Optimal strategies on pricing and resource allocation for cloud services with service guarantees

Abstract

The emergence of cloud computing has brought challenges to pricing and resource allocation in cloud services. In particular, overloading cloud servers caused by peak demand may paralyze cloud-based services. Therefore, cloud service providers (CSPs) always use service guarantees to ensure the quality of the service, which affects the providers’ profit. This paper studies a CSP’s pricing and resource allocation strategies considering service guarantees under overload protection. Considering the influence of service guarantees on users’ perceived service value, we propose an economic model in which the provider adjusts both the price and resource allocation to maximize profit. We use queuing theory to model the user-service interaction and seek to protect servers from overloading and derive the provider’s optimal pricing and resource allocation decisions. We further examine the impact of service guarantee, characterized by basic compensation factor and additional compensation factor, on CSP’s profit. It is demonstrated that when the market environment requires the provider to offer a higher basic compensation factor, it does not always hurt the provider’s profit. We also find that as the additional compensation factor becomes larger, the CSP’s profit trend varies under different conditions of the promised service response time. Besides, we examine the CSP’s service fulfillment rate, which influences the users’ benefits. These findings can guide CSPs to develop virtuous profitability modes in cloud industrial practice.