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Press Release -- April 9th, 2013
Source: Verizon

Cloud Pricing Models that Work

When Verizon Terremark launched its public cloud offering, Enterprise Cloud in 2008, the pricing model was developed around the idea of providing customers self-service access to reserved pools of computing, storage, and networking resources. The reasoning behind this pricing model was to allow a customer to pre-purchase a dedicated segment of cloud infrastructure that would provide them reserved access to computing capacity over a certain period of time. Close to five years later, the cloud market has evolved and enterprises are demanding more flexibility. Therefore, in January 2013, Verizon Terremark introduced an additional pricing model that allows customers to pay for their cloud services as they use them – this is commonly referred to as “instance-based pricing.”

Understanding some of the elements that make reserved pool and instance-based pricing models different can help organizations make educated choices when selecting a pricing strategy that works for their business. Let’s analyze three elements that compare the core characteristics of each model:

  1. Value
    • Reserved Pool -- Using a reservation pool model, enterprises pay for dedicated capacity and retain full control over the optimization and efficiency of their purchased resources. If additional memory or compute resources are needed, the business can purchase additional capacity and qualify for volume discounts. This model is more efficient for static and predictable applications, where resource usage is expected, such as running a regular batch file and copying standard data.
    • Instance Based -- Through instance-based pricing, the customer can deploy capacity as needed from within the console on a self-service basis and compute and memory resources are billed by the hour. This model is more efficient for variable workloads, such as pulling a changing database and running analysis, heavy statistical processing, analytics and big data.
  2. Optimization
    • Reserved Pool -- While both models can allow the cloud user to control efficiency, the reservation model allows full control of performance. Verizon Terremark does not oversubscribe the resources purchased in the reservation pool model, which significantly reduces or in many cases eliminates impacts caused by the “noisy neighbor” in the cloud. Examples of where this compute resource isolation can be beneficial include:
      1. Compute and Memory intensive applications such as databases, many Java-based applications, and large data analytical tools such as Apache Hadoop. These types of applications often consume and require greater control over memory resources allocated to them. Such control simply isn’t possible to achieve without some level of compute and memory isolation.
      2. IT Controls: Nearly every IT organization will have some systems that remain online continuously. These systems include authentication (i.e.Microsoft® Active Directory®, RSA SecurID), monitoring systems, backup servers, etc. Deploying them in a reserved compute pool enables IT administrators to optimize their resource utilization while maintaining their availability.
    • Instance Based -- In contrast, the instance-based model allows customers to control efficiency per virtual machine to address workload optimization and flexibility in varying demand. Examples where Instance-Based pricing may benefit an organization include: Seasonal or other periodic peaks in demand: Customer demand increases dramatically on nearly every eCommerce site around the holidays and tapers off for the remainder of the year. Instance-Based pricing enables eCommerce or other business-to-consumer sites to rapidly increase their presence for the duration of the increase, while removing or reducing additional overhead during non-peak usage Project Based Needs: Instance-Based pricing provides organizations with the ability to directly attribute IT costs to specific projects or groups within an organization. Billing for a server begins from the moment it is created and ends as soon as it is removed from the environment. Verizon Terremark’s cloud portal provides detailed reporting which provides IT administrators and management with the data they need to determine who incurred the costs and to allocate them accordingly.
  3. Customer Use
    • Reserved Pool -- Different business and workloads within the same business may find one of these pricing models more efficient than the next. The choice of pricing models is directly linked to the predictability of workload applications. Static workloads are easier to forecast than variable workloads and as a result, a reservation pool model can be more cost effective than instance-based pricing. Instance Based -- On the other hand, variable workloads are very challenging to predict and would be better served by an instance-based pricing model. This way, the customer can deploy and discontinue the use of Virtual Machines as needed and take advantage of a pay-as-you-go model.

Before deciding on a pricing model, companies should work with their cloud services providers to develop a clear understanding of their needs, possible uses, etc. Service providers that attempt to lock customers into a particular pricing model without considering their needs should be avoided. Similarly, it is important to look for a cloud service provider that is always focusing on what best serves the customer in an economical way.

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