What is cloud cost modeling?

Cloud cost modeling is a process for estimating and analyzing the expenses associated with using cloud computing services to run applications, store data, and perform various computing tasks.

Cloud cost models help organizations plan and optimize their cloud usage and resource allocation for optimal performance while controlling costs.

Cloud cost models are dynamic. Machine learning and predictive analytic models estimate cloud spend based on factors such as the type and amount of resources consumed, duration of usage, geographical region of data centers, and the cloud service provider's pricing models. Computing costs can vary significantly from one vendor to the next. However, all pricing models follow the same basic formula: Cloud costs = Usage x Unit price.

Pricing approaches also vary. Providers can base pricing on value (perceived value of a product or service), auction (allocation of resources to the highest bidder), or the market (set a price based on what competitors charge for similar services).

Therefore, supply and demand are important factors: demand drives value-based pricing, while supply drives auction-based pricing. For market-based pricing, the relationship between supply and demand determines costs. Cloud service providers often incorporate one or more of these pricing strategies into their pricing models to best meet their customer base's business goals and to maintain a competitive edge.

Cloud cost modeling also enables organizations to forecast future cloud spending. This enables organizations to avoid sticker shock when usage spikes. With intelligent cloud forecasting, teams can receive notifications whenever forecasted usage is projected to exceed defined budget or when unexpected usage spikes occur.