Discount Schemes for the Preemptible Service of a Cloud Platform with Unutilized Capacity

Forthcoming in Information Systems Research

43 Pages Posted: 15 Nov 2018 Last revised: 25 Jan 2021

See all articles by Shi Chen

Shi Chen

University of Washington - Foster School of Business

Kamran Moinzadeh

Foster School of Business - University of Washington

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: January 24, 2021

Abstract

Rapid growth in the cloud services market provides tremendous opportunities to cloud providers who have invested heavily in computing capacities but also has led, at time, to low utilization of capacities. To alleviate this problem, some providers have launched a low-priority service with preemptible (spot) instances, which allows them to attract more customers while keeping the right to reclaim capacities when necessary. In this study, we consider a provider who faces a heterogeneous pool of customers with fault-tolerant (interruptible) computing jobs. We develop an analytical framework that consists of a customer-choice model and a diffusion model to capture the underlying supply-demand dynamics and the resulting preemption probability. First, we examine a commonly used discount scheme for preemptible instances, namely, the uniform discount scheme, and derive the optimal discounted price, given customers’ expectation of the preemption probability. Then, we propose another practical discount scheme, namely, the interruption-based discount scheme, which provides customers with compensation for interruptions. As long as the provider interrupts the preemptible instances randomly and customers are risk neutral, the two discount schemes are equivalent from the provider’s perspective. That said, the proposed scheme is fairer than the uniform discount scheme from the customers’ perspective, as the former provides more discounts to customers who experience more interruptions. Finally, in the presence of risk-averse customers, through a numerical study, we find that the provider would be better off by adopting the uniform discount scheme in an environment in which the level of surplus capacity stays high and stable. Overall, however, the provider would be better off by adopting the proposed scheme when the level of the surplus capacity is moderate and volatile; the relative advantage of the proposed scheme enlarges as the average surplus capacity decreases and its volatility increases.

Keywords: Discount Schemes, Pricing of Capacity, Cloud Computing, Preemptible Instance

Suggested Citation

Chen, Shi and Moinzadeh, Kamran and Tan, Yong, Discount Schemes for the Preemptible Service of a Cloud Platform with Unutilized Capacity (January 24, 2021). Forthcoming in Information Systems Research, Available at SSRN: https://ssrn.com/abstract=3272079 or http://dx.doi.org/10.2139/ssrn.3272079

Shi Chen (Contact Author)

University of Washington - Foster School of Business ( email )

Michael G. Foster School of Business
University of Washington
Seattle, WA 98195-3200
United States

Kamran Moinzadeh

Foster School of Business - University of Washington

Foster School of Business
University of Washington
Seattle, WA 98195-3200
United States

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

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