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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14748
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| Title: | Pricing Models for On-Demand Computing |
| Authors: | Huang, Ke-Wei
Sundararajan, Arun |
| Issue Date: | Nov-2005 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | CeDER-05-26 |
| Abstract: | On-demand computing provides a new way for companies to manage and use
their IT infrastructure. This model of corporate computing radically
changes the way companies pay for their IT infrastructure, basing it on
"pay per use" rather than on the fixed infrastructure
investments such companies are accustomed to. A clear theoretical
understanding of pricing on-demand computing is thus central to the
viability and growth of this nascent industry. We contribute towards
such an understanding in this paper by modeling the optimal pricing of
on-demand computing while taking four critical factors into account: the
costs of deploying IT in-house, the business value of this IT, the scale
of the providerâs on-demand computing infrastructure, and the
variable costs of providing on-demand computing. Three distinct pricing
models emerge as optimal among all possible pricing functions for
on-demand computing. These models describe when volume discounting, free
usage and demand caps should be used to manage demand appropriately and
profitably. We also outline a likely path that the transformation
towards on-demand computing will follow â under which low-usage
customers are targeted initially, followed by a broadening of the
market, and finally, a focus on profiting from inducing adoption by
high-usage customers â and prescribe how the associated pricing
models should evolve appropriately. |
| URI: | http://hdl.handle.net/2451/14748 |
| Appears in Collections: | CeDER Working Papers
IOMS: Information Systems Working Papers
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