Pricing Infrastructure-as-a-Service for Online Two- Sided Platform Providers

Abstract

Infrastructure-as-a-Service (IaaS) is expected to grow at a rapid pace in the next few years. This is primarily because of the exibility that it o ers to organizations to meet variable demand without any xed investment in capacity. Our work focuses on a particular customer segment of IaaS - online platform providers. These online businesses experience uctuations in the number of users of their platforms which indirectly impact their advertising revenues. It is thus necessary for these businesses to support any sudden surge in demand without incurring excessive upfront investments in computing infrastructure. IaaS o ers an attractive option for such businesses. We model the uctuations in the number of users and the impact of these uctuations on the revenue of the platform providers to develop the underlying logic of selecting a pricing policy. We explore three pricing policies for online platform providers: usage based contract, xed fee contract and combined fee contract. We determine the conditions under which platform providers selects one contract over another, and discuss the signi cance of these conditions for IaaS providers. We use our model to determine the impact of the degree of uctuations in the number of users on the decision problem of the platform providers.