Definition

consumption-based pricing model

A consumption-based pricing model is a service provision and payment scheme in which the customer pays according to the resources used. This model is essentially the same as the utility computing payment structure and those of other utilities, such as water and electricity.

In this model, the provider may charge a flat rate for all resources per time used or may charge at different rates for various components of the service. Dan Weiss, CEO and co-founder of Varrow (a VMware partner), described a potential future system:

"Perhaps in the future, VMware licensing will be based on a points system, with each of these four major hardware components -- RAM, CPU, disk I/O and network I/O -- scoring a certain point value based on the nature of the workload. In this scenario, a customer may end up paying a little more for a CPU-intensive workload because of the leveraging of multi-core processors, while with RAM -- and especially disk I/O -- there is less leverage, so there could be a different point value system."

Consumption-based pricing models are one approach being used or considered by cloud service providers. Alternatives to consumption-based pricing models include subscription-based pricing models, in which customers commit to the service for specified periods of time, and advertising-based pricing models, in which customers receive free or heavily discounted service in return for agreeing to receive ads.

Related glossary terms: cloud service migration
This was last updated in May 2012
Posted by: Margaret Rouse

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