IEEE International Conference on E-Business Engineering

Cloud computing business model based on value

net theory
Zhiyuan Fang1, Junbin Chen2, Mingzhi Yi3, Zhidong Wu4, Hengjuan Qian5
School of business, Sun Yat-Sen University
Guangzhou, China
1 2 3
fang@[Link], ajunv8@[Link], jlzqmingzhi@[Link],
4
zhidong4214@[Link], 5qhjj1990@[Link]

Abstract— Since cloud computing is a fast-developing business Accordingly, with the application of the Value Net Theory and
area, many companies seek a more adaptable business model Business Models, we develop a value net based business
responding to the changing market environment. We propose a model of computing based on the analysis and summary of
value net based cloud computing model after the in-depth study current research on cloud computing and the process of
on service delivery and value creation process in cloud computing service delivery and value creation. Finally, we provide three
as well as the current research findings of the value net theory detailed applied analysis and draw our conclusion eventually.
and business model. Furthermore, the applications of three
II. LITERATURE REVIEW
concrete business models are discussed, after that, we claimed
that not only value creation, exchange and distribution but also A. Review of value net research
the multilateral wins among the participators who are The value chain is widely used as a application tool for
encouraged to have their value position client-oriented can be comprehending and analyzing the particular industry, but it is
achieved if the organizers establish an integrated platform by practically proved that it’s just a helpful framework reflecting
combing the resources in the cloud computing value net. Finally, the value creation by chain in the traditional industry,
four constructive suggestions for the enterprises who want to especially in the manufacturing. The research on value net has
implement value net value based cloud computing business model been come up with the appearance of limited application in the
are raised in this paper. other fields. The concept of value net was firstly brought up
by Adrian Slywotzky in Mercer consulting company. He
Keywords—cloud computing; business model; value net claimed that the enterprises should change their work design,
transferring the traditional supply chain to value net, as a
I. INTRODUCTION
result of the increasing customer demand, impact of the
Many advanced technology and concepts generate from the
internet and highly competitive market. The American scholar
breakthrough of Internet, such as distributed computing, grid
David Bovet had value net further developed that it is a new
computing, virtualization and Web 2.0. All of these reflect the
business model which can avoid the expensive contribution
revolution of IT (information technology) and promote the
layer by connecting strict customer service demand with the
development of internet in turn, bringing more technologies
flexibility, efficiency and low cost manufacturing and
and concepts into life. Another significant change from
adopting Digital Information Technology to distribute product
individual to internet in computer is on the way after the
rapidly, which can also combine the different suppliers for the
transition from mainframe to personal computer. By this
convenience for payment solution and upgrade the operating
background, the concept of cloud computing recently becomes
design to a strategy level for the adaption to the dynamic
a hot topic in the internet field. Being focused and promoted
changing environment.
by the IT enterprise, cloud computing is no longer just a fresh
According to the viewpoint of value net, value is created by
word in people’s mind but a key project to be carried out,
members’ cooperate working in the net. In the network
exploring an unprecedented area for the IT Industry.

