When it comes to cloud computing, one of the most common pieces of jargon that get tossed around by MSPs like Microsoft and Amazon is “metered services”.

They flaunt it as some massive game-changer in pricing for cloud computing, offering you unparalleled flexibility and big financial rewards. Is that true? Is a metered service model the way to go when signing on with a cloud computing provider? Or is it just another piece of sales jargon to get you to improve Amazon’s bottom line?

Let’s dig into metered services in cloud computing.

What are Metered Services in IT?

Metered services – also known as pay-per-use and consumption-based pricing – is a payment structure where customers access potentially unlimited resources but pay only for what they actually use. The most common type of metered service that all of us deal with in our daily lives is utilities – you pay only for as much gas, water, or electricity as you use.

When it comes to IT, a metered services model is becoming increasingly prevalent, especially in cloud applications. This “pay-as-you-go” model, where, for example, you only pay for the storage you use, instead of paying a monthly fee for space that goes unused, is extremely attractive to cost-sensitive businesses. Only paying for what you use sounds idyllic, doesn’t it?

In addition to its cloud computing applications, you see metered services dominate areas of IT like utility computing, where service providers like Microsoft “lease” server power to their customers. You also see a decent amount of metered services in your daily life in things like utilities or phone bills, which are billed off your usage.

However, the dominant area where you see metered services is in the cloud – specifically in corporate or enterprise offerings like IaaS, PaaS, and SaaS from providers like AWS, Microsoft Azure​​, Salesforce, SAP, and so on.

Metered Services in Cloud Computing

In cloud computing, metered service involves cloud providers like AWS or Microsoft providing businesses a specific provision of cloud computing services over a certain period of time. The main areas where metered services are offered in a cloud computing context are instances where businesses need either computing power or server storage.

For example, a company may need more computing resources to run complex software for the company’s main application. In order to do so, they will lease the computing power from their mountains of computers to their customer, providing a certain amount of power per month at a fixed rate, or charging the customer per wattage, or calculation, or hour of use.

When it comes to storage, you usually see fixed-rate pricing for many enterprises, offering monthly subscriptions for a certain amount of storage. However, larger companies often engage in metered services, paying for every gigabyte, or terabyte, or even petabyte of storage that they use.

The good thing about metered services for cloud computing is that you have specific, granular control over every kilobyte of data you use, potentially saving big on usage costs. This is great for companies who want to use cloud computing in specific ways, or have small, discrete tasks that require cloud computing to accomplish, but don’t require constant usage.

The bad side of metered services in cloud computing is it requires a lot of attention and care to maintain consistent costs. Unlike fixed-rate or tiered pricing models, with metered services, you really need to be able to scope your needs appropriately, monitor the projects constantly to make sure you’re not overshooting your projections, and then consistently analyze your usage to constantly update your estimations and maintain profitability.

Metered Services vs. Fixed-Rate vs. Tiered Pricing in Cloud Computing

How does the Metered Services model compare to Fixed-Rate and Tiered Pricing models when it comes to cloud computing? Which is best? And for what purposes?

Here’s our breakdown.

Metered Services in Cloud Computing

  • Definition: Metered services, also known as pay-per-use or consumption-based pricing, charge customers based on actual resource usage. This includes computing power, storage, or network bandwidth used.
  • Examples: Cloud storage where the fees charged are based on the amount of storage used, or cloud computing services that bill based on the computing power consumed over a period.
  • Real-World Examples:
    • AWS Lambda: Amazon’s AWS Lambda is a serverless computing service that uses a metered pricing model. It offers a flexible Compute Savings Plan, charging based on the duration and memory used for code execution. Users get one million free requests per month, with charges applied beyond that limit​​.
    • IBM Cloud Code Engine: This platform charges based on resources used, such as vCPU seconds, GB seconds, and HTTP requests, offering a scalable solution for businesses with varying usage needs​​.
  • Pros: Flexibility, cost-effective for fluctuating needs, encourages efficient resource use. Really good for teams with small IT departments who do lots of coding or similar back-end work.
  • Cons: To effectively deploy metered services, usage must be consistently and actively monitored. Costs can easily jump with even the slightest misstep in oversight and control.

Flat-Rate Pricing in Cloud Computing

  • Definition: Flat-rate services charge a fixed fee regardless of usage. This model offers a consistent and predictable billing structure.
  • Examples: Virtual machines may cost a single, flat rate for usage, with no changes to pricing based on how much you actually use a machine. You are basically renting a machine or a cloud service – the rest doesn’t really matter.
  • Real World Examples:
    • Oracle Cloud Infrastructure: Oracle offers a range of cloud services with a competitive, region-independent pricing policy. It includes virtual machine instances, Kubernetes clusters, and block storage with set monthly prices, providing predictability in costs​​.
    • Microsoft Azure Virtual Machines: Microsoft Azure offers a flat rate for every user of their virtual machine program, regardless of how much or how often they use their machine.
  • Pros: Predictable billing, simpler budgeting, less monitoring required than metered services.
  • Cons: Potentially higher costs for low usage, less tailored to actual needs.

