According to technology pundits, 2013 is poised to see a strong uptake in cloud services. For cloud providers to take advantage of this boon, they’ll need to implement a pricing model that shows value to their customers while allowing the provider to be profitable.

Pricing is often a key differentiator for otherwise comparable offers. Lower prices may seem good in the short term for customers, in the long term it is often a negative as it leads to poor customer service and supplier instability. Unfortunately, this frequently leads to a race to the bottom as providers continuously undercut one another. As an example, Amazon Web Services has reduced pricing 19 times in the last six years—an average of more than three price reductions each year!

Due to the lack of sophistication of most back office systems, cloud providers too often apply a one-size fits most billing philosophy. A multi-dimension pricing model would eliminate this constraint on the providers. A platform that can monitor and measure usage and activity events—both recurring and ad hoc—along with allocations and promotions, allows a cloud provider to charge for services in a manner that their customers appreciate and see value in. An activity-based billing model also provides for full revenue recognition for the providers.

Image of icons coming out of the computer representing recurring billing

Commonly measured cloud activities, such as consumption of resources like storage, bandwidth, processing power (CPU Cores), and/or application usage, can be measured and monetized by a multi-dimensional billing system. One cloud provider wants to use energy as its prime pricing metric, which could be a huge differentiator in the market as enterprises look to shrink their footprint.

Cloud service providers moving into the IT consulting space will also need to be able to charge for both the human and physical resources need to complete a project. Without a robust billing system, charging these bundled resources and ensuring resource tracking will cause major headaches for the finance team.

We’ll leave it up to cloud providers to determine the best billing model for their business. However, the billing system requirements for this dynamic cloud services era are becoming clearer. A billing solution employed by the cloud providers must be able to charge for many different types of user activity, including access, services performed by the cloud provider, and usage of resources (either sold separately or as a bundle). The system must also be able to process usage allowances and charge for overages or deny access as dictated by the contract terms. And, of course, flexibility and scalability are key to morphing the billing model as businesses grow and customer preferences change.

Are you a cloud vendor looking to innovate billing and transform your back office? Request a TRACT Billing demo today.