Simplicable Guide

What is Utility Computing?

John Spacey, December 15, 2016

Utility computing is a business model that charges customers for computing, memory and bandwidth based on how much is used. It is associated with cloud computing and services that allow customers to scale up and down their use of resources as required.

Economics

Utility computing changes the economics of information technology and is a primary reason for the success of cloud computing as an architecture. Historically, obtaining computing resources required upfront capital investments and long lead times. Utility computing reduces or removes upfront capital requirements allowing firms big and small to use computing resources more extensively on-demand.

Technology

Utility computing is based on platforms that can programmatically allocate computing resources. APIs and user interfaces for requesting computing resources are provided to customers. Utility computing requires a billing platform that can process a large amount of usage data. Modern cloud platforms typically calculate billing in real time or with a short delay so that customers can view their current charges.

Example

A startup develops their services on a cloud computing platform. Initially they only use a few computers. They are charged by the hour for computing instances and based on metered usage of data storage and bandwidth. As the popularity of the service grows, they automatically scale by requesting more instances using an API. The cloud platform offers volume discounts whereby prices fall as you use more. This allows the startup to scale with declining operating costs related to computing.

Overview: Utility Computing
Type	Cloud Computing Technology Economics Business Model
Definition	Computing resources that are available on-demand and charged per usage.
Value	Low upfront capital costs for customers. Allows customers to scale.
Related Concepts	Cloud Computing Technology Economics