Cloud as a service is a business model that combines the cloud infrastructure delivered to customers as a subscription-based service, where the customer can access a cloud infrastructure without running it on-premise. Therefore, the whole premise of the cloud as a service business model is to offer a more agile cloud infrastructure at a fraction of the costs compared to on-premise software, and that can be scaled up according to the need of the business.
Table of Contents
The new software paradigm: from proprietary to on-cloud premises
By the early 2000s software paradigms shifted. From on-premise, heavy software infrastructure to online-based, cloud infrastructure. Indeed, the web enabled companies to start building a cloud infrastructure that could host other servers.
This is part of the agile transformation. Where software infrastructure is hosted online, much lighter, and based on continuous updates so that it can be quickly iterated, and improved, based on users feedback loops.
Source: agilemanifesto.org
This, in turn, brought also in the business world, to the phenomenon defined as continuous innovation, where business transformation is led by quick feedback loops between the company’s operations and its customers.
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problems and not the technical solution of its founders.
A further progression of this evolution is from a software-centered approach, where continuous innovation plays a key role, to a customer-centered approach; where continuous innovation coupled with continuous intelligence, dynamic technological stack, and continuous deployment and delivery become critical.
C3.ai explains how the software paradigm has further changed. From software-centric to customer-centric, where continuous innovation coupled with continuous intelligence, dynamic technology infrastructure, and continuous development and delivery become the key aspects of the whole software operations (Image Source: C3.ai financials)
The cloud industry in a nutshell
With the advent of the Internet, and the fact the web scaled globally, cloud computing became the main paradigm.
Establishing a robust infrastructure is the cornerstone of cloud computing. It often accounts for a third of the total amount spent on IT in a majority of businesses. Instead of taking computer workloads through the internal IT team, this traditional approach seemed to be long gone. Modern industries that embrace digital transformation with open arms gradually transfer systems into the cloud. Whether the information is on a private or public cloud, it offers increased security and safety against cyber threats. The result of increased cloud usage opens doors for cloud computing services provided by vendors and enterprises.
Cloud computing expresses itself in three main business models: IaaS, PaaS, and SaaS.
IaaS stands for infrastructure as a service. Together with other “as-a-service” models, the basic premise of this model is to offer a solution to the final customer without having to host it on-premise, with complex implementations and large overhead. The IaaS model provides virtualization, storage, network, and servers where the final user/customer will handle applications, data, operating systems, and run times.IaaS stands for infrastructure as a service. Together with other “as-a-service” models, the basic premise of this model is to offer a solution to the final customer without having to host it on-premise, with complex implementations and large overhead. The IaaS model provides virtualization, storage, network, and servers where the final user/customer will handle applications, data, operating systems, and run times.Software as a service (SaaS) is a model where a third-party provider hosts the infrastructure and applications and make them available through the Internet. This model leverages on web-based software and on-demand applications that run centrally on the server of the provider, while the company purchasing the service will use those applications based on need and without the upfront cost.
These models ended up creating a new trillion-dollar industry, which is behind most of the digital and tech companies existing in today’s business panorama.
This paradigm proved much lighter and way more scalable than the previous, on-premise, software paradigm. However, it’s important to remark that while the cloud enabled many small businesses to run very heavy software operations by relying on massive cloud infrastructures.
These cloud infrastructures are managed centrally, by a few key players (like Amazon AWS, Microsoft Azure, IBM Cloud, Google Cloud, and a few others). Therefore, the whole cloud infrastructure, powering up an entrepreneurial ecosystem worth trillions of dollars is also centrally managed by a few key players. Thus, making the whole system fragile.
Every software company will be an AI copany
As new algorithms are integrated within software products, an important trend is sharing the software world. of the 2020-the the 2030s is the transformation of software into AI-based workflows, in what has been called Artificial Intelligence as a Service:
Artificial Intelligence as a Service (AlaaS) helps organizations incorporate artificial intelligence (AI) functionality without the associated expertise. Usually, AIaaS services are built upon cloud-based providers like Amazon AWS, Google Cloud, Microsoft Azure, and IMB Cloud, used as IaaS. The AI service, framework, and workflows built upon these infrastructures are offered to final customers for various use cases (e.g., inventory management services, manufacturing optimizations, text generation).
In this new model, cloud players (like Microsoft, Amazon, Google, and IBM) integrate AI features within their platforms, so that whoever is picking up their services will also be able to leverage on an AI platform. This, in turn, is leading to the transformation of the “as a service” industry toward a consumption-based one. Where customers, beyond a subscription plan, will have the option to pay as they go. Thus, paying the use of the infrastructure, based on the consumption of the platform.
C3 AI is a cloud-based Enterprise AI SaaS company. It built a set of proprietary applications (known as the C3 AI suite) that offer its clients the ability to integrate digital transformation applications with fast deployment and no overheads. C3 AI makes money primarily via its subscription services and professional fees.
