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Cloud federation requires one provider to wholesale or rent computing resources to another cloud provider. Those resources become a temporary or permanent extension of the buyer's cloud computing environment, depending on the specific federation agreement between providers.
Cloud federation offers two substantial benefits to cloud providers. First, it allows providers to earn revenue from computing resources that would otherwise be idle or underutilized. Second, cloud federation enables cloud providers to expand their geographic footprints and accommodate sudden spikes in demand without having to build new points-of-presence (POPs).
Service providers strive to make all aspects of cloud federation—from cloud provisioning to billing support systems (BSS) and customer support— transparent to customers. When federating cloud services with a partner, cloud providers will also establish extensions of their customer-facing service-level agreements (SLAs) into their partner provider's data centers.