from “cloud purists” is distracting the issue away from the real benefits of cloud. Customers should make up their own mind – PAYG, contract or hybrid – and we hope they have a great experience with the cloud service they buy, however they choose to consume it.

 

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