Now, while we are discussing about pay as you go pricing, you may have one question in mind that.
Why there is a need to introduce pay as you go pricing when you already have a subscription pricing
or a flat rate pricing.
Why There is a need to introduce pay as you go kind of pricing model.
And the simple answer to this question is to tackle the problem of underutilization and overutilization.
And let's understand this with the help of an example.
Let's take Amazon Web service as an example.
And these guys are using pay as you go pricing in their business model.
So let's talk about this.
So pay as you go pricing model is widely used by cloud computing platform like AWS.
That is your Amazon Web service, GCP, that's your Google Cloud platform and Microsoft Azure.
Now, let me help you understand why these companies are using this pricing strategy with a simple example.
So on x axis, you have time.
On y axis, you have your compute power.
So let's say you are the chief technical officer of a digital app or a software.
Let's say a food tech company.
In a food tech company, you will see a peak in the demand in terms of usage, especially at the time
of evening.
So let's say your peak active users are 10 million and your average active users are somewhere between
1 million.
And let's say you have two options.
Either you can build your own cloud infrastructure and set up your own data center, or you can.
Use this cloud computing platform.
I know these are two very extreme choice in 2023.
You will use a cloud computing platform like AWS or GCP, but let's take these two extreme choice so
that you can understand why pay as you go pricing strategy is the best.
So if you set up your own data center, in that case, you have to bring your own server.
So let's say for these 10 million user, you have five server and one server can only handle 1 million
user.
So when you have an average 1 million user, in that case, these four server are sitting idle and they
are just wasting energy.
But when you have 10 million users in your app, then you are over utilizing these five server and some
of the user might not be able to access your app.
So you have a problem of underutilization and overutilization under utilization when you don't really
have a lot of user.
And utilization is when you have more number of users.
So the simple solution to this problem is that you need to take a cloud computing platform that will
scale with the number of user.
In technical term, we call it as auto scaling, and any time you have more number of user in your app,
your system will automatically create a new server in Amazon web service.
In technical terms, we call that as an instance.
So you will automatically create an instance, and that's your auto scaling.
But we'll not go deep into these technical term because I guess majority of you who are watching this
course may not know much about programming or cloud computing platform.
So let's stick to the basics.
Now, just like these server instance, Amazon have more than 200 cloud services and majority of them
are using this pay as you go pricing model where if you use more of a service, you have to pay a higher
amount.
So if you have more number of users on your app, then you will program your app in such a way that
a new EC2 virtual server will be created or let's say it will be allocated to you.
And then you just need to pay for the computing resources that you are using in that specific time.
Now, Amazon uses a mix of all these different types of pricing strategy apart from pay as you go pricing,
you can just pause the video and you can read about it.
I mean, these things are a little more technical, but just like this, Amazon have more than 1000
different types of cloud computing service.
So let's say if you want to store all of the media asset of your user, in that case, you can use their
simple storage bucket or S3 bucket.
If you want to create a new server, you can use Amazon EC2 service or let's say if you want to.
Use a CDN or a content delivery network.
You can use cloud front.
And just like this, they have more than 1000 services.
But the main idea is if you use more of the service, then your bill amount will increase.
So if you have more API call, you have to pay a higher amount on the other side.
If you have less number of API call for the service, you have to pay a lower amount.
Now, apart from pay as you go pricing, Amazon also use few other pricing strategy and that's the part
of their business model.
So apart from pay as you go pricing Amazon uses.
On demand resolve instances, spot instances and dedicated host.
So let's say there is a spatial game going on in your country and you are assuming that you will have
some peak load at a specific time so you can resolve your instances or server.
Now let me tell you a small story on why these companies have to resolve these instances or server.
So there's a company in India called Hotstar and IPL match was going on the platform normally have around
5 to 7 million concurrent user, but suddenly something happens in the match and the concurrency goes
from 7 million to 25 million user.
And when a concurrency goes from 7 million to 25 million within a minute, it is super difficult to
auto scale.
And that's why Hotstar have to resolve these instances on Amazon web service so that they can scale
these over quickly.
And they have a dedicated team to do that.
Who will resolve these server or instances if they have any peak demand in the next few hours or in
the next few days.
Now, let's look at the pay as you go pricing for one of the service that is given by Amazon.
That is a storage bucket or a simple storage bucket where you can store all the media asset or a document
file.
So if you look at the price of Amazon S3 bucket, you will see that you will get first 50 TB of storage
every single month.
And if you exceed this amount, then you have to pay $0.023 per GB.
And let's say you have all these three different tiers you will have for 50 TB per month and then you
have to pay 0.0 to $2 per GB if you exceed this amount.
So they also use a mix of tiered pricing with pay as you go pricing.
Now, Amazon Web service don't really use pay as you go pricing.
They also use no Amazon mix this pay as you go pricing with tiered pricing.
And let's understand that with the help of a really simple example, let's look at one of the service
that is provided by Amazon Web service.
That's their Amazon simple storage bucket, also known as Amazon S3 Bucket.
So Amazon S3 Bucket have three different pricing plan and they are using pay as you go pricing if you
exceed the limit given in these three different pricing and if you exceed your limit given in three
different tiers, then they are using pay as you go pricing.
So in tier one you will get 15 GB of space every single month and if you exceed this space then you
have to pay $0.023 per GB.
In tier two, they will give you 450 GB of space every single month and if you exceed the limit you
have to pay 0.0 to $2 per month.
So Amazon is using tiered pricing along with pay as you go pricing.