Cloud computing lets businesses use servers, storage, software and other computing services over the internet without having to buy and maintain all the equipment themselves. Instead of investing in expensive servers or setting up an entire IT system in your office, you can rent the resources you need from a cloud provider.
You can also increase or decrease what you're using as your business changes. This makes cloud computing a practical option for businesses that want access to reliable technology without spending a lot of money on equipment upfront.
The US National Institute of Standards and Technology (NIST) defines cloud computing as a way to access shared computing resources whenever they're needed, with minimal effort required to set them up or manage them.
According to NIST, cloud computing has five main characteristics:
- On-demand self-service: You can add computing resources, such as storage or processing power, whenever you need them without having to contact the provider.
- Broad network access: You can access cloud services over a network using devices such as computers, tablets and smartphones.
- Resource pooling: Providers share their computing resources among multiple customers while keeping each customer's information separate.
- Rapid elasticity: You can quickly increase or decrease the resources your business uses.
- Measured service: Providers track how much you use, which makes it possible to charge based on your usage.
Cloud computing has become a major part of how businesses manage their technology. In a November 2024 forecast, Gartner predicted that worldwide spending on public cloud services would reach $723.4 billion in 2025, an increase of 21.5% from the previous year. Gartner also predicted that 90% of organisations would adopt a hybrid cloud approach by 2027.
How cloud services are delivered
Cloud computing works through large data centres filled with servers, storage equipment and networking systems. Cloud providers own or manage these facilities and rent access to their computing resources to businesses and individuals.
To make this work, providers often use technology called virtualisation. This allows one physical server to act like several separate computers, each with its own resources and settings.
Think of it like dividing a large office building into smaller offices. Instead of every business building its own office, several businesses rent the amount of space they need. Each has its own separate working area while sharing the building's underlying infrastructure.
Cloud computing works in a similar way. Providers divide their computing resources among customers so businesses can use what they need without purchasing their own physical servers.
You access these services through the internet using a web browser, an online dashboard or an application programming interface (API). An API allows different software systems to communicate and complete tasks automatically. For example, if your business needs more storage space, you can often add it through your cloud account in just a few clicks. There's no need to order equipment, wait for delivery or install additional hardware.
Cloud providers also track how much storage, processing power and other resources you use. Depending on the service, you're charged based on your usage or subscription plan. Many providers also use backup systems and duplicate copies of information stored across different locations. This helps keep services running if equipment fails, although it doesn't completely eliminate the risk of outages or data loss.
Cloud computing deployment models: Public cloud, private cloud and hybrid cloud
There are several ways businesses can use cloud computing. The three main deployment models are public cloud, private cloud and hybrid cloud. Each offers a different level of control, flexibility and cost.
Public cloud
Public cloud services are owned and managed by third-party providers. Multiple customers use the same underlying computing infrastructure, but their accounts and data are kept separate. For example, a small business might rent server space from a cloud provider to host its website or store business information.
Public cloud is popular because it's relatively easy to set up, usually has lower upfront costs and can grow with your business. The provider also handles maintenance of the physical equipment.
The main drawback is that you have less control over the infrastructure. This may be a concern for businesses with highly specialised systems or strict requirements for handling sensitive information.
Private cloud
A private cloud is a cloud computing environment dedicated to a single organisation. It can be hosted on servers owned by the business or managed by an outside provider. Either way, the computing environment isn't shared with other customers in the same way as a public cloud.
Private clouds give businesses more control over how their systems are configured and how data is handled. This can be helpful for organisations with specific security, performance or compliance requirements. However, private clouds generally cost more and can require additional IT management.
Hybrid cloud
A hybrid cloud combines private and public cloud environments, allowing businesses to use both. For example, a company might keep sensitive customer records in a private cloud while using public cloud services to run its website or process large amounts of data.
This gives businesses more flexibility because they can choose where different types of information and applications are stored and managed. The drawback is that managing two environments can be more complicated. You need to make sure the systems work together and that security measures are consistent across both.
