IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v30y2021i4p883-901.html
   My bibliography  Save this article

Leveraging Slack Capacity in IaaS Contract Cloud Services

Author

Listed:
  • Manuel A. Nunez
  • Xue Bai
  • Linna Du

Abstract

We study capacity planning in the context of Infrastructure as a Service (IaaS) cloud services. Concretely, we propose models for optimal pricing and virtual machine allocation to maximize revenue while maintaining service reliability. Our models are based on current pricing schemes used by predominant cloud services providers in the market. These providers frequently face slack capacity and low utilization in resources, so that they require better planning in the allocation of non‐revenue‐earning resources that could significantly affect profitability. In particular, we propose two novel hybrid service models, each combining two basic types of cloud services: reserved‐instance (contract) and on‐demand, and provide conditions under which they become dominant. We compare analytical properties of different service models, derive closed‐form solutions and structural results to assess the strategic impact of the different models, and conduct numerical analysis to test how optimal solutions change with respect to critical system parameters such as service rate, market size, and service reliability.

Suggested Citation

  • Manuel A. Nunez & Xue Bai & Linna Du, 2021. "Leveraging Slack Capacity in IaaS Contract Cloud Services," Production and Operations Management, Production and Operations Management Society, vol. 30(4), pages 883-901, April.
  • Handle: RePEc:bla:popmgt:v:30:y:2021:i:4:p:883-901
    DOI: 10.1111/poms.13283
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.13283
    Download Restriction: no

