A game-theoretic approach to the financial benefits of infrastructure-as-a-service

• We propose a game theoretic-model of the infrastructure-as-a-service market.
• We examine pricing and usage dynamics and how they depend on factors like economies of scale and load distribution.
• The possibility of hybrid clouds is essential for the client to profit of a purely on-demand cloud.
• A reserved instance option causes higher on-demand instance prices and costs to the client.

Financial benefits are an important factor when cloud infrastructure is considered to meet processing demand. The dynamics of on-demand pricing and service usage are investigated in a two-stage game model for a monopoly Infrastructure-as-a-Service (IaaS) market. The possibility of hybrid clouds (public clouds plus own infrastructure) turns out to be essential in order that not only the provider but also the clients have significant benefits from on-demand services. Even if the client meets all demand in the public cloud, the threat of building a hybrid cloud keeps the instance price low. This is not the case when reserved instances are offered as well. Parameters like load profiles and economies of scale have a huge effect on likely future pricing and on a cost-optimal split-up of client demand between either a client’s own data center and a public cloud service or between reserved and on-demand cloud instances.