Financial flows
This article accompanies the article "A generic value chain for the Grid Industry".
The financial flows explain the earning logic of the business activities and provide the financial contribution of each element of the value chain. The components of the financial flow are:
- Price and pricing model for the end product, what the final customer pays for the grid product or functionality.
- The distribution of the payment received from the customer among the participants involved in the value chain of the grid product.
Each player that have different pricing models that in some combination of players might even be contradictory. Thus, in the context of grid products, the aim of the financial flows is also to explain and if possible offer solutions for contradicting pricing models. Depending on how the grid value chain is defined, there might be two different perspectives on the financial flow:
- The first view considers the commercial financial flow among all involved parties in the value chain of the grid product.
- The second view considers the financial flow among user companies that participate or cooperate within a grid and provide capacities to each other not for free but in a commercial manner. .
We adopt the first perspective, i. e. on the commercial financial flow among the end customer and the value chain necessary for providing grid functionality.
The way how the components of the commercial financial flow are defined, depends on the way how the grid product is offered. Grid functionality can be offered on the market in two ways:
- In form of grid middleware and additional software necessary to run a grid application, which is licensed by the end customer from the providers of grid software. In this case the end customer decides in which form he would like to bundle software and other necessary functionalities as for example network capacity.
- In form of utility computing or software as a service solution, where the grid functionality is offered and consumed by the customer in form of service. In case of software as service, the provider offers a complete bundle of services to the user including the grid application, grid middleware and the necessary communication infrastructure. This means that the user has one contact point in order to get access to grid functionality.
In the following sections we describe the main components of the financial flow for both types of grid products.
Financial Flows for Grid Software
When a user company decides to run grid software as an own application two different kind of financial flows emerge:
- The initial one-time investment in the grid solution (hardware and software as well as installation and integration costs). Depending on the level of integration of the solution this amount might be paid to one player providing the whole service (for example application provider) or to several of them (for example solution provider and system integrator
- Permanent financial flow for a running application or grid solution including permanent payments for software licenses, support and communication costs. This type of payments incur, when the grids application is installed and running. In this phase the one-time payment relationship might be changed to several relationships depending on the number of different individual providers involved in the solution.
From the perspective of the customer the first type of financial flow is considered one-time fixed costs and the second as variable costs.
The above financial flows can have a different shape on the level of integration the product under consideration has, i.e. which player or players in the value chain is selected by the company as a contact point.
According to the consolidated grid value chain, the following players might have a direct contact to the end customer:
- Application provider, who provides a specific application that is grid enabled and interfaces grid middleware.
- Systems integrator, who integrates the different modules (software, hardware) to build the grid solution. Given this integrating role the system integrator brings all players necessary to provide a grid solution together and provides “one face” to the customer. Thus, the system integrator is in many cases the first point in the financial flow that gets paid by the customer.
These two players bundle the offerings and also distribute payments to all or some of the following players:
- Grid middleware provider, who provides the grid middleware software.
- Software/service provider
Thereby, the application provider or the systems integrator bundle the different offerings into a complete solution and also synchronize different pricing and licensing models, so that the customer does not have to care about that.
The potential pricing models of the different providers involved in the grid value chain can be summarized as follows.
- Overview of potential pricing models of different players of the grid value chain
In particular conflicting licensing models for grid and application might prevent a successful implementation of grid . For example a grid environment, where the infrastructure is virtualized and appears as one computer, has a negative impact on application that have pricing models based on number of CPUs.
Financial Flow in Utility Grids and Software as a Service (SaaS)
Utility grids are providing grid enabled application and grid infrastructure in form of services. This type of grid is also called grid on demand. Utility grids are set up by an application service provider (ASP). The ASP sets up and synchronizes the pricing models of the hardware and software involved in the solution.
- Overview of financial flows in Software as a Service
From the perspective of the user company, costs and pricing strategies for utility computing are within a wide range of possibilities, from variable costs that depend on actual usage to a subscriber fee for limited or unlimited service or a combination of both. These pricing models applied can vary depending what is included. In most of the examples the pricing models include networking communication, i.e. apply for the complete service.