978-0-7695-4227-0/10 $26.00 © 2010 IEEE 462

DOI 10.1109/ICEBE.2010.50
economy, we cannot have good understanding the substance academia. At present, neither the in-depth study of cloud
and the complicated relationship among the competitor, computing has been carried out nor authoritative definition up
cooperator and the other member in the network by the earlier to now. There are different understanding of cloud computing
linear model. Taking the value net model, the enterprise will among the enterprises, research institutes and analysts. And
concentrate more on the value creating system than on the also, the lack of systemic research literatures on technology
enterprise itself or the given industry, cooperating with each structure and business model is not positive for further
other to make the net value increase. research. There are fewer people either in business or
academic field in china consider cloud computing a promising
B. Review of business model research
area compared to those in western countries. Some
Amit and Zott have a systemic description of the business
achievement has been made by both the enterprise and
model as an architecture configuration consisted of service
research area, and also some application to the reality in the
elements and it is designed to make the best use of business
western countries. Cloud computing becomes the focal point
opportunities. The framework demonstrates the approach of
of business investment, research, development and sale
network operating, composed of companies, suppliers,
promotion. Among the institutes and market analyze firms,
candidates and customers. Applegate who is in the perspective
cloud computing will be a hot spot too. It is encouraging that
of enterprise operation argued that business model is
there are more and more good publications on cloud
complicated business industry from which we can dig up the
computing. At present, the research mainly focus on four
business structure and the relationship among them, and get a
issues: (1) theoretical mode of cloud computing, including
better understanding of how the business industry response to
describing, choosing, and programming the mode; (2)
reality. There are other scholars who demonstrate the business
infrastructure management, including monitoring, load
model from the perspective of value and finance. Chinese
balancing, data management energy consumption management
scholar Lin Jing makes his viewpoint that the business model
and safety insurance; (3) Realization of cloud computing
is market position and profit target when the enterprise
platform, including virtual machine, storage platform,
engaged in a particular business as well as a series of
computing platform, platform evaluation and cloud platform
integrated strategies undertaken to satisfying the target
integration; (4)application, including business application,
customers.
science application and safety application.
There are many literatures researching on the business
Cloud computing provide a good opportunity for Internet
model in recent years, but sill no accurate definition on it. In
enterprise and investor. It is more possible for those who focus
this paper, we are aiming at value net based cloud computing
on the enterprise-oriented business service create a innovative
business model and define it as a value-creating system whose
and efficiency business model. There are seldom systemic and
goal is to create integrated system value, which reflects the
in-depth researches on the cloud computing business model,
position and relationship among the participators including
but mostly focus on the technology, structure and sort of
customers, suppliers and competitors, and also the activities of
relative application.
value creation. In general, business model is the structure of
business practice to ensure the success. Obviously, there is not III. SERVICE DELIVERY AND VALUE CREATION OF
a settled business plan for all types business. In order to keep CLOUD COMPUTING
long-term profits, enterprises should choose or redefine Simply put, cloud computing is not just a way to compute
business model according to different situations in the but a method to take all kinds of resources from local
non-stop changing environment. computer to Internet, treating computing as circulating
merchandise. According all the viewpoints related, we define
C. Review of cloud computing research
cloud computing as a standard mode providing IT-related
Unlike grid computing, cloud computing was firstly
computing service. In the mode, the facilities, information,
brought up in business circles, and then draw its attention in
functions and the related service which IT needs are all on the

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Internet and are provided to the customers by the service standard of parallel computing, distributed computing and grid
suppliers in standardized form. Thus realize the sharing of computing. In some degree, it is the development of computer
resources and services among billions of customers, and they science concepts and the achievement of business industry.
can easily access to whatever kinds of service they need Meanwhile, it appears to be the evolution of virtualization,
through the terminal. At the same time, service suppliers select utility computing, service oriented architecture.
a adaptable business model to ensure the operation of cloud In summary the various concepts and different cloud-plan
computing business. put up by companies, we draw a framework for the service
Basing on what we have put forward, we hold the point of delivery and value creation. As is illustrated in figure 1:
view that cloud computing is the combination and developed

Fig. 1 Service delivery and value creation of cloud computing

The service consumer is the end user or enterprise that consumer and the reputation of the provider are a key part of
actually uses the service. Depending on the type of service and those negotiations
their role, the consumer works with different user interfaces In the service provider diagram, the lowest layer of the
and programming interfaces. Some user interfaces look like stack is the firmware and hardware on which everything else
any other application; the consumer does not need to know is based. Above that is the software kernel, either the
about cloud computing as they use the application. Other user operating system or virtual machine manager that hosts the
interfaces provide administrative functions such as starting infrastructure beneath the cloud. The virtualized resources and
and stopping virtual machines or managing cloud storage. images include the basic cloud computing services such as
Consumers writing application code use different processing power, storage and middleware. The virtual images
programming interfaces depending on the application they are controlled by the VM manager include both the images
writing. Consumers work with SLAs and contracts as well. themselves and the metadata required to manage them.
Typically these are negotiated via human intervention between Crucial to the service provider’s operations is the
the consumer and the provider. The expectations of the management layer. At a low level, management requires