Microsoft Azure
The AI Ecosystem has generated a multi-billion dollar industry, and it all starts from data. Going upward in the value chain there are the Chips (GPUs) that allow the physical storing of Big Data (a dominant player is NVIDIA). That Big Data will need to be stored on platforms and infrastructures that SMEs can’t afford. That is where players like Google Cloud, Amazon AWS, IBM Cloud, and Microsoft Azure come to the rescue. At a large scale, a few corporations control the Enterprise AI market; while nations like China, the USA, Japan, Germany, the UK, and France have widely bet on it!
As you can see from the visualizations above, cloud players are manufacturing models and algorithms, that becomes an integrated part of their cloud-based offering and platform. This is what attracts more AI developers and companies to become part of the ecosystem, thus, in turn, consuming more cloud infrastructure.
Google Cloud
In 2019, Alphabet’s (Google) Cloud Business was an almost $9 billion unit within Alphabet’s Google overall business model; to gain a bit of context; Microsoft intelligent cloud netted nearly $39 billion and Amazon AWS $35 billion in the same year.
Amazon AWS
Amazon AWS follows a platform business model, that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon’s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.
IBM Cloud
Started in 1911 as Computing-Tabulating-Recording Company (CTR), called then International Business Machines by 1924. IBM primarily makes money by five segments (cognitive solutions, global business services, technology services, and cloud platforms, systems, and global financing) with also innovative products such as IBM Watson and IBM Blockchain.International Business Machines Corporation (IBM) is an American multinational technology company. It was founded in New York as the Computing-Tabulating-Recording Company in 1911 by Charles Ranlett Flint. IBM is a diverse company with a similarly diverse portfolio of products and services. It produces and sells hardware, middleware, and software. It also offers hosting and consultancy services in nanotechnology and mainframe computers. What’s more, IBM has a strong culture in research and development, filing the most U.S. patents of any business for the past 28 years.
Beyond Cloud As A Service and into decentralized data storage
The main weakness of the current paradigm is the centralization of the whole cloud-based industry (which today represents pretty much most of the digital and tech landscape) in the hands of a few, centrally managed players.
That is why blockchain-based business models are working toward a software paradigm that moves from centralization to decentralization. One example is Dfinity.
Dfinity is developing a decentralized computer cloud that is both stable and cost-effective. When successful, Dfinity will be housed in a wide-scale network of computers worldwide, powering the next wave of mega-apps, such as decentralized versions of Uber, eBay, and Facebook.
Whether or not this will prove viable, it’s important to work toward cloud-based models which can have a higher degree of diffusion to prevent the collapse of the whole cloud ecosystem, as it’s placed in the hands of a few players.
Key Highlights
Shift to Cloud Infrastructure: In the early 2000s, there was a transition from on-premise software infrastructure to cloud-based solutions. The advent of the web enabled companies to build cloud infrastructure to host various servers, facilitating agility and scalability.
Agile Transformation: Cloud-based software infrastructure allowed for continuous updates and quick iteration based on user feedback loops. This shift embraced agile methodologies, enabling companies to adapt and improve products rapidly.
Continuous Innovation: Cloud adoption led to continuous innovation, where business transformation is driven by rapid feedback loops between a company’s operations and its customers. Products and services are designed around customers’ problems rather than just technical solutions.
Customer-Centered Approach: The evolution continued from a software-centered approach to a customer-centered one. Continuous innovation, coupled with continuous intelligence, dynamic technological stack, and deployment, became critical for software operations.
Cloud Computing Models: Cloud computing introduced three main business models: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). These models allowed for offloading the complexity of on-premise hosting and provided more scalability and flexibility.
Trillion-Dollar Cloud Industry: The shift to cloud infrastructure created a new trillion-dollar industry, with key players like Amazon AWS, Microsoft Azure, IBM Cloud, and Google Cloud managing massive cloud infrastructures.
AI Integration: A trend emerged where software products incorporated AI algorithms, transforming software into AI-based workflows. This trend led to the rise of Artificial Intelligence as a Service (AlaaS), allowing organizations to integrate AI functionality without the expertise.
Cloud Players and Consumption-Based Model: Cloud providers like Microsoft, Amazon, Google, and IBM integrated AI features into their platforms, leading to a transformation of the “as-a-service” industry toward a consumption-based model. Customers pay based on actual usage of the infrastructure.
Cloud Service Case Studies:
C3.ai: Offers cloud-based Enterprise AI SaaS with proprietary applications for digital transformation.
Microsoft Azure: Part of the multi-billion dollar AI ecosystem, providing cloud infrastructure and AI services.
Google Cloud: Offers models and algorithms integrated into its cloud-based offerings.
Amazon AWS: Provides cloud services to enterprises and startups through a platform business model.
IBM Cloud: Diverse technology company offering cloud services, including innovative products like Watson and Blockchain.
Decentralized Data Storage: The centralization of the cloud industry in the hands of a few players is seen as a weakness. Blockchain-based business models, like Dfinity, aim to shift the paradigm from centralization to decentralization. Dfinity is working on a decentralized computer cloud for stable and cost-effective solutions.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