    File URL: https://libkey.io/10.1111/poms.13283?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lingjie Duan & Biying Shou & Jianwei Huang, 2016. "Capacity Allocation and Pricing Strategies for New Wireless Services," Production and Operations Management, Production and Operations Management Society, vol. 25(5), pages 866-882, May.
    2. Noah Gans & Sergei Savin, 2007. "Pricing and Capacity Rationing for Rentals with Uncertain Durations," Management Science, INFORMS, vol. 53(3), pages 390-407, March.
    3. Anyan Qi & Hyun‐Soo Ahn & Amitabh Sinha, 2019. "To Share or Not to Share? Capacity Reservation in a Shared Supplier," Production and Operations Management, Production and Operations Management Society, vol. 28(11), pages 2823-2840, November.
    4. Anna Ye Du & Sanjukta Das & R. Ramesh, 2013. "Efficient Risk Hedging by Dynamic Forward Pricing: A Study in Cloud Computing," INFORMS Journal on Computing, INFORMS, vol. 25(4), pages 625-642, November.
    5. Karen Donohue & Özalp Özer, 2020. "Behavioral Operations: Past, Present, and Future," Manufacturing & Service Operations Management, INFORMS, vol. 22(1), pages 191-202, January.
    6. Ilyas Iyoob & Emrah Zarifoglu & A. B. Dieker, 2013. "Cloud Computing Operations Research," Service Science, INFORMS, vol. 5(2), pages 88-101, June.
    7. Tarun Jain & Jishnu Hazra, 2019. "Hybrid Cloud Computing Investment Strategies," Production and Operations Management, Production and Operations Management Society, vol. 28(5), pages 1272-1284, May.
    8. Vasiliki Kostami & Dimitris Kostamis & Serhan Ziya, 2017. "Pricing and Capacity Allocation for Shared Services," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 230-245, May.
    9. Guillermo Gallego & Huseyin Topaloglu, 2019. "Revenue Management and Pricing Analytics," International Series in Operations Research and Management Science, Springer, number 978-1-4939-9606-3, December.
    10. Mauro Passacantando & Danilo Ardagna & Anna Savi, 2016. "Service Provisioning Problem in Cloud and Multi-Cloud Systems," INFORMS Journal on Computing, INFORMS, vol. 28(2), pages 265-277, May.
    11. Jaelynn Oh & Xuanming Su, 2018. "Reservation Policies in Queues: Advance Deposits, Spot Prices, and Capacity Allocation," Production and Operations Management, Production and Operations Management Society, vol. 27(4), pages 680-695, April.
    12. Sergio Chayet & Panos Kouvelis & Dennis Z. Yu, 2011. "Product Variety and Capacity Investments in Congested Production Systems," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 390-403, July.
    13. Maxime C. Cohen & Philipp W. Keller & Vahab Mirrokni & Morteza Zadimoghaddam, 2019. "Overcommitment in Cloud Services: Bin Packing with Chance Constraints," Management Science, INFORMS, vol. 65(7), pages 3255-3271, July.
    14. Achal Bassamboo & Ramandeep S. Randhawa & Assaf Zeevi, 2010. "Capacity Sizing Under Parameter Uncertainty: Safety Staffing Principles Revisited," Management Science, INFORMS, vol. 56(10), pages 1668-1686, October.
    15. Shi Chen & Hau Lee & Kamran Moinzadeh, 2019. "Pricing Schemes in Cloud Computing: Utilization‐Based vs. Reservation‐Based," Production and Operations Management, Production and Operations Management Society, vol. 28(1), pages 82-102, January.
    16. Stefano Starita & Arne K. Strauss & Xin Fei & Radosav Jovanović & Nikola Ivanov & Goran Pavlović & Frank Fichert, 2020. "Air Traffic Control Capacity Planning Under Demand and Capacity Provision Uncertainty," Transportation Science, INFORMS, vol. 54(4), pages 882-896, July.
    17. Bo Li & Subodha Kumar, 2018. "Should You Kill or Embrace Your Competitor: Cloud Service and Competition Strategy," Production and Operations Management, Production and Operations Management Society, vol. 27(5), pages 822-838, May.
    18. Jing-Sheng Song & Geert-Jan van Houtum & Jan A. Van Mieghem, 2020. "Capacity and Inventory Management: Review, Trends, and Projections," Manufacturing & Service Operations Management, INFORMS, vol. 22(1), pages 36-46, January.
    19. Amir Fazli & Amin Sayedi & Jeffrey D. Shulman, 2018. "The Effects of Autoscaling in Cloud Computing," Management Science, INFORMS, vol. 64(11), pages 5149-5163, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Bo & Tan, Zhen & Arreola-Risa, Antonio & Huang, Yiwei, 2023. "On the improvement of uncertain cloud service capacity," International Journal of Production Economics, Elsevier, vol. 258(C).
    2. Xuying Zhao & Hong Guo & Gangshu Cai & Subhajyoti Bandyopadhyay, 2021. "The Role of Expectation–Reality Discrepancy in Service Contracts," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4160-4175, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bo Li & Subodha Kumar, 2022. "Managing Software‐as‐a‐Service: Pricing and operations," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2588-2608, June.
    2. Rajib L. Saha & Sumanta Singha & Subodha Kumar, 2021. "Does Congestion Always Hurt? Managing Discount Under Congestion in a Game-Theoretic Setting," Information Systems Research, INFORMS, vol. 32(4), pages 1347-1367, December.
    3. Wei, Liqun & Zhang, Jianxiong, 2021. "Strategic substitutes or complements? The relationship between capacity sharing and postponement flexibility," European Journal of Operational Research, Elsevier, vol. 294(1), pages 138-148.
    4. Shi Chen & Kamran Moinzadeh & Yong Tan, 2021. "Discount Schemes for the Preemptible Service of a Cloud Platform with Unutilized Capacity," Information Systems Research, INFORMS, vol. 32(3), pages 967-986, September.
    5. Hossein Jahandideh & Julie Ward Drew & Filippo Balestrieri & Kevin McCardle, 2020. "Individualized Pricing for a Cloud Provider Hosting Interactive Applications," Service Science, INFORMS, vol. 12(4), pages 130-147, December.
    6. Erkip, Nesim Kohen, 2023. "Can accessing much data reshape the theory? Inventory theory under the challenge of data-driven systems," European Journal of Operational Research, Elsevier, vol. 308(3), pages 949-959.
    7. Hao, Zhongyuan & Li, Juan & Cai, Jinling, 2023. "Allocation of inventory responsibilities in overconfident supply chains," European Journal of Operational Research, Elsevier, vol. 305(1), pages 207-221.
    8. Mehdi Nezami & Kapil R. Tuli & Shantanu Dutta, 2022. "Shareholder wealth implications of software firms’ transition to cloud computing: a marketing perspective," Journal of the Academy of Marketing Science, Springer, vol. 50(3), pages 538-562, May.
    9. Li, Bo & Tan, Zhen & Arreola-Risa, Antonio & Huang, Yiwei, 2023. "On the improvement of uncertain cloud service capacity," International Journal of Production Economics, Elsevier, vol. 258(C).
    10. Tarun Jain & Jishnu Hazra & T. C. Edwin Cheng, 2020. "Illegal Content Monitoring on Social Platforms," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1837-1857, August.
    11. Zhong-Ping Li & Jian-Jun Wang & Ai-Chih Chang & Jim Shi, 2021. "Capacity reallocation via sinking high-quality resource in a hierarchical healthcare system," Annals of Operations Research, Springer, vol. 300(1), pages 97-135, May.
    12. Dominik Schreyer, 2019. "Football spectator no-show behaviour in the German Bundesliga," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4882-4901, September.
    13. Tolga Tezcan & Banafsheh Behzad, 2012. "Robust Design and Control of Call Centers with Flexible Interactive Voice Response Systems," Manufacturing & Service Operations Management, INFORMS, vol. 14(3), pages 386-401, July.
    14. Wei, Liqun & Zhang, Jianxiong & Zhu, Guowei, 2021. "Incentive of retailer information sharing on manufacturer volume flexibility choice," Omega, Elsevier, vol. 100(C).
    15. S. Di Luozzo & A. Fronzetti Colladon & M. M. Schiraldi, 2024. "Decoding excellence: Mapping the demand for psychological traits of operations and supply chain professionals through text mining," Papers 2403.17546, arXiv.org.
    16. Dong Li & Zhan Pang & Lixian Qian, 2023. "Bid price controls for car rental network revenue management," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 261-282, January.
    17. Dongyuan Zhan & Amy R. Ward, 2019. "Staffing, Routing, and Payment to Trade off Speed and Quality in Large Service Systems," Operations Research, INFORMS, vol. 67(6), pages 1738-1751, November.
    18. Mingwen Yang & Varghese S. Jacob & Srinivasan Raghunathan, 2021. "Cloud Service Model’s Role in Provider and User Security Investment Incentives," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 419-437, February.
    19. Jing Li & Yulin Zhang, 2021. "More market awareness, more profit? Competitive environments, business expansions, and two‐sided markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 249-267, March.
    20. Zhang, Guoquan & Li, Guohao & Shang, Jennifer, 2023. "Optimizing mixed bundle pricing strategy: Advance selling and consumer regret," Omega, Elsevier, vol. 115(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:30:y:2021:i:4:p:883-901. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.