Commitment vs. Elasticity in Hybrid Cloud: The Role of Private-Cloud Lag and Retention

Abstract

Hybrid cloud deployment combines a private baseline with pay-as-you-go public capacity and is common among subscription-based SaaS providers. We develop a supply-chain model with an upstream public cloud vendor that sets rental prices and a downstream Software as a Service (SaaS) provider that jointly chooses service price, private capacity, and public leasing. To clarify how intertemporal frictions shape hybrid decisions, we analyze a nested sequence of models: (i) a single-period baseline, (ii) a two-period benchmark without deployment lag or retention (NN), (iii) a two-period model with private-cloud deployment lag (TN), and (iv) TN augmented with retention-driven demand persistence (TR). We show that endogenous pricing acts as an internal hedge by rationing marginal demand and reducing overflow leasing when rentals are high. Deployment lag increases exposure to dynamic rental pricing, yet ex ante private-capacity commitments can discipline the vendors second-period rental incentives and induce earlier private expansion. Retention shifts demand intertemporally and can reallocate surplus upstream: when private expansion is costly or initial private capacity is tight, higher retention may raise rental prices enough to reduce the SaaS providers profit. Overall, the results provide implementable guidance on coordinating price, private commitments, and public leasing in hybrid-cloud planning.

Keywords

Hybrid strategy / SaaS / intertemporal model / customer retention / private cloud lag

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