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metering to determine who uses the services and to what wirelessly. Such carriers connect each other and thus form a
extent, provisioning to determine how resources are allocated ubiquitous network, creating unbelievable applications for the
to consumers, and monitoring to track the status of the system convenience of us. In this network, cloud computing will plays
and its resources. a greater role, develop more innovative applications and make
At a higher level, management involves billing to recover a lot more breakthrough in business mode. In addition, it
costs, capacity planning to ensure that consumer demands will appears that the evolvement of cloud computing industry will
be met, SLA management to ensure that the terms of service bring more industry criterion into life, linking every
agreed to by the provider and consumer are adhered to, and constitution layers and applications to the standard access.
reporting for administrators. Service suppliers focus more on satisfying users’ demand and
The service developer creates, publishes and monitors the reduce the cost of services and applications for the purpose of
cloud service. In most cases this is an application delivered via keeping the advantages in competition and creating industry
SaaS, although a small number of developers create cloud value. Based on this platform, service suppliers, operators and
middleware (IaaS) and cloud platforms (PaaS) other co-workers have greater opportunities to dominant the
Development environments for service creation vary. If industry chain and benefit a lot from cloud computing.
developers are creating a SaaS application, they are most
IV. VALUE NET BASED CLOUD COMPUTING
likely writing code for an environment hosted by a cloud
BUSINESS MODEL
provider. In this case, publishing the service is deploying it to
the cloud provider’s infrastructure. Value net has five essential elements in total: organizer,
During service creation, analytics involve remote participator, regulation, tactic range and utility. These
debugging to test the service before it is published to elements depict all of interactions in the net and form the
consumers. Once the service is published, analytics allow structure for the value net. A traditional value net consists of
developers to monitor the performance of their service and organizer, corporate members of other nodes, participators,
make changes as necessary customers, information platform, stable connections and
Evolving to the mobile network, Internet is surrounding us agreements, just as what the following picture (figure 2)
everywhere, which is called ubiquitous. An increasing number shows:
of various terminals will be added to the network wired or

Fig. 2 Structure model of value net

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 This is a general value net model. The practical ones are not relationship between organizers is closer, all these result in a
all the same due to the different capabilities, resources and breakthrough in IT industry structure. Meanwhile, the user’s
purposes of network. We can find the location in the model status is upgraded and their demand becomes a main factor of
exactly. According to the earlier statement, cloud computing change in the information industry chain. The changing role of
service supplier should be the one to organize the value net, to the participators in value chain inevitably gives rise to the
occupy a core position in the net, and to take the transformation of traditional value functions. The traditional
responsibilities to coordinate the value creating activities. industry structure is no longer an adaptable solution to the
social development and personalized users’ demand. The
A. The formation of cloud computing value net
customer-centric value net model, concerns about customers’
The software has formed a relatively integrate industry
real demand, reconsiders the service and keeps in touch with
value chain during decades’ evolvement. According to the
customers through a series of value-activity designs.
development of the whole world software industrial, we can
Coordinate with suppliers, enterprises will realize the goal of
draw the conclusion that it conforms to a structure made up of
creating value together with customers and achieve
underlying software suppliers, application software developers
multilateral wins. Such service model guide a brand-new way
and end-user groups. The underlying software suppliers are
for cloud computing suppliers to satisfy customers demand, to
those companies who provide operating system, database,
search for the value orientation, to coordinate with
underlying development model and instrument. They master
stakeholders and to create value all together.
the core technologies and industry criterions, promoting the
development of the industry. Application software developersB. Structure model of value net based cloud computing
offer the end-users underlying technology based application business model
software which meets the need of particular user groups. In The value-net based business model of cloud computing is
general, the software acts as the role of technology promoting organized by service suppliers. All the participators seek the
and product promoting. accurate value orientation aiming at the target market and
The Internet creates plentiful applications during its integrate the internal and external resources. At the same time,
non-stop developing period. More and more companies join in they cooperate with other anticipators and build up
Internet industry, such as content suppliers, ad-agency. cooperating business model which realizes the value creation
However, as a whole, Internet industry mainly bases upon the by not only service suppliers but also users and other
traditional management structure of supply chain. participators. As in common situation, there are several main
The industry competition is more severe as a result of the participators including service suppliers, equipment suppliers,
enrichment and individuation of users’ demand and the network operators, hardware suppliers and software
division of work in IT industry is more specialized. A large developers etc in the information service market. The structure
number of organizations split apart from their original industry model is clearly shown in the following picture (figure 3).
or lots of new comers from the other industry, and the

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 Fig. 3 Structure model of cloud computing business

