Pricing and Profit Management Models for SaaS Providers and IaaS Providers

Abstract

Cloud computing has rapidly penetrated enterprise and user computing markets with three prominent service models: software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS). Cloud computing has also proven to be one of the most important environmentally sustainable technological innovations in the year of Industrial Revolution 4.0. While SaaS and IaaS are the two largest revenue generating services in the cloud service market, the pricing and profit generating mechanisms of the SaaS and IaaS providers have not yet been well understood. Unless the SaaS providers’ profit-maximizing decision is considered, any pricing decision by the IaaS providers is likely to be suboptimal. Hence, this paper proposes a Stackelberg game pricing decision model with the aim of maximizing the profit of the IaaS provider, given the best response of the SaaS provider. This paper develops an analytical closed-form solution to the pricing problem and presents sensitivity analyses to give valuable insights into the pricing dynamics and negotiation between the SaaS provider and IaaS provider. Finally, implications of these findings and future research directions are discussed.