Cloud Digital Leader Why cloud technology is transforming business Practice Question
A startup wants to minimize upfront costs and shift from capital expenditure to operational expenditure. Which cloud pricing model enables this transformation?
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Pay-as-you-go
Pay-as-you-go (option A) is correct because it charges only for the resources consumed, with no upfront commitment or long-term contract, which directly converts capital expenditure into operational expenditure and minimizes upfront costs for a startup. Reserved instances (B) and committed use discounts (C) require a one- or three-year commitment in exchange for a discount, which reintroduces upfront or committed spend and reduces flexibility. Sustained use discounts (D) are automatic discounts for running resources for a large portion of the billing month, but they still assume ongoing usage rather than eliminating upfront costs, so they do not best fit the stated goal.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Pay-as-you-go
Why this is correct
Pay-as-you-go bills consumption hourly, so no capital outlay is required for hardware or reserved capacity. This directly satisfies the startup's constraint of minimising upfront costs while converting spend into operational expenditure, since charges accrue only for resources actually consumed and scale down when demand falls.
- ✗
Reserved instances
Why it's wrong here
Reserved instances demand upfront or partial upfront payment for a one- or three-year term, reintroducing capital expenditure and lock-in. They reduce unit cost for stable, predictable workloads, but the startup wants on-demand, consumption-based billing with no commitment to shift spending to operational expenditure.
- ✗
Committed use discounts
Why it's wrong here
Committed use discounts require a one- or three-year spend commitment, which locks in cost rather than removing upfront commitment; they suit predictable, steady workloads. The scenario needs on-demand, pay-as-you-go billing that converts capital expenditure into operational expenditure with no long-term contract.
- ✗
Sustained use discounts
Why it's wrong here
Sustained use discounts automatically reduce rates for steady monthly consumption of services like EC2; they do not convert upfront capital purchases into operating expenditure. They are tempting because they lower cost without commitment, but the correct model for shifting capex to opex is on-demand or pay-as-you-go pricing, billed only for consumption.
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