What is pay-as-you-go pricing in cloud computing?

Pay-as-you-go pricing in cloud computing is a billing model where you pay only for the resources you actively use, measured by time or consumption. Instead of upfront commitments or fixed fees, costs are tied directly to usage metrics like compute hours, storage space, or data transfer volumes. This model shifts IT spending from capital expenses (CapEx) to operational expenses (OpEx), allowing organizations to align costs with actual demand. For example, a virtual machine might cost $0.10 per hour, object storage $0.02 per gigabyte per month, and API calls $0.001 per request. Providers like AWS, Azure, and Google Cloud use this approach across most services.

Specific examples illustrate how this works in practice. A developer running a web app might use AWS Lambda for backend logic, paying $0.20 per million requests plus $0.000016667 per GB-second of execution time. If the app handles 500,000 requests monthly with minimal runtime, the cost could be under $1. For storage, Azure Blob Storage charges $0.018 per GB for cool storage—hosting 100 GB of infrequently accessed data would cost $1.80 monthly. This granularity extends to networking: transferring 1 TB of data out of Google Cloud costs approximately $120, while inbound traffic is often free. These variable costs require teams to monitor usage patterns to avoid surprises.

The model offers flexibility but requires careful management. Developers can scale resources during traffic spikes without overprovisioning hardware, but idle resources (like unattached storage volumes) still incur charges. Tools like AWS Cost Explorer or Azure Cost Management help track spending, while features like auto-scaling groups prevent overpaying for unused capacity. However, services with sustained usage (e.g., databases running 24/7) might benefit from reserved instances offering discounts for longer commitments. Pay-as-you-go is particularly advantageous for unpredictable workloads, experimental projects, or services with usage patterns that fluctuate daily or seasonally, as it avoids the waste of traditional fixed infrastructure.