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An Overview of 5 Cloud Cost Models

Cloud computing offers a variety of cost models, catering to different business needs. Here, we explore five prevalent cloud cost models that organizations can leverage.

1. Pay-As-You-Go Model

In this model, cloud customers are charged based on their actual consumption of cloud services. These charges could include the use of computing power, storage, networking, or other resources. This model offers the flexibility to pay for what you use and scale resources as required. However, costs can escalate quickly with the addition of more resources.

2. Subscription-Based Model

This model operates on prepayment, where clients pay upfront for a predetermined package of services over a specified duration. The longer the subscription duration, the lower the costs.

This pricing model is prevalent on the platform as a service (PaaS) and software as a service (SaaS) offerings, which bundle multiple hardware and software components. Some cloud providers offer subscription-based pricing for high-spend customers, enabling them to avail of corporate discount plans and enjoy discounts on their cloud services.

3. Reserved Instances Model

In this model, businesses commit to cloud resources for an extended period, usually one or three years. The longer the commitment and the greater the upfront payment, the higher the discount. Discounts can range from 50-75% compared to pay-as-you-go rates for reserved instances with similar capabilities.

Reserved instances are ideal for long-running systems and steady workloads but should not be used for peak loads. For peak loads, it’s better to use a combination of reserved, pay-as-you-go, or spot instances.

4. AWS Savings Plan Model

An AWS Savings Plan allows companies to commit to a specific usage level in exchange for lower prices than the on-demand rates. This commitment is defined in terms of hourly spending on Amazon services.

AWS provides three types of Savings Plans: Compute Savings Plans (applicable to all Amazon compute services), EC2 Savings Plans (exclusive to Amazon EC2 usage), and SageMaker Savings Plans (applicable only to SageMaker usage).

There are three payment options within this model: 

  1. No upfront (paying monthly based on actual usage)
  2. Partial upfront (prepaying over half of the contract and paying the rest monthly)
  3. Full upfront (paying the entire commitment upfront).
5. Spot Instances Model

Spot instances are the most economical computing option, offering up to 90% discounts compared to pay-as-you-go rates. However, the trade-off is that spot instances can be interrupted at short notice.

In conclusion, understanding these five cloud cost models can help businesses make informed decisions about their cloud spending and effectively manage their cloud costs.

Rodney Joyce

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