Abstract
Cloud computing has rapidly penetrated enterprise and user computing markets with three prominent service models: software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS). Cloud computing has also proven to be one of the most important environmentally sustainable technological innovations in the year of Industrial Revolution 4.0. While SaaS and IaaS are the two largest revenue generating services in the cloud service market, the pricing and profit generating mechanisms of the SaaS and IaaS providers have not yet been well understood. Unless the SaaS providers’ profit-maximizing decision is considered, any pricing decision by the IaaS providers is likely to be suboptimal. Hence, this paper proposes a Stackelberg game pricing decision model with the aim of maximizing the profit of the IaaS provider, given the best response of the SaaS provider. This paper develops an analytical closed-form solution to the pricing problem and presents sensitivity analyses to give valuable insights into the pricing dynamics and negotiation between the SaaS provider and IaaS provider. Finally, implications of these findings and future research directions are discussed.
Highlights
Contrary to conventional wisdom, while an increase in the cost of the reserved instance decreases the profit of the software as a service (SaaS) provider, an increase in the cost of the on-demand instance increases the profit of the SaaS provider
While a well-developed pricing strategy increases cloud providers’ profits and revenues, most previous studies focus on the technological aspects of cloud computing such as resource allocation and scheduling
Understanding pricing dynamics between different types of cloud providers is critical to improving their profits and revenues
Summary
Proper pricing can increase their profit and help customers purchase cloud services efficiently [9]. Despite potential benefits of mixing the on-demand instance, spot instance, and reserved instance under a highly fluctuating demand, there has been no study on how the pricing of the IaaS provider affects the SaaS provider’s purchasing decision on the three pricing options. In light of the gap in the prior studies, this paper investigates the pricing and purchasing dynamics between SaaS providers and IaaS providers. This paper develops a Stackelberg game pricing decision model in which the IaaS provider is a leader and the.
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