Licensed to print money in the cloud

BANGALORE, INDIA: One of the major issues facing cloud service providers is the expense of building out infrastructure without knowing how or when revenues will follow. As a result, cloud providers are engaging with technology and networking vendors to develop creative pricing models that are aligned with cloud business principles and engineered to reduce risks.

Ideally, cloud service providers would like to pay only for infrastructure after a customer has made a purchase - in order that there is a tight correlation between revenues and expenses. In the real world, however, implementing this type of model is easier said than done. This was especially true during the ‘iron' age, when there were few alternatives to vendors focused on selling high-dollar, high-performance networking gear.

Today, software-based networking products - as exemplified by virtual load balancing, secure access and WAN optimization - give cloud service providers a compelling alternative. Instead of focusing solely on hardware, technology and networking vendors now give cloud service providers the ability to run essential networking functions in virtualized environments on commodity servers.

Leveraging a common infrastructure and integrated management to host and deliver services, providers are now able to significantly lower the cost of service creation.

Although significant, this shift is only the beginning. Service providers are demanding even greater creativity from technology and networking vendors. Although virtualized solutions lower capex and opex and provide the ability to respond quickly to customer needs, they still require service providers to invest up front in costly perpetual licensing. Even with the advent of lower-cost and time-bound subscription models, service providers are still required to purchase licenses up front on the expectation of turning a profit as they resell services.

In response, some technology and networking vendors are breaking new ground and turning traditional pricing models on their heads. As an example, a vendor may charge service providers a nominal amount to run software load balancing in a virtualized environment and forgo traditional licensing schemes. In this new model, service providers pay nothing in the way of user licenses until such time as they ramp customers.

Customers simply purchase services on-demand and get charged by the service provider according to metrics such as time or bandwidth. As customers pay, the cloud service provider and application delivery networking vendor generate revenue simultaneously based upon a predetermined arrangement. Billing and provisioning is automated and integrated with service provider cloud management systems.

With less risk and less outlay, service providers are better able to manage and grow their business and a rising tide lifts both the provider and technology and networking vendors. As business increases, automated discounts may be triggered to encourage growth and further control costs.

As cloud computing and cloud services continue to accelerate, cloud providers - whether offering software, platform or infrastructure services - are well advised to seek out technology and networking vendors with a broad suite of virtualized offerings and a willingness to work with providers on pricing strategies and business models that enhance profitability for both parties.

The author is country sales manager at Array Networks.