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February 26, 2019updated 29 Sep 2021 3:16pm

What is Cloud computing and why does it matter to business?

By Priya Kantaria

Cloud computing refers to the provision of IT infrastructure, operating software, middleware and applications hosted within a datacentre and accessed by the end user via the Internet. So what is Cloud computing in business and what are the main trends?

Cloud computing is typically sold using three service models:

  • Infrastructure as a service (IaaS): a model for renting out IT hardware, such as servers, data centre space or networking components, to IT systems administrators or network architects, saving them the cost of buying and building their own in-house data centre.
  • Platform as a service (PaaS): a model for providing IT platforms to allow app developers to create, run and manage applications without the complexity of building and maintaining the infrastructure typically associated with developing and launching an app.
  • Software as a service (SaaS): a model for licensing and delivering centrally hosted software via the Internet on a subscription basis to corporations and consumers.

Why does Cloud computing matter to business?

Cloud computing makes it easier, cheaper and faster to run state-of-the-art IT architectures in any type of company, large or small. The key benefits are:

  • Cost: Significant cost savings are likely across a company’s IT budget.
  • Cash flow: The billing is typically metered on usage, so IT expenditure shifts from one-off, upfront capital expenditure to monthly operating expenses, offering a cash flow advantage.
  • Flexibility: Businesses can rent IT equipment and applications as needed, rather than buying hardware and software assets outright.
  • Scalability: Computing capabilities like storage, processing power or network bandwidth can be scaled-up almost instantly and scaled-down again depending on demand and users are unlikely to ever be short of capacity.
  • Ubiquitous access: IT resources can be accessed by any authorised users on any authorised devices from any authorised location using an Internet connection.

Businesses benefit from cheaper, faster, more scalable IT resources in the Cloud and users get a better experience. A virtuous circle exists between software users and software developers in SaaS Clouds: developers can improve the software faster because they can see usage and performance data in real time. Meanwhile, users get the latest software upgrades as soon as they are released, without having to pay more or having to fiddle with clumsy downloads.

This connectivity between user and SaaS provider makes for a significantly superior business model than the traditional on-premise software license and support model. It is this connectivity that is the game-changer for the enterprise application software industry. The Cloud enables the best of breed SaaS providers to connect not only users with the development team but also employees, partners, devices, customers and suppliers in a shared real-time SaaS network.

What are the big themes in Cloud computing?

Cloud lifecycle

In terms of the Cloud lifecycle, industries are past the early adopter phase and have entered the mainstream adoption phase. Cloud has now gained some traction even in the most conservative industries such as financial services.

Cloud native companies

Many software companies are being forced to transition from a licenced software model, where they sell expensive, one-off software licences, to a Cloud subscription model, where they charge a smaller monthly fee.

The next phase of the Cloud could see the emergence of a host of ‘Cloud native’ companies. These businesses could base their software in the Cloud specifically for Cloud delivery. They are likely to incorporate innovative Cloud technology such as containers and serverless architecture. Moreover, they are not burdened by the challenge of transitioning existing License and Support customer bases to cloud-adapted legacy applications.

IT services threatened

Cloud computing offers a cheaper, more flexible and more efficient way to manage corporate IT expenditure. This makes it a very attractive proposition to most CEOs. As businesses shun in-house IT equipment in favour of renting IT infrastructure, platforms and software from the Cloud, many traditional IT services companies face a serious threat.


The shift to Cloud computing opens companies up to a higher risk of cyber-attack. As such it is expected to increase the demand for all types of cybersecurity services. Three cybersecurity technologies: unified threat management, artificial intelligence and Cloud security are expected to lead the demand.

Moving down the Cloud stack

It is easier to lock in customers at the bottom end of the Cloud computing stack, at the IaaS layer, than at the top end, at the SaaS layer, since all leading IaaS players, like Amazon, Microsoft and Google run proprietary, closed systems which are not compatible with each other. This makes it difficult for customers to easily transfer between IaaS providers. In addition, economies of scale and high capital expenditure requirements create high barriers to entry to the IaaS market.

At the top of the stack, SaaS services are more interchangeable, making it easy for customers to swap from one app to another. As a result, many SaaS are desperate to move down the stack to the PaaS layer and ultimately to the IaaS layer in a bid to lock in customers in for the longer term.

Just as Apple products work well because Apple controls hardware, software and content, so Cloud services might work best where a single provider controls all three layers: SaaS, PaaS and IaaS.

Hybrid Cloud

Hybrid Cloud is increasingly the deployment model of choice for large organisations. Hybrid Cloud is a broad concept that describes any combination of interconnected Clouds, whether they are public, private or community Clouds.

As Cloud computing technology matures and the number of Cloud deployments increases, there is inevitably a greater need to connect two or more distinct Clouds within an organisation.

The growing interconnectedness of everything in the Cloud, coupled with open standards, interoperability and distributed applications might enable hybrid Clouds to become the norm.

Vertical Clouds (industry Clouds)

Vertical Clouds connect many industry participants: customers, suppliers or employees, within a specific industry or community. There are two main types:

  1. Vertical SaaS providers connect employees, partners, devices and customers in a real-time shared environment. Once a vertical SaaS provider reaches a leading position it enjoys positive network effects and is most likely to deliver sustainable rapid growth while increasing its market share.
  2. Industry community Clouds occur when one or more industry participants jointly create a Cloud platform or service.

Network effects

The morphing of enterprise applications into interactive business community networks is perhaps the most profound aspect of Cloud computing’s paradigm shift.

Serverless architectures

Virtualisation software divides one physical server into multiple, isolated virtual servers. This reduces the cost of an on-premise data centre. Server virtualisation has been a key enabler of Cloud computing so far. Indeed, most IaaS services are still invoiced on a Virtual Machine basis.

But this is, in a sense, a hangover from the past. Rather than developers spending time and effort on running and maintaining servers, serverless architectures enable developers to ‘outsource’ the hardware and just focus on developing value-adding code.

Serverless computing encourages and simplifies the development of microservice applications.

Although serverless computing may have to overcome some cultural and perception biases, large traction is anticipated, resulting in it becoming a preferred model for application development.

Open source

Corporations moving to the Cloud are forcing the big software ecosystems to accommodate more and more open source software into their Cloud offerings.

Shared technology, agility, interoperability, customisation, collaboration and community support are highly relevant concepts to both Cloud computing and to open-source software, but less relevant to proprietary software deployed on premises.

What is the history of Cloud computing?

The story of Cloud computing so far…

  • 1999: Salesforce.com launches CRM as a service
  • 2002: Amazon launches AWS for developers
  • 2006: AWS launches pay-per-use commercial cloud with S3 (storage) and EC2 (computer) services
  • 2008: Google launches App Engine offering developers a scalable application environment
  • 2010: Microsoft launches Azure IaaS (Beta version)
  • 2011: Apple launches iCloud and Microsoft buys Skype
  • 2015: Global Cloud industry exceeds $100bn revenues
  • 2016: AWS exceeds $12bn in IaaS/PaaS revenues and now offers 70 distinct Cloud services
  • 2017: Microsoft passes $10bn in SaaS revenue. Salesforce is #2 SaaS player with $8.5bn revenues
  • 2018: Global Cloud IT infrastructure spend exceeds traditional IT
  • 2019: SaaS market exceeds $110bn revenues
  • 2020: Total Cloud services revenues exceed $250bn

This article was produced in association with GlobalData Thematic research. More details here about how to access in-depth reports and detailed thematic scorecard rankings.

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