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What is a Utility Model?

A utility model is a combination of utility computing and utility pricing that results in minimizing total IT cost expenditures and maximizing IT resource usage. This section defines the utility model components and addresses common questions and statements regarding utility models.

What is Utility Computing?

Utility computing is a method by which an end user consumes the resource of a computer based on utilization rather than hardware ownership. Utility computing solutions are implemented to:

  • Collect resource utilization data

  • Aggregate and apply a pricing plan to the utilization data

  • Create eXtensible Data Records (XDRs) or XML Records

XDRs are synonymous with Telco CDRs (Caller Data Records), for the purposes of billing customers. XML and XDR records are used as a primary mechanism to integrate the billing data into commercially available billing applications such as SAP or Amdocs Horizon.

Utility computing and utility pricing can be differentiated by viewing one as a technical solution and the other as a financial solution. If a business does not employ a financial structure to support utility computing, the success of such a technical solution is limited.

What is Utility Pricing?

Utility pricing is a method used by a supplier of a computing resource to bill a customer based on resource utilization. This method may be used alone to support the requirements of a business that chooses not to employ a utility computing architecture to capture resource consumption. In this case, customers are charged for resource based on a financial model that employs previously agreed estimations of resource utilization.

Utility pricing provides a customer with a financial plan to enable a monthly cost for using a resource based on an agreed usage. There are caveats for this pricing structure that include an up-front flat-rate charge such as a utility standard charge (USC) (often seen as the Telco equivalent of line rental), and the possibility of over- or under-utilization. Because a financial solution might not include a data capture or metering technology solution, estimates are put in place to accommodate peaks and troughs in resource consumption.

Therefore, the supplier will need to recover the costs over a given time period, and is likely to seek to do so within the agreed contract period. This implies that the contract period needs to be set with capital cost recovery as one of the factors.

To summarize, as an IT supply function you can introduce a utility pricing solution without utility computing. However, with the lack of a financial structure in place to support utility pricing, it might not be possible to successfully realize the financial benefits of implementing a utility computing solution.

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