cloud-as-a-service

Cloud as a Service (CaaS) Business Model In A Nutshell

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.

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.

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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.

continuous-innovation
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.

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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.

cloud-computing
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-business-model
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.
paas-business-model
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.
what-is-saas
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:

aiaas
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.

Cloud As A Service business model case studies

C3.ai

c3ai-business-model
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

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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

google-cloud-business-model
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-business-model
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

ibm-business-model
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.
ibm-competitors
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-coin
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.

Read More: Cloud Business ModelsIaaS vs PaaS vs SaaS, AIaaS Business Model.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"