Pricing Strategy for Cloud Computing: A Damaged Services Perspective.
Publication Type
Journal Article
Publication Date
10-2015
Abstract
How effective is a hybrid pricing strategy for a cloud computing services vendor that mixes fixed-price reserved services with spot-price on-demand services? This research offers a decision support model to create the appropriate strategy for IT services based on prior research on information goods, electricity pricing, product versioning, and revenue yield management. The goal is to establish whether interruptible spot-price on-demand cloud computing services — which we view as damaged services — are valuable to the vendor. The results from the analysis of an economic model show that a hybrid strategy outperforms a one-service-only strategy in most cases, especially when clients are sensitive to services interruptions or when task values are highly differentiated. A more intriguing finding is that a vendor should permit the possibility of services interruptions even when clients are highly sensitive to their occurrence. The presence of interruptions serves as a quality differentiator between the on-demand services and reserved services, assuring the efficacy of the hybrid strategy. Moreover, a vendor may use capacity limit, in the hybrid strategy, as a tool to further improve its profit. To our knowledge, this research is the first to propose the damaged services perspective as an analogy for damaged goods in the cloud software market.
Keywords
Cloud computing, Damaged services, Pricing strategy, Services interruption, Spot prices
Discipline
Computer Sciences
Research Areas
Information Systems and Management
Publication
Decision Support Systems
Volume
78
First Page
80
Last Page
92
ISSN
0167-9236
Identifier
10.1016/j.dss.2014.11.001
Publisher
Elsevier
Citation
HUANG, Jianhui; KAUFFMAN, Robert John; and Dan MA.
Pricing Strategy for Cloud Computing: A Damaged Services Perspective.. (2015). Decision Support Systems. 78, 80-92.
Available at: https://ink.library.smu.edu.sg/sis_research/2973
Additional URL
http://dx.doi.org/10.1016/j.dss.2014.11.001