On the Economics of Cloud Markets

TL;DR

This paper models the economic interactions among cloud providers, analyzing how they set prices and QoS levels in a competitive market to optimize profitability and market presence.

Contribution

It introduces three inter-organizational economic models for cloud markets and proves the existence of unique Nash equilibria in two of them.

Findings

Existence of unique pure strategy Nash equilibrium in two models.

Guidelines for cloud providers to set prices and QoS levels.

Insights into capacity provisioning for QoS guarantees.

Abstract

Cloud computing is a paradigm that has the potential to transform and revolutionalize the next generation IT industry by making software available to end-users as a service. A cloud, also commonly known as a cloud network, typically comprises of hardware (network of servers) and a collection of softwares that is made available to end-users in a pay-as-you-go manner. Multiple public cloud providers (ex., Amazon) co-existing in a cloud computing market provide similar services (software as a service) to its clients, both in terms of the nature of an application, as well as in quality of service (QoS) provision. The decision of whether a cloud hosts (or finds it profitable to host) a service in the long-term would depend jointly on the price it sets, the QoS guarantees it provides to its customers, and the satisfaction of the advertised guarantees. In this paper, we devise and analyze three inter-organizational economic models relevant to cloud networks. We formulate our problems as non co-operative price and QoS games between multiple cloud providers existing in a cloud market. We prove that a unique pure strategy Nash equilibrium (NE) exists in two of the three models. Our analysis paves the path for each cloud provider to 1) know what prices and QoS level to set for end-users of a given service type, such that the provider could exist in the cloud market, and 2) practically and dynamically provision appropriate capacity for satisfying advertised QoS guarantees.