Tiered Pricing Models in Cloud Computing

  • Definition: The most common pricing model for cloud computing applications, tiered pricing offers several plans or packages at different price points based on features, supported users, or storage space.
  • Examples:
    • Basic, Advanced, and Enterprise Plans: Commonly found in SaaS offerings, each plan offers different levels of features and support​​.
    • Usage-Based Tiers: Charges based on actual usage of resources, beneficial for online services​​.
    • Feature-Based Tiers: Differentiated based on the features offered in each tier​​.
    • User Count Tiers: Pricing varies based on the number of users, popular in multi-user software and services​​.
  • Real-World Examples:
  • Dropbox, Google Drive, and Azure: Big storage companies like Dropbox use tiered pricing to service its many, many different user types. Even within their consumer and enterprise tiers, there are even more sub-tiers within those.
  • Pros: Flexibility for customers to choose plans, scalable, and aligns with customer needs. Allows for predictable costs for all business units.
  • Cons: Choosing the right plan for your business can be extremely difficult to handle given the complexity of needs and use cases. Commonly, businesses overpay for storage they do not use to avoid storage issues.

Business Considerations for Metered Services

What are the benefits of metered IT services for businesses? What are the cons?

Benefits of Metered Cloud Services for Businesses

  • Cost Savings: Businesses pay only for resources used, optimizing cloud spending. Obviously, you want to save as much money as you can by not spending on things you don’t need.
  • Predictability: Contrary to popular belief, metered billing can offer more predictable billing, aiding in budgeting and financial planning. It all depends on how organized you are with tracking your usage.
  • Resource Optimization: By saving money on internet usage, you can use those resources to improve your business elsewhere.
  • Scalability: Businesses can scale resources up or down as needed, offering flexibility. However, this is also possible with tiered or fixed pricing models.

Cons of Metered Cloud Services For Businesses

  • Cost Overruns: Improper planning and inconsistent control over your cloud usage means you could be looking at massive cost overruns that could cost companies thousands of dollars and restrict them from taking advantage of business opportunities in other areas.
  • Additional Staffing Requirements: In order to take advantage of metered services, a business must constantly monitor and maintain usage to ensure cost savings. This means hiring qualified staff to ensure the company is optimizing their resources in this area – which not only costs a lot of money, but time and effort as well!
  • Over-Provisioning: Over-allocating resources for cloud computing means you’re wasting money that could have been deployed elsewhere. This may mean you have funds inaccessible for months that could be used.
  • Need To Educate And Train: In order to effectively operate with a metered services model, you need to have experts operating your systems. Only people who know how metered services work should operate the systems using metered services – as amateurs can rack up mountains of costs quickly, without even knowing!
  • Constant Monitoring And Assessment: We cannot reiterate this enough – metered services require constant benchmarking and monitoring to ensure you’re not wasting money. This around-the-clock analysis is often too much for companies to handle, which is why tiered and fixed pricing models are so popular in most cloud applications.

So…Should I Get Metered Services For My Business’ Cloud Computing Needs?

The answer is – as always – it depends, but the reality is that most business owners should stick to fixed-rate or tiered pricing models for their businesses. Only businesses with specific needs and knowledge should pursue metered services.

If you’re a small business with minimal users and an experienced IT department with robust tracking, or a business that finds itself needing a lot of specific and robust computing power for software or hardware applications – metered services may be the way to go!

However, in most instances outside of things like virtual machines, a tiered or fixed-rate pricing model usually makes the most sense.

It’s a lot like computers themselves. Think of metered service users as people who build PCs. Usually, their PCs run better than anything you could buy at Best Buy – they’re faster, stronger, load quicker, and generally are superior to consumer rigs.

However, they are also extremely fragile and require expert knowledge to build, operate, maintain, and run. They are also extremely expensive – and usually have a lot of hidden costs. In other words, if you don’t know what you’re doing, you should probably just buy a Dell or a Mac.

It’s the same with metered services – the average small business will do just fine with a Dropbox Enterprise account and an Office subscription.

Those who have the need, infrastructure, and ability to optimize their cloud costs with metered services, however, should definitely look at it as a place where they can save a lot of money, and gain an advantage over the competition.