Option framework for managing on demand service offerings

A system for managing on-demand service offerings, wherein a service provider provides resources to a collection of service distributors, and said service distributors distribute said resources to end users, said system comprising:

• a memory device having embodied therein information relating to said resources;
• a service provider processor in communication with said memory device and configured for announcing upfront capacity pricing, an on-demand premium structure, and an on-demand exercise structure;
• a service distributor processor in communication with said service provider processor and configured for committing to upfront capacity and to units of on-demand options;
• wherein said service provider processor is further configured for provisioning a number of resources to the collection of service distributors;
• wherein the committing to upfront capacity and to units of on-demand options is done by using the equation:
• Π2(Q,q)=E[r·min(D,O)−w·Q−c·q−x·min(q,(D−Q)+)]
• where D is the random end user demand;
• r is the distributor's revenue per end customer demand satisfied;
• the randomness D captures the demand risk;
• the optimal amount of upfront capacity and “On-Demand” options
• O
• *
• =
• F
• -
• 1
• 
• (
• r
• -
• x
• -
• c
• r
• -
• x
• )
• and the number amount of upfront capacity is
• Q
• *
• =
• F
• -
• 1
• 
• (
• x
• +
• c
• -
• w
• w
• )
• .
• where F is the estimated cumulative distribution function for the random demand D.

A program storage device readable by machine, tangibly embodying a program of instructions executable by the machine to perform a method of managing on-demand service offerings, wherein a service provider provides resources to a group of service distributors, and said service distributors distribute said resources to end users, said service offerings including an on-demand feature where the service provider provides some of said resources to the service distributors on demand of the service distributors, the method comprising the steps of:

• the service provider announcing upfront capacity pricing, an on-demand premium structure, and an on-demand exercise structure, said on-demand premium structure representing the immediate cost to the service distributer for the right to use the on-demand feature at some random point any time in the future up to a specified date, and said on demand exercise structure representing the price the service provides charges a service distributer upon the invocation of the on-demand feature;
• at least one of the service distributors committing to upfront capacity and to units of on-demand options;
• and
• the service provider provisioning a number of resources to the collection of service distributors.