Resource allocation and revenue optimization for cloud service providers

Online storage and streaming services are surpassing physical media as the predominate means of disseminating and sharing digital contents such as music, documents, photos, and videos. In addition, many software vendors are switching from on-premises installations to web-based rendering for their offerings. Differentiated pricing, based on tiered service responsiveness and advertisement displays, has been widely adopted by cloud service providers to optimize resource utilization and improve profitability under heterogeneous user demands. We analyze the impact of resource allocation and advertising decisions on provider profit and social welfare when separating premium subscription from more basic offerings. By considering queuing delays and advertising revenues, we suggest conditions under which the service provider should invest in service quality to grow the subscription base, which in turn helps attract more advertisers. We also assess the impact of advertising technology that lessens the users' disutility toward advertisements and increases the likelihood of ads click-through. Finally, we point out when offering free services could be more profitable than charging a subscription fee. (C) 2015 Elsevier B.V. All rights reserved.