NIST also identifies a fourth type called community cloud. This is a cloud environment shared by organisations with similar requirements, such as businesses in the same industry. It's less common than the other three models.
Types of cloud services: IaaS, PaaS and SaaS
Besides choosing where your cloud services are hosted, you also need to decide how much of the technology you want to manage yourself. There are three main types of cloud services: infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS). As IBM explains, the main difference is how much of the underlying technology the provider manages for you.
Infrastructure as a service (IaaS)
IaaS gives your business access to computing resources such as virtual servers, storage and networking equipment. The provider handles the physical infrastructure, while your business manages things like operating systems, installed software and applications. For example, you could rent a virtual server to host your company's website instead of purchasing and maintaining a physical server.
Cloud storage is another common service in this category. It lets businesses store files, databases and backups online without maintaining their own storage equipment. IaaS is useful for businesses that want control over their software and systems but don't want to manage physical hardware.
Platform as a service (PaaS)
PaaS provides an online environment where developers can build, test and run applications without managing the underlying servers. The provider handles infrastructure and many of the tools needed to develop software, including operating systems and runtime environments. Some PaaS offerings also provide managed databases and development tools.
For example, if your business is creating its own customer portal, developers could use a PaaS platform to build and launch it without setting up and maintaining servers.
According to the Cloud Security Alliance, one of the main benefits of PaaS is that developers can focus on creating applications while the provider manages the infrastructure.
Software as a service (SaaS)
SaaS is software that's hosted and managed by a provider and accessed over the internet. Common examples include online accounting software, customer relationship management systems, email platforms and project management tools.
With SaaS, the provider manages the underlying technology, including the servers, software updates and much of the maintenance. You simply sign in and use the programme. This makes SaaS one of the easiest ways for small businesses to use cloud computing because there's very little technical setup required.
Our companion article on SaaS explains how it works and what to consider when choosing a subscription.
Why businesses move to the cloud
There are several reasons businesses move their systems to the cloud, but most come down to saving time, managing costs and making it easier to grow. One of the biggest advantages is flexibility. Instead of purchasing equipment every time your business needs more computing power or storage, you can increase your cloud resources as needed.
For example, say you run an online shop. During the holidays, your website might get three times as many visitors as usual. With scalable cloud services, you can increase your server capacity to handle the extra traffic, then reduce it when things slow down. This means you don't have to buy expensive equipment that sits unused for most of the year.
Cloud computing can also make it easier to try new things. If your business wants to launch a new website, test an application or start using a new software platform, you may be able to get started without a large upfront investment.
Another benefit is reduced IT maintenance. Your team doesn't have to spend as much time installing physical servers, replacing hardware or keeping equipment running.
Depending on the type of cloud service you choose, the provider may also handle operating system updates, security patches and other technical tasks. This can free up your IT employees to focus on other work, such as improving internal systems, managing security and supporting employees.
For smaller businesses without dedicated IT staff, having the provider handle much of the technical work can be especially helpful.
Considerations: Security, compliance, availability, cost and provider dependence
Cloud computing can make running your business easier, but there are some things you need to consider before moving your systems online.
Security is a shared responsibility
One common misconception is that the cloud provider handles all security. In reality, both your business and the provider have responsibilities. The provider generally protects the physical data centres, servers and underlying network infrastructure.
Your business is still responsible for managing employee access, protecting account credentials and configuring many of the security settings. For example, if someone accidentally makes a cloud storage folder publicly accessible, sensitive business information could be exposed even if the provider's servers are secure.
The exact division of responsibilities depends on whether you're using IaaS, PaaS or SaaS. Veeam's explanation of the shared responsibility model covers how these responsibilities are divided. Scality also explains common cloud security risks related to configuration and data protection.
Compliance is not automatic
If your business handles sensitive customer information, health records, financial data or other regulated information, you may need to follow specific rules about how that data is stored and protected.
Some cloud providers have security certifications such as ISO 27001 or SOC 2 reports, but that doesn't automatically mean your business meets all its compliance requirements. You still need to make sure your cloud services are configured correctly and that you're following the rules that apply to your organisation.
Before moving sensitive information to the cloud, check what the provider offers and whether it meets your business's requirements.
Availability isn't guaranteed
Cloud providers often have backup equipment, multiple data centres and systems designed to keep services running when something goes wrong. However, outages can still happen.
If your business depends on cloud services for sales, customer support or other essential operations, think about what you'll do if those services become temporarily unavailable. Check the provider's service-level agreement (SLA), which explains its commitments for availability and what compensation may be offered when those commitments aren't met.
It's also a good idea to maintain independent backups of important business information instead of relying entirely on one provider.
Costs need to be managed
Cloud computing can reduce upfront expenses, but it doesn't always mean your business will spend less money over time. Some services charge based on storage, data transfers, processing power or other resources. If usage increases, your bill can increase, too. For example, an unused virtual server might continue generating charges simply because it's still running.
To help control costs, set spending limits or alerts where available, review your usage regularly and remove resources you no longer need. You should also compare your expected cloud costs with what you're currently spending on equipment, software and IT maintenance.
Changing providers can be difficult
Once your business starts using a cloud provider, switching to another one may take more work than you expect. Different providers use different tools, systems and services. You may need to move large amounts of data, change software settings or rebuild parts of your applications. This is sometimes called vendor lock-in.
Before choosing a provider, find out how easy it is to export your information and move your systems elsewhere. Check contract terms, data transfer fees and whether the services you plan to use are available from other providers.
Questions to ask before moving systems to the cloud
Before moving important business systems to the cloud, take some time to decide what you actually need and whether the change makes sense.
Here are six questions to ask.
- Which systems would benefit from cloud computing? Start by looking at the software and equipment your business currently uses. Systems that need frequent upgrades, extra storage or flexible capacity may benefit most. If something already works well and costs very little to maintain, there may be no reason to move it.
- Where will our data be stored? Ask the provider which countries or regions will store your information. Some businesses have legal or contractual requirements about where certain types of data must be kept.
- Who will handle security? Find out which protections the provider manages and which are your responsibility. Make a plan for employee permissions, encryption, account security, software updates and compliance requirements.
- What will it actually cost? Compare your current IT expenses with the estimated cost of cloud services. Include subscription fees, storage, data transfers, setup, training and ongoing management.
- Can we switch providers later? Make sure you can export your data in a usable format. Ask about cancellation policies, data transfer fees and the steps required to move your systems elsewhere.
- Does our team have the necessary skills? Even when a provider handles the infrastructure, someone still needs to manage cloud accounts, permissions, costs and configurations. Decide whether your employees need training or outside help.
You don't necessarily need to move everything at once. Start with a system that would benefit from cloud computing, test how well it works and make adjustments before moving more of your business online.
The takeaway
Cloud computing gives businesses access to servers, storage, software and other computing resources without having to purchase and maintain all the equipment themselves. It can make it easier to grow, reduce upfront expenses and give employees access to the technology they need. Depending on the services you choose, it can also cut down on the amount of IT maintenance your business handles.
However, cloud computing still requires planning. You'll need to think about security, compliance, ongoing costs and how easy it will be to change providers.
Start by looking at the systems your business already uses and identifying where cloud services could make things easier or more cost-effective. That will help you decide what to move, which type of cloud service makes sense and whether the benefits are worth the investment.
Sources
- NIST — Final Version of NIST Cloud Computing Definition Published (SP 800-145)
- IBM — IaaS, PaaS and SaaS: Cloud service models, explained
- Cloud Security Alliance — Cloud Services Explained
- TechRepublic — Public vs Private vs Hybrid Cloud: In-depth Comparison
- Veeam — What is the Shared Responsibility Model?
- Scality — What is the Shared Responsibility Model?
- Gartner — Forecasts Worldwide Public Cloud End-User Spending to Total $723 Billion in 2025