As is shown in the structure model, customer is in the application will be turned over to cloud computing service
center of the value net, fully demonstrating the essential idea suppliers in the form of service. Finally it is delivered to users.
of customer-centric. Searching and analyzing the target The user groups of cloud computing is the broad sense of
customer groups, identifying the personalize customers’ users, including not only individuals to meet their own needs
demand and coordinating the resources and capabilities but also enterprises to improve the degree of
offered by application service suppliers, network operators, informationization and to offer the higher level of service by
ad-agencies, software suppliers, hardware suppliers and reproducing an recreating. Furthermore, network operators
themselves, the cloud computing service suppliers can and terminal equipment suppliers provide the basic network
establish the integrated platform. Customer, the inner part and support and terminal access for the operation. They are the
surrounded by the identical integrated platform, together with major reference of cloud computing. However, network
the cloud service suppliers are the core of the model. Making operators have direct contact with customers, offering them
full use of the integrated platform, all the participators on it basic network access. In fact, network operators master
motivate each other; accurately locate their value position in abundant user resources. Along with the business expansions
the net basing on the customers’ demand and provide and strategic transformations of fixed-net operator and
customers the satisfactory good and service. Thus, the value is mobile-net operators, operators are exploring extensive
created in this way eventually and multilateral wins are business areas and development spaces outside the network
achieved. service. With the assistant of user resources and network
Besides the organizer, some other participators in the value resources, operator has huge potential to become the integrator
net play significant role in the value net. They promote the and service supplier of cloud computing platform, thus
development of the value net and are also the main body. In developed to be the organizer and leader of the cloud
the cloud computing value net, hardware suppliers and computing value net.
software developers offer the hardware and software which
C. application analysis of value net based cloud
are necessary for the platform operation; Infrastructure
computing business model
suppliers, platform suppliers and application service
The service supplier, acting as an organizer of value net, is
suppliers will provide the facilities and self-definition
exactly a resource integrator in the cloud computing model.
application development platform. All of the business
Actually, because of the immaturity of cloud computing and

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the unformed segments in industrial chain, many cloud agreement (SLA), instead of installing software on computers
computing suppliers play a multi-role in their real operation. or servers. Essentially, SaaS is computing power offered by
As we said above, it’s very hard to get a solution to all types suppliers to satisfy users’ particular needs. In the business
of business. The enterprise should adjust their business model model of SaaS, application service supplier is the cloud
to the changing environment. There are three concrete computing service supplier actually. They provide the users
business models in practice. the whole business applications regarding service by accurate
Infrastructure as a Service (IaaS) is a business model that positioning users’ demand and combining various external
cloud computing service supplier and infrastructure supplier resources. SaaS seems to be more focused which package the
acting as a whole provide users the service regarding operating specific functions of software as a service, such as CRM
system, computing storage. Both the terminal users and the (customer relationship management) offered by Salesforce. It
other application service suppliers can obtain the computing is a platform for providing the specific service.
and do not need to pay for the hardware and software. The three models above are mature in the field
Amazon is the one of the typical cases of IaaS. In order to comparatively. They are actually the special case of structural
make full use of the IT resource, Amazon established the model of the cloud computing business model indeed. The
elastic computing cloud to provide the renting service of industrial circle has just formed up to now. Most of the
efficiency computing and storage. Taking advantages of IaaS companies haven’t clearly located their position in the
provided by Amazon, users can release their service and industry. Some of them try to position themselves in the whole
various applications with no infrastructure and operating value net basing on the analysis of their resources and
system of their own. Big changes in the traditional purchasing capabilities. The structural model of cloud computing above is
and exchanging in the IT infrastructure make it happens that a commonly framework. The service suppliers of cloud
minor enterprises take the money which can hardly afford the computing should measure their strength and weakness on
fixed assets as the business-related operation cost. choosing or redefining their business model in order to
Platform as a Service (Paa) is a concept that it provide the maintain advantages in competition.
users a kind of service regarding a completely computer According to the systematic viewpoint of value net,
platform which includes application design, application enterprise at every node face the issue of value creation
development, application testing and application hosting. In directly. For the total benefits of both value net and customers,
this model, users are able to develop, found, test and dispose the structure makes it easy to establish a series of connection
applications and services rapidly in the cloud. Compared to to create the best value. Such flexibilities are better adapted to
software developing which is based on data-centric platform, the non-stop changing market. More importantly, by
the cost of PaaS is much lower. In the business model of PaaS, combining resources and capabilities of each node, organizers
cloud computing service supplier plays the role of platform will satisfy individual need of cloud computing business to the
supplier. As the organizer of value net, it integrates other upmost extent and maximize the value to customers, thus
resources and delivers the platform as a form of service to achieving the multilateral wins of value net. Therefore, setting
users. PaaS goes further at resources’ abstract layer, offering up the value-net-based cloud computing business model is the
users operating ambient of application. Google App Engine only choice of cloud computing development.
and Microsoft Windows Azure are the typical examples. The
V. CONCLUSION
platform offered by cloud computing service suppliers itself is
responsible for dynamic extension and fault management of Through the investment of service delivery and value
resources. creation, the essay analyzes the research findings of value net
Software as a service (SaaS) is a new form for users to gain theory and business model and concludes the cloud computing
software service. Users obtain the needed service attached business model based on value net. By showing three detailed
with relative software functions according to service level model, it indicates that, in the value net of cloud computing,
organizers establish the integrated platform by combining

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industry, closer bond to cloud computing architecture may
contribute to the further research.

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