Under what conditions can an application service firm with in-house computing benefit from cloudbursting?

Cloudbursting, a hybrid cloud computing model, helps firms supplement their internal computing capacity from a private cloud by using external computing resources from a public cloud to meet increased demand. This paper examines whether cloudbursting benefits an application service firm that uses only its in-house capacity. Cloudbursting provides computing scalability and cost-effectiveness, but poses potential risks from data leakage when bursting into a public cloud. A private cloud reduces such risks, however, is constrained by resource limitations. We develop quantitative models under both non-competitive and competitive systems, and then determine the best choice between cloudbursting and a private cloud. Overall, we show that a profit-maximizing firm will benefit from migrating to cloudbursting if risk is considerably low and will maintain a private cloud if risk is considerably high. Interestingly, one exception occurs in a competition system whereby two competing firms access external resources as needed from the same public cloud. In this case, one firm will counterintuitively remain in a private cloud even though risk is considerably low while its competitor will migrate to cloudbursting. The numerical study conducts a sensitivity analysis to link a firm's profit performance with its best cloud